Sera Prognostics, Inc.

Good afternoon and welcome to the SARA Prognostics conference call to review third quarter fiscal year 2024 results. At this time, all participants are in listen-only mode. We will be facilitating a question and answer session toward the end of today's call. As a reminder, the 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' third quarter fiscal year 2024 earnings conference call. At the close of the market today, Sarah Prognostics releases financial results for the quarter ended September 30, 2024. Presenting for the company today will be Jenya 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 at seraprognostics.com. This call can be heard live by a webcast at seraprognostics.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 files 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 call over to Zhenya, Terra Prognostics President and CEO. Zhenya?

Thank you so much, Peter, and good afternoon, everyone. We're solidly executing our plan for the year to support increases in test adoption and revenue. This plan, which we've communicated previously, focuses on publication of our clinical trial results, building awareness of preterm birth screening risks and serosolutions, increasing payer coverage, making it easier to access our test, putting scalability in place to harness that growth. Once established, these prerequisites are expected to be the engine of our growth, fueled by the critical need we can and will fulfill in improving maternal health care outcomes for mothers and babies. Following the publication of our positive avert preterm trial results on the front cover of the July issue of the International Peer Review Journal Diagnostics, we are eagerly pursuing publication of prime results. As we discussed last quarter, we're now seeking publication of these results in the key pregnancy and maternal health conferences in the spring, and a manuscript submission to a high-quality peer-reviewed journal. The AVERT publication solidly demonstrated that the health risks of babies can be improved in asymptomatic pregnant mothers without typical risk factors. We believe publication of the final prime clinical study results could prove even more compelling in supporting the benefits of our preterm test coupled with a test and treat program. We logged our database a few weeks ago and are actively working towards publication and abstract submissions. We will update you as more news becomes available on our progress. While we await this further evidence to become available, we've made progress towards other prerequisites that are required to grow our business commercially. Before I lay out updates to our commercialization progress, I'd like to take a moment to detail how significant the healthcare problem is that we are addressing. and how it represents a huge opportunity for Sarah to affect positive change. One in 10 babies is born prematurely in the United States, and that is increasing. In fact, a recent CDC study found the rate to have risen 12% between 2014 and 2022. However, most Americans, about 71%, are unaware that the rates of infant mortality are higher in the US than in other developed countries. Furthermore, Sixty percent don't know that the U.S. has the highest rate of maternal mortality among such developed countries, and about one in four Americans incorrectly believe it does not. This shows the extent of the clinical problem and lack of awareness among consumers. And we can do better, certainly for one of the most innovative and advanced countries in the world. Toward that end, we can truly make a difference through education, awareness, and SARE's unique technology to solve this growing problem. We have doubled down on engaging all of our key stakeholders. For example, we've enlisted expert consulting advice on the best strategies and tactics to reach payers through preparing strong evidence in our ongoing dialogue with payers. As I mentioned in our last call, we've initiated and are continuing education programs with the leading platform for U.S. medical professionals with more than 80% of United States doctors and 50% of nurse practitioners and physician assistants as members. The first campaign had great engagement across a series of three targeted emails. The first email had an open rate of 9%, the second, 48%, and the third and final, 70%. If you know anything about email marketing, these were stellar results and show that our message is resonating and was effective. Armed with the AVERT publication, we began a second campaign on this platform around mid-October, and after just a few days, the data indicated that 9% of our targeted contacts were deeply engaged. We believe these types of campaigns will be a key component of physician demand generation going forward. Beyond reaching out to physicians to create broad awareness, including among consumers, We also have now activated our TV campaign with programs Viewpoint with Dennis Quaid and Empowered with Meg Ryan. These programs are expected to be distributed to public television stations in all 50 states and in over 84 million homes via MSNBC, CNBC, CNN, or similar networks, broadly supporting Sarah's goal of informing the public about our preterm test and how it can drive improved pregnancy outcomes. Adding to this, we have been executing social media and email campaigns to broaden our product visibility to build adoption across our defined sales channels. Effective October 1st, we made the preterm test available for order from our website for home delivery of the collection kit, where expectant mothers can use our new ambient whole blood collection kit and mail it to Sarah's lab. Following the confirmation of the order by a physician, Patients will receive the results to be discussed with their healthcare provider. Time Magazine highlighted this broadened access to the preterm test we made available through the CERA website in October, and we're pleased with that exposure in this broadly distributed publication. Complementing this is, of course, our awareness campaign to encourage consumers to ask their physician about the test or to seek it out on their own via our website patient portal. we've already received a lot of interest following making preterm available for ordering online. In comparison to last year in September, our preterm.com site saw a 227% traffic increase. We are excited by the channel opportunity it presents, and we have implemented patient access programs that we believe will enable more mothers to get the test. Beyond these implemented programs in the commercial front, while exercising great care in where we're spending money on staff and technical growth activities, we have selectively strengthened our capabilities in revenue cycle, sales and marketing, market access, regulatory, staff members. This is the result of bringing on a few key hires and consultants focused on enabling future growth. Furthering our strategy to build relationship with women who are pregnant or planning to become pregnant, We've shared with you before our plans to launch an education tool which leverages predictive analytics to inform expectant mothers about risk factors of preterm birth. I'm pleased to know that this tool is now in beta testing. It is a website where women can explore informative reports based on the data from millions of pregnancy experiences and glean personalized insights into pregnancies like theirs. This will not only educate them on likelihood of outcomes based on different pregnancy characteristics, but also establish awareness of seroproduct offerings and roles serosolutions can play in leading positive change in addressing birth health risks. We believe these predictive analytics tools could have a standalone value as a product, but also may be a powerful digital front door to our biomarker testing products. We will continue to develop our time-to-birth product, and with multiple offerings for pregnant moms, this portfolio will allow us to generate multiple journeys to SARA solutions for pregnant moms. Let me now take a moment to discuss care guidelines, which are an essential part of delivering the benefits of preterm to identify mothers at risk and addressing riskier pregnancies through better informed care. The development of guidelines takes time, For example, in the case of American College of Obstetrics and Gynecologists, or ACOG, their development of clinical practice guidelines is a process that typically spans 24 to 36 months from initial topic selection to final publication. So we've spent considerable time reviewing past guideline changes to prepare for meetings with stakeholders and policymakers next year. This has been well informed by consultants and key experts, and we're convening the right groups and focusing on what matters the most, the quality of our evidence and data. When prime results are published paired with the awareness campaigns we've already launched and more in the pipeline, we believe we will be fully ready to further engage with the medical community in helping set the guidelines and standards of care necessary to support healthier babies among those at risk. Hand in hand with making progress towards care guidelines is making sure that we continue to have solid quality and rigor in our testing and lab processing from a regulatory standpoint. As many of you know, the FDA published its final rule on laboratory-developed tests in late April. This rule has already seen some legal challenges by various parties. While the outcome of this may not be known until at least the first quarter of next year, we have been taking steps to ensure preterm remains compliant. As a result, we have expanded SARA's expertise to prepare for engagement with regulatory authorities and are confident in our prior quality controls and reliability of test outcomes. In summary, to date, this has been a very busy year for SARA with successful execution of our stated goals thus far to back our growth plans. There is more to be done, but we are pleased with our progress and fortifying our commercial organization to ramp revenue when all necessary prerequisites for growth are aligned and we are ready to expand sales and shareholder value. Now, I'll turn the call over to Austin for a finance update.

Thanks, Jenny, and good afternoon, everyone. Let me review our financial results for the quarter. Afterward, I'll briefly touch on our view of managing operating expenses while investing where we need to such that once our prerequisites have been achieved, we can begin accelerating towards revenue growth. Net revenue for the third quarter of 2024 was $29,000 compared to $42,000 for the same period a year ago. Our plan for the year has called for making very careful, cost-effective, and select investments that we believe will drive commercial sales to a higher magnitude in future quarters, and this quarterly revenue level reflects that plan accordingly. With that in mind, total operating expenses for the third quarter of $8.9 million were up 8% from $8.2 million for the same period a year ago. Net loss for the quarter was up 10% to $7.9 million, compared to $7.2 million for the third quarter of 2023. About two-thirds of the increased operating costs and net loss year over year was due to an increase in non-cash stock compensation expense due to our higher stock price. Adjusting for this, our costs and net loss were relatively flat year over year, with only a modest 3% increase. Research and development expenses were $3.5 million and approximately flat with the third quarter of 2023. Selling general and administrative expenses for the third quarter were $5.4 million and up from $4.6 million for the same period a year ago due primarily to our selected investment in anticipated growth drivers, costs associated with filing our shelf registration, and increased stock compensation expense. As of September 30, 2024, The company had cash, cash equivalents, and available for sale securities of approximately $74.3 million. In 2024, a gross cash expense is expected to be less than $30 million, with many of our expenses focused on evidence generation, building foundations for scalability and awareness, making select investments in market broadening opportunities, enhancing some of our commercial capabilities, and product development. As we begin planning for the year ahead, we are targeting gross cash expenses to remain under that threshold, while we began allocating more towards commercial activity than in 2024. Therefore, with the projected year-end cash balance of approximately $68 million, we believe we have cash into 2027 before assuming any future revenues.

Operator, we can now 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 touchtone phone. You will hear a prompt to indicate that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys.

One moment, please, for your first question. Andrew Brackman from William Blair, please go ahead.

Great. Good afternoon. Thanks for taking the questions. Hi, Jenya. Hi, Austin. Maybe on your comments related to sort of the timing precedent here for guidelines. First, could you maybe just clarify your timeline expectations here for preterm? And I guess secondly, I know a lot's not in your control with respect to these guideline bodies actually moving it through their own processes, but can you maybe sort of talk about the levers that are in your control and how you're ensuring to make that process go smoothly and hopefully quickly?

Definitely. Thank you so much for your question, Andrew. Good to hear you. ACOG frequently looks at other guideline bodies, for example, in this case, a Society for Maternal and Fetal Medicine, SMFM, to inform their position. And there is an existing ACOG bulletin with guidelines, so they will not be developing it from white space, de novo, it would be a consideration for an update, which frequently starts with a commentary letter on a publication. That would be the first meaningful milestone to look out for. Society for Maternal and Fetal Medicine typically comments on 20, 30 publications a year. We are excited about prime results and we, of course, will be eagerly waiting to see the reaction of the society to our results as the first green shoot. The common next milestones would include practice advisory or a practice bulletin. Those usually come later as the questions from the community to the society come up on what is the position of the society on care guidelines of this innovation. We think, again, we don't have a crystal ball, unfortunately, but we think that that will come in time. But, of course, it will start with a key milestone, prime peer-reviewed publication. Until that event, we don't expect any significant signals from the societies, SMFM or ACOG. We should also consider and are developing strategies for other USPS task force, for example, and we'll keep the community updated on our progress towards these. Overall, the number one lever is the quality of our data, Andrew, to your question, what can we control? And that's why we invested so much in our pivotal prime study to make sure that the quality of that evidence, the quality of the analytical methods, the input we got, and the work of the PIs in that study will speak for itself to the guideline setting body influencers.

Terrific. And then I just want to go back to your comments sort of around your discussion or ongoing discussions with payers. Can you maybe just sort of talk to us about this at a high level? I guess from your perspective, what gets them across the finish line here? Will it be prime results? Will it be something else? It seems to me that this is a test that sort of makes common sense for them to bring under coverage. So in your view, what sort of gets them to move there? Thanks.

Absolutely. Program Minimum is a quality peer-reviewed publication, which PRIME will be, and of course, coupled with AVERT, it will be really strong evidence base for the potential of preterm test and treat program. Second, of course, is the economic modeling. Here, we're very fortunate to have a few tools to make available for payers, Number one, of course, is Elevance modeling of their own population that delivered results, published results of $1,600 of savings per member tested on about 40,000 members they've modeled. Our partners, Elevance, will also be modeling economic impact on the prime study subjects that were Elevance members. And that will be additional evidence that will absolutely be considered by all the other payers reviewing the preterm test for coverage. We also put together a model we'll make available as we begin discussions with all of the payers where they can put in their own cost of care and members' characteristics so that they can see what covering preterm test can do for their cost of care reductions and cost savings, as well as the potential to improve care in some of their Medicaid plans. So those two key levers will be absolutely essential. And as you can imagine, we're working very hard on a great peer-reviewed publication of Prime. And as I described, we have a really strong economic evidence to put in front of payers. With that, I think... There will be particular payers, and we are happy to talk more about that next quarter, that will jump on the opportunity for cost of care savings early. Others will follow. It will be a process over many years, but we hope that that process will start robustly post-prime publication.

Perfect. Thanks for taking the question. Thanks for the question, Andrea.

As a reminder, should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt to indicate that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two.

Again, should you have a question, please press the star followed by the one on your touchtone phone.

There are no further questions at this time.

I'd now like to turn the call over to Xenia Lindgaard for final closing comments.

Thank you, Operator. Thank you so much, everyone, for attending our call today. We look forward to the expected publication of our Pivotal Prime clinical study results and continuing to propel our company towards commercial success. Although we have plenty of work to do in the final weeks of 2024, this has been a great year for Serip Agnostics, and we thank our shareholders for their support. I'll now turn it back over to the operator to conclude the call. Operator?

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.