Sera Prognostics, Inc.

and welcome to the SARA Prognostics Conference call to review second quarter fiscal year 2024 results. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session toward the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Peter DiNardo of Capcom Partners for a few introductory comments.

Thank you, operator. Good afternoon, everyone. Welcome to Sarah Prognostics' second quarter fiscal year 2024 earnings conference call. At the close of the market today, Sarah Prognostics released its financial results for the quarter ended June 30, 2024. Presenting for the company today will be Zhenya Lingard, President and CEO, and Austin Ayers, our CFO. During the call, we will review the financial results we released today, after which we will host a question and answer session. If you've not had a chance to review our quarterly earnings release, it can be found on our website, serapognostics.com. This call can be heard live via webcast at serapognostics.com, and a recording will be archived in the Investors section of our website. Please note that some of the information presented today may contain projections or other forward-looking statements about events and circumstances that have not yet occurred, including plans and projections for our business, future financial results and market trends, and opportunities. These statements are based on management's current expectations, and the actual events or results may differ materially and adversely from these expectations for a variety of reasons. We refer you to the documents the company follows from time to time with the Securities and Exchange Commission, specifically the company's annual report on Form 10-K, its quarterly reports on Form 10-Q, and its current reports on Form 8-K. These documents identify important risk factors that could cause the actual results to differ materially from those contained in our projections and other forward-looking statements. As a reminder, a webcast replay of this call will be available on the Investors section of our website. I will now turn the caller to Xenia, TheraCognostics President and CEO. Xenia?

Thank you so much, Peter, and good afternoon, everyone. We're pleased with our progress at this point in the year against our strategic goals towards positioning therapy future growth in test volumes and revenue. As we shared last quarter, we've been focused on publication of our important, overt, and prime clinical study results, getting regulatory approvals for innovations we rolled out for our preterm test collection and processing methods, building awareness of our capabilities to help improve patient care and outcomes, And lastly, improving overall access to our products through patient and physician education and rolling out the improved collection methods, all of which are important steps for building scalability. We believe by executing these steps, we will achieve the prerequisites we've shared before that should be the key cornerstones for increasing adoption and overall recognition of SARA's unique capabilities, building payer coverage, fostering development of care guidelines, facilitating revenue growth, and better profitability, growing shareholder value. One of these cornerstones we've recently celebrated completing was the publication of our positive avert preterm trial results in the International Peer Review Journal Diagnostics, making the front cover of the July issue. Publication illustrated that our preterm test and treat strategy demonstrates statistically and clinically significant improvement in neonatal health outcomes and hospital length of stay. Specifically, the results indicated four key findings. First, an 18% reduction in severe neonatal morbidity and mortality. A seven-day reduction in mean neonatal hospital length of stay for babies within the longest hospital stays. For those babies born before 32 weeks, the test and treat strategy led to increased average gestational age at birth by two and a half weeks. and also a 28-day reduction in neonatal length of hospital stay. The number of expectant mothers needed to be screened to save one NICU day is between three and four, all of which we are really excited by, knowing that babies are born later and leave the hospital earlier and healthier. In publicizing such remarkable results, The manuscript also reported the neonatal morbidity and mortality and hospital and NICU length of stay were significantly reduced in the entire intent to treat population. Our test and treat strategy was associated with decreased odds of preterm birth and spontaneous birth at various gestational ages across and along with a reduction in NICU length of stay. I want to emphasize this key point. Keep in mind that the AVERT preterm trial results demonstrated that the health of babies can be improved in asymptomatic pregnant mothers without typical risk factors by a combination of biomarkers for spontaneous preterm birth risk and targeted interventions. So, not surprisingly, with the advent of diagnostics publication highlighting these results, We were also pleased that several publications, such as Health News, Contemporary OBGYN, the number one red publication in the field, Forbes subsequently picked up the important overt news. Coverage like this can heighten our visibility among the key stakeholders, such as payers, physicians, patients, guideline-setting bodies, and the investment community. July was a good month for us because shortly before COVID, This key of work news, we also celebrated Sarah being added to the Russell 2000 and 3000 indices following conclusion of the 2024 indices annual reconstitution, bringing additional investment firms and investor visibility to our company. I'd like to give some insights into the publication process for the prime study and what we've been up to since we announced stoppage of the trial for efficacy in December 2023. In Q2, we initiated submission of a manuscript reporting the interim results with a very prestigious journal. The results were strong, and the reviewers underscored the importance of data that we were expected to bring in the full print study data set, which is expected to be available next month, but were not planned to be analyzed in the interim data set. As such, we've decided to work on manuscripts for each of these data sets and target one or more publications that maximize the impact of the results for adoption of preterm tests. Should the results be ready in time and if a manuscript is accepted, we may seek publication and connection with the key pregnancy and maternal health conferences in spring 2025. As a reminder, this timeline enabled by closing the study early due to the interim look success is still up to one year earlier than if we had continued the study as originally planned. With our solid AVERT results being published and the PRIME results pending, we're actively engaging with guideline-setting bodies to help them develop care guidelines that leverage our study findings for improved pregnancy outcomes. We believe that publication of AVERT and PRIME will further promote the benefits of our test and treat strategy and that, coupled with establishment of care guidelines, should support broadened care coverage and patient and physician adoption. With that, we definitely will need to ensure we have suitably broadened availability of our tests and our ability to scale in processing higher test volumes once that occurs. In our last call, we announced that the first kits enabling ambient whole blood collection were shipped to customers, and we're happy to announce that since that time, we've begun receiving commercial samples from those kits and processing them in our lab. We're extremely excited about the benefits of those kits, namely improved physician and patient access to our test, significantly lower cost of goods, and significantly increased lab capacity, all of which enhance the scalability of our product and improve the unit economics of our business in anticipation of an inflection point in our commercial success. I'm also pleased to share that just a couple of weeks ago, we received conditional approval from the New York State for our preterm test utilizing this new collection method. This allows us to offer the new, simpler, dried blood collection method in addition to our previously available dried serum option to all customers nationwide and is an important validation of the quality and regulatory rigor of our testing. In terms of commercial development and strategy, we're focused on several cost-effective means of educating physicians regarding the benefits of preterm and developing inroads for care management. This is inclusive of our direct outreach and well-defined digital marketing programs to build awareness across physicians, patients, and payers. First, we've partnered with a leading professional medical network and digital marketing platform to promote and avert test and treat educational campaign. This is the leading platform for United States medical professionals with more than 80% of US doctors and 50% of nurse practitioners and physician assistants as members. we have provided the platform key information about AVERT to enable it to develop and utilize a well-articulated educational program to targeted members of its user base. Approximately 22,000 healthcare practitioners have been targeted to date with final campaign results showing a high level of what they classify as deep engagement, with 23.4% of targets deeply engaged. These results are rather encouraging and illustrate the significant need for better care information that AVERT can support. Coupled with that campaign, we've also been executing a direct physician multi-channel education program. This includes direct outreach to current customers about the ease of our whole blood collection kits and converting them to that more cost-effective test collection process, which is expected to expand availability and our test profit margins over time. We are also developing social media and email campaigns to broaden awareness and eventually enable electronic ordering of preterm kits. which will allow patients the benefit of collecting blood with a simple finger prick at home without having to go to a phlebotomist. The availability of these new kits is also allowing us to explore the ability to target and eventually penetrate certain U.S. states that have a high rate of preterm birth where patients' maternity health care needs may be underserved. We plan to share more on this initiative later once certain agreements are in place. Further to the physician education campaigns I discussed a moment ago, we're also looking forward to the airing and distribution of our planned TV programs, Viewpoint with Dennis Quaid and Empowered with Meg Ryan. We anticipate that just before year-end, these cost-effective programs in documentary format will be distributed to public television stations in all 50 states, and short commercial segments featuring Sarah are also expected to be broadcast during prime time in over 84 million homes via MSNBC, CNBC, CNN, or similar networks. This will broadly support our goal of informing the public about our test and treat offering and how it can support improved pregnancy outcomes. To leverage our latest data, we've updated the economic model showing the preterm value proposition to payers. We've retained a specialist consulting firm to help us communicate the strength of our offering to payers across the country. This is the leading market access platform and advisory firm for a number of biopharma, diagnostic, and medical device companies and provides unique capabilities across a wide range of coverage and reimbursement issues, from pricing and distribution to patient support services. Their insights will help inform our strategy to cost-effectively further penetrate the market we serve while deploying our capital in a carefully targeted manner best suited to harness the most bang for the buck in growing preterm adoption. We believe this multi-pronged approach towards building awareness and adoption through highly targeted and cost-effective channels will afford us many shots on goal to grow our business over time. In conclusion, we're delighted to have published our overt study results and look forward to executing an additional cornerstone in development of our company growth once we achieve publication of our pivotal prime study. We still have lots of work to do this year, but step by step, we're achieving one by one all of the necessary prerequisites to drive a step change in our revenue trajectory in 2025 and beyond. While we haven't given you a deeper update on our new product, and will do so in our next call, but did want to mention we're making great progress and are alpha testing our predictive analytics product and are getting ready to share data on time to birth product prior to its launch. Now, let me turn it over to Austin for a finance update.

Thanks, Jenya, and good afternoon, everyone. Let me review our financial results for the quarter and also briefly review our thinking around managing operating expenses and ensuring we have the continued balance sheet strength to achieve our future revenue goals. Net revenue for the second quarter of 2024 was $24,000 compared to $123,000 in the second quarter of 2023. As noted last quarter, this revenue level is consistent with our carefully optimized investment in commercial activities while we focus on the prerequisites we need to have in place prior to any commercial expansion that could accelerate test volumes in 2025 and beyond. In the first half of 2024, we continue to manage our cash toward what we believe are the best investments that could optimize revenue growth over time. We have exercised careful expense management following the right sizing of our cost structure last year as we have focused on building our evidence portfolio and accomplishing the other key prerequisites to success. With that in mind, total operating expenses for the second quarter of $9.3 million were down 20% from $11.6 million for the same period a year ago. Net loss for the second quarter of 2024 was $8.3 million, down 21% from $10.5 million for the second quarter of 2023. Research and development expenses were $4.4 million and up about 19% from $3.7 million for the second quarter of 2023 due primarily to product development costs. Selling general administrative expenses for the second quarter were $4.9 million and down 38% from $7.8 million for the same period a year ago, again as a result of our efforts to reduce expenses while managing toward revenue growth in the future. Looking ahead, we will continue to exercise strong fiduciary management of our expenses, protecting our strong cash position while also beginning to invest in suitable commercial opportunities that may result from achieving the prerequisites that are expected to drive revenue, such as steady publications and improved market awareness of preterm. As of June 30, 2024, the company had cash, cash equivalents, and available-for-sale securities of approximately $80.9 million. As previously stated, we have budgeted cash operating expenses of around $26 million in 2024, and our current gross burn rate is still less than that on an annualized basis. As we've stated before, we believe that our cash will last us well into 2027. We do not have a near-term need to raise capital given the current length of our runway. We also understand the uncertainties of the current and future capital markets environment. So to maximize our flexibility regarding cash and simply as a matter of good corporate housekeeping, today we have filed an S3 registration statement and entered into an at-the-market or ATM sales agreement with TD Cowan. It should be noted that this is the first regular filing date where the company has been eligible to file the S3. Operator, we can now please open the call for questions.

Thank you.

Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Questions will be taken in the order received. Should you wish to cancel your request, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any case. Once again, that is star one should you wish to ask a question. Your first question is from Andrew Brackman from . Please ask your question.

Andrew Brackman Hi. Good afternoon. Thanks for taking the questions. First, just congrats on publishing the AVERT results. That's exciting to see. But maybe can you just sort of talk about some of the feedback that you've received across the different stakeholder groups following that publication? And just how are you sort of thinking about including this feedback in your discussion with payers, guideline bodies, any commercial opportunities going forward? Thanks.

Andrew, thank you so much for the question. We are excited and received very positive reaction from stakeholders across the KOL payer and guideline setting body communities. The payer community was most excited to see the data that came out of AVERT that shows the economic benefit as well as clinical benefit in NICU day savings. I highlighted it in my prepared remarks that to save one NICU day from the data that we see, the number of expectant mothers that are needed to be screened is only three to four, which means that at the current cost of a NICU day in the United States, which ranges pretty widely depending on the level of the NICU, between 4,000 per day to up to 20,000 per day, makes it really easy for the payers to realize significant savings by deploying the preterm test and treat strategy within the six months of deploying the test and the expenditure. So that has been really heartening, and we are engaging with more and more payers this fall to showcase the updated economic models on the basis of our data. Happy to report more in the next quarterly conference as these conversations continue.

Perfect. Thanks for that. And then maybe as my follow-up, just on the infrastructure and the organization as a whole, as you're working towards what's the hopeful inflection in volumes and revenue in 25 and beyond, can you just sort of talk about maybe some areas of the organization where you might feel the desire to invest a little bit more ahead of that inflection, any specific needs or color that you want to provide there? Thanks.

Definitely. So the couple of key areas we've started beefing up already is specifically our key account management. We've brought additional capacity there. MSLs, medical science liaisons, to start engaging with physicians deeper around the new data. Last but not least is operations about the revenue cycle and, of course, collections as we start operating at a greater scale. There is more to say about additional capabilities we will bring for new products, but I will reserve that infrastructure support that we're bringing in when we talk more about our upcoming launches.

Perfect. And then if I could just sneak in one more here. Thanks for all the color around what you're working on in order to get sort of the prime results published here. Can you maybe just sort of review what's in your control there in terms of sort of the data, working through the data and what's not in your control and sort of in order to get it published in the timing there? Thank you.

Great question. It really tees up my answer. As we're engaging with the editors, and as you know, it's a back and forth process, the questions came up about the exploratory analyses that are typically reserved for the final data set. So what's not in our control is when that data set becomes available. That has been planned in the coming months, and as soon as it becomes available, we will continue the dialogue responding to the reviewer comments around the additional data that was requested. What is in our control is meeting the timelines for, for example, abstract submissions for the upcoming spring conferences. We'll do our very best as soon as data becomes available. And, of course, engaging with the journals to make sure that we can get the data out as quickly as possible and respond to their comments.

Great. Thank you so much.

Thanks again. Thank you. Your next question is from Dan Brennan from TD Cohen. Please ask your question.

Hi. Thank you for taking my question. My first question is just kind of like to what extent do you expect a product in the pipeline, be it like preeclampsia or time to birth tests, to contribute to your revenue? And I have one follow-up.

Absolutely, Dan. To a great extent. If the question behind the question is what portion of revenue, let's say three years from now, do we expect to come from preeclampsia or time to birth product, that's probably too early to say. We still expect the lion's share of the revenue three years from now to come from preterm. However, we do expect meaningful contribution from new products. That's why we're investing resources in it in this really critical for preterm year for SARA. Does that help?

Yes, thank you very much, yeah. And then I forgot to mention this is William and for Dan, but my follow-up would be, could you just remind us your estimated COGS per test outlay on preterm and to what extent your ACMS approach would reduce costs from the prior workflow?

Yeah, absolutely. Austin, do you want to jump in on that?

Sure, I'll take that one. Thanks for the question. So we aren't disclosing exact prices, but our COGS in general are sort of right in line with what you expect from diagnostics. company those sort of margins are sort of right where we're where we're operating with our current or i should say our old cogs we do think our the reductions that we've made from the new sample collection and lab process are seeing at least 35 to 50 or 50 or more reduction from where they were so we already had uh really great margins uh but you know further reductions of 35 to 50 maybe even 60 percent are sort of what we're expecting

Got it. Thank you very much.

Thank you. Once again, ladies and gentlemen, please press star 1 if you wish to ask a question.

Once again, that is star 1 should you wish to ask a question.

There are no further questions at this time.

I will now hand the call back to Jen Millengård for the closing remarks.

Thank you so much, operator, and thank you all for attending our call today. Publication of our keyword study and the receipt of the New York State conditional approval of our whole blood collection method are solid steps forward this quarter to executing on our prerequisites to prepare for revenue growth. And we look forward to sharing more with you on our progress through the rest of the year. I'll now turn it back over to the operator to conclude the call. Operator?

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.