Good afternoon, and welcome to the Sera Prognostics conference call to review third quarter fiscal year 2022 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 DeNardo of CapComm Partners for a few introductory comments.
Thank you, Danielle. Good afternoon, everyone. Welcome to Sera Prognostics third quarter fiscal year 2022 earnings conference call. At the close of the market today, Sera Prognostics released its financial results for the quarter ended September 30, 2022. Presenting for the company today will be Greg Critchfield, Chairman, President, and CEO, and Jay Moyes, 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 via live 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 or 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 Greg, Sera Prognostics Chairman, President, and CEO. Greg?
Thank you, Peter, and good afternoon, everyone. Today, I'll review some highlights on our execution during the quarter and review some expected upcoming release of clinical data and other developments. Sera Prognostics' vision is to deliver pivotal and actionable information to pregnant women, their physicians, and healthcare payers to significantly improve maternal and neonatal health and to meaningfully reduce healthcare costs. Toward that end, we are establishing a new paradigm in the care of moms and babies with our first-of-its-kind preterm test to determine the risk of spontaneous preterm birth so that proactive steps can be taken to improve health outcomes. The ability to improve these outcomes while decreasing escalating healthcare costs is particularly attractive to forward-thinking individuals and organizations who are seeking to find new methods to solve big healthcare problems.
A word on commercial progress on early adopter systems. Over the last couple of quarters, we've communicated that early adopter systems are a strong focus for us and that we have aligned our sales structure to pursue contracts cost-effectively with these types of organizations as a means to efficiently establish revenue while reducing these customers' financial burden for prematurity. We expect revenue growth to accelerate as we implement commercialization in these organizations during 2023 and later. One important example of organizations that tend to be early adopters is integrated delivery networks, IDNs, and our strategy is beginning to pay off. We recently announced teaming up with Banner Health to make Sera's preterm test available to its Banner – University Family Care/AHCCCS Complete Care members as part of the routine prenatal care they receive.
Through its integrated delivery network, Banner Health serves more than 300,000 Banner Health Access members in 10 Arizona counties and has a strong commitment to reducing the adverse consequences of preterm birth. Banner Health is also respected nationwide as an innovative leader in new healthcare models to optimize members' health and reduce costs. The beauty of working with an integrated delivery network is that there is a focus on making sure that all aspects of care for members are tightly coordinated, philosophically, administratively, operationally, clinically, and financially. Such organizations are committed to providing cost-effective solutions for healthcare services. Incentives can be more readily lined up to achieve that goal in such organizations. Given the health and financial consequences of prematurity, these kinds of organizations are well-situated to take advantage of the preterm test-and-treat paradigm.
As you can imagine, as preterm testing is deployed across these organizations, communications must take place with key stakeholders. For example, obstetricians, individual physician office staffs, IT administration, accounting, laboratories, and patient outreach services in order to enhance the effectiveness of rolling out Sera's life-changing preterm strategy. We believe that these efforts we are putting in place should accelerate revenues in the quarters and years to come, and the lessons learned in the early implementations can be applied to other systems. The Banner Health opportunity is also reflective of our keen desire to help solve healthcare inequity and disparities among lower income and/or underserved populations. This is an important initiative, which I'll touch on more in a moment. Specifically, a large number of Medicaid patients are covered under Banner's program, thus enabling these patients to have access to our preterm test and evidence-based preventive care.
Key analyses by outside parties continue to show the profound value that our test-and-treat strategy provides, as illustrated by our announced collaboration last month with Sonrava Health, a national family of health and wellness companies, which includes Western Dental & Orthodontics, and Cerebrae, recently renamed Accorded, an innovator in pricing and measuring the financial value of healthcare. Cerebrae Accorded is a leader in utilizing its technology platform that leverages actuarial and data science to accurately forecast financial risk and monitor a healthcare solution's performance. Working together, the parties were able to forecast the financial return on investment that inclusion of the PreTRM Test for Sonrava's employees and their growing families is expected to provide. The result was the inclusion of our test in their comprehensive maternity benefits package.
This serves as another strong endorsement of the clinical utility of the preterm test and the ability to reduce immediate and long-term treatment costs associated with premature birth when compared to routine care. Our commercial focus then is on early adopter systems, which include integrated delivery networks, managed care Medicaid plans, self-insured employers, hospital systems and selected large physician practices. These organizations are keenly aware of the fact that there are far too many babies born prematurely with significant short and long-term health challenges and costs. In this early period of commercialization, while we focus our sales efforts on these large early adopter organizations, we will be making selective announcements as permitted. A word now on healthcare disparities. I'd like to highlight aspects of Sera's long-term commitment and work to address healthcare disparities.
From the earliest days at Sera, we have ensured proper representation of underserved members of society across multiple U.S. and foreign sites that were involved in our studies to discover and validate world-class prediction and impact for preterm birth. The goal has always been to be inclusionary of disadvantaged populations of patients suffering health disparities to ensure that our biomarker predictions would have outstanding performance for those that need them the most. Early on, we made contact with the Gates Foundation, knowing that creating cost-effective biomarker solutions for preterm birth in low- and middle-income countries would also be very informative and helpful for the broadly diverse U.S. population. We have subsequently conducted validations of biomarker prediction for preterm birth in populations located in U.S., Europe, Asia, and Africa.
In our PRIME study recruitment efforts, we are currently including sites where preterm birth rates may be as high as double the average U.S. prematurity rate in order to better evaluate the extent of this problem and demonstrate the value of more proactive care solutions to underserved segments of U.S. populations, where the consequences of prematurity are most severe. A rigorous clinical utility economic analysis on applying this preterm testing to a diverse population was recently completed. We believe the data in this model will illustrate the clinical benefits and cost effectiveness of the test and treat strategies across individuals with diverse racial and ethnic backgrounds. This work is undergoing scientific review prior to its publication, and we will announce the results publicly when they are available.
As a consequence of all these efforts, Sera's preterm test is ideally suited to help make a difference in underserved patients who experience healthcare disparities here in the U.S. Our company is proud to have worked to create and now to commercialize the preterm test that we believe can have substantial value in addressing the adverse consequences of prematurity in these populations who need it the most. Now a word on the PRIME study recruitment. As a reminder, the PRIME study is a multicenter randomized controlled trial across 15 U.S. sites to demonstrate the impact of the preterm test and treat strategy on the consequences of prematurity. As enrollment continues, we are confident of having sufficient numbers of subjects across sites to enable the interim look analysis to take place in 2023. Now some color on our pipeline and sample collection improvements.
Beyond our growing list of contracting, contracted payers, we continue to make progress in developing new tests that will expand our robust biomarker pregnancy pipeline. We have successfully validated prediction for preeclampsia for blood samples drawn at the same time as our preterm test. We are looking forward to the public release of preeclampsia validation data before year-end. Sera's pregnancy prediction pipeline is on track with validations of other biomarker signatures as well. We believe that additional validated, proprietary biomarker signatures will further demonstrate the value of our technology platform and be the basis for future products to benefit moms and babies. Over time, we expect that this growing body of pregnancy products will support our growth in the years ahead and our reputation as the pregnancy company.
We are also pleased now to have successfully validated an ambient temperature blood collection transport system for preterm testing, which is expected to facilitate a larger number of sites where patients can have blood conveniently collected and sent to Sera's lab. This should also reduce our COGS, our cost of goods sold, by eliminating the requirement to use dry ice. I'll now turn over the call to Jay for a review of our third quarter financial results. Jay?
Thanks, Greg, and good afternoon, everyone. Today, I'll briefly review our financial results for the third quarter and provide some general commentary for our view through year-end. For the third quarter of 2022, we reported revenue of $87,000 compared to $23,000 for the third quarter of 2021. While it is encouraging to see such a year-over-year increase, we believe that the early adoption and traction Greg noted earlier will have a more significant impact next year. Total operating expenses were $11.3 million, up from $9.5 million for the same period a year ago. Research and development expenses for the third quarter of 2022 were $4.2 million compared to $2.1 million for the prior year period, due primarily to increased laboratory operations and clinical study costs.
Selling, general, and administrative expenses for the third quarter of 2022 were $7 million, up slightly from $6.7 million for the prior year period, due primarily to increased headcount as we scale commercial operations and general corporate infrastructure, as well as increased costs related to operating as a public company following our IPO in July 2021. Selling, general, and administrative expenses for the third quarter of 2022 significantly decreased from $8.5 million for the prior quarter due to steps we took to streamline our sales force during the quarter and focus our commercial strategy on early adopter systems. It is noteworthy that this significant decrease in SG&A did not negatively impact our revenue during the quarter.
Net loss for the third quarter of 2022 was $10.7 million compared to $9.9 million for the third quarter of 2021. As of September 30, 2022, the company had cash equivalents, and available for sale securities of approximately $111.2 million. We continue to believe this gives us an adequate runway into 2026 to pursue our strategy without raising any additional capital. As we approach year-end, we continue to believe that full year revenues will be less than $500,000, particularly given that December tends to be a slow month for testing.
That said, with a keen eye on controlling costs and what we view as improved testing volume in 2023 as we implement our early adopter system strategy, we anticipate accelerating revenue and lower cash burn over time. I'll now turn the call back to Greg. Greg?
Thanks, Jay, and thanks to all of you for attending our call today. While the scaling of our revenue takes longer than we like, we're happy to see some exciting trends among early adopter systems customers, which is solid, a solid proof point for our business. We believe this adoption will accelerate, and that our conversations with early adopter systems customers will result in additional contracts being successfully executed. Finally, we're very pleased, given the current macro market conditions, to have sufficient cash to execute on our plans over the years due to the excellent support of our investors. This helps us to achieve our vision to make a real difference in helping mothers and babies to lead better and healthier lives. With that, we will now open the line for questions. Operator?
We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. The first question comes from Patrick Donnelly of Citi. Please go ahead.
Hey, guys. Thank you for taking the questions. Greg, maybe one for you just on kind of the insurer conversations that are happening now. You know, it's nice to see, you know, a few contracts with self-insured employers, things like that. How do you think about the conversations currently? How many are saying, "Hey, we wanna wait and see, you know, at least the interim data from PRIME in 2023," versus those, you know, willing to move forward now with the data you've seen? Maybe just kinda pull that curtain back a little bit and kinda tell us how much-
Yeah.
Again, just trying to think about what that inflection could look like as PRIME comes out.
Yeah, that's a great question, Patrick. There are clearly groups now, and we count the IDNs as being in this group, who see the value of implementing clinically what can actually lead to cost savings. They're convinced this is why we're seeing groups like Banner very receptive to the idea of establishing preterm testing among pregnant populations. There are a number of them that are waiting to see additional data, and that's been something that we've been aware of for some time.
As readouts occur, as we have additional clinical data, we believe that the data readouts will in fact answer any remaining questions that anyone may have about the strategy and its ability to make differences in health and ultimately in economics. We're on the right trajectory. We see continued growth during next year. As we focus on systems are in good shape to be able to implement changes especially those that are more holistic in their outlook and where they're financially responsible for managing the disease conditions and health conditions across populations. Those are the ones that really take an interest because the economics speaks to them as a result of improving health.
Okay. No, that's helpful. You know, you guys obviously talked about the cash side a little bit, extending that. How do we think about the pace of hiring, where you guys are? You know, how do you balance the need to preserve cash and then obviously kind of continue to drive growth?
Yeah, it is. You hit the right word, it's a balance. The fact is, as we think about opportunities, we deploy personnel where we have identified opportunities that are there. That's clearly what we're doing. As we scale our operations, we look for regions, systems, and customers that are adopting. That's where we go where there's opportunity. With the hiring that we anticipate happening, we see growth in revenues occurring, but doing it in an efficient and cost-effective manner. That's why the earliest focus in our commercialization is really centered on these customer systems that are integrated to some degree. That's where you get the best bang for the buck.
Okay. Last one for me, just on PRIME. Can you just talk about, I guess, what hurdles are left in terms of, you know, things you have to do to execute on until we see the interim data? Just trying to think through, you know, the timeline, risks of slippage, and just that catalyst then over the next couple of quarters as we approach it. Thank you, guys.
Yeah. As has been the case in all clinical studies, there are challenges because of impacts of COVID. Staffs in universities have been reduced. It takes longer to get things done. I can happily report that we are being very successful in growing the number of sites and we are on track to reach our goal of having the interim look occur during 2023. You have to remember, in pregnancy, you can enroll patients, you can draw blood on patients in mid pregnancy, as we do as early as 18 weeks, but you still have to wait for the baby to be delivered to see what the outcomes are.
We're very confident with the sites that we have and the additional sites that we're in conversations with, that we'll be able to reach our goal of the interim look readout occurring sometime in 2023. That's the good news. This is being done in what is a very challenging environment for doing clinical research. Our team has done a great job and we're happy to see that we are on track.
Appreciate it. Thank you, guys.
Yeah, you bet, Patrick.
The next question comes from Andrew Brackmann of William Blair. Please go ahead.
Hi, guys. Good afternoon, and thanks for taking the questions. Maybe to start here, Greg, I think you mentioned that you should start seeing revenue starting to contribute a little bit more in Q4, and then as we move throughout 2023, especially from these IDNs. You know, not asking you for specific guidance here, but can you maybe just sort of give us some guardrails around how we might be thinking about that revenue progression, building throughout next year? Thanks.
I think that it's you have to be really careful when you make projections early on, as we are early on. It takes time when you sign on a new entity. Let's say we get another integrated delivery system like Banner. You have to talk with the constituents that are there. You have to bring them up to speed. Getting the contract is really the first step. There are a number of things that take place to actually have doctors order the testing and to penetrate the large numbers of patients that are extant in these systems. That's the way we think about it. We see revenue growth growing.
We haven't given any guidance about the numbers that are there, but it's useful to understand what is the potential size in terms of annual births, and then what is reasonable penetration occurs. It takes several months to penetrate these systems, but once you do, with a large number of systems, it can substantially contribute to revenue growth. That's what we seek happening as we move into 2023 and beyond.
That's great. Then, you know, some encouraging sort of commentary around the healthcare disparities and some data that sounds like you're making progress with there. Can you just maybe talk broadly about how you might be starting to use this, you know, as you move throughout 2023 in negotiations with payers and sort of their receptivity to that?
Yeah.
Thanks.
Yeah. I think Banner is an excellent first example. A large number of the members of the Banner University Health system, the Banner Access system, are actually Medicaid patients. Medicaid patients is a segment of the population that is challenged. Actually having a contract and working with those patients is a way that we can directly begin addressing health care disparities there. We also have conversations that are taking place with other managed Medicaid plans. I listed that as one of the types of organizations that we're really keen to work with, and those conversations are occurring in real time.
Once we begin implementing across Medicaid organizations, that will be a very strong point of focus and a strong proof point as we move forward over in the next few years. I'd say that Banner is really a good first step. There are many more to come after that.
Okay. Thanks, guys.
Yep.
The next question comes from Tom Stevens of Cowen. Please go ahead.
Hey, guys. Thanks for taking the question. Just to kind of follow up on Andrew's questions, kind of on-
The managed Medicaid plans. I guess what kind of data do people need to see before you can kind of really enter those kinds of plans? Is that maybe two years post a positive PRIME readout? Somehow would be useful there. Then just talk about the number of annual births you could potentially be exposed to today. Where does that sit after you know this series of IDNs and self-insured employer-insured programs? Thanks.
Yeah. We previously talked about the large number of pregnancies that occur in systems that are integrated that includes IDNs that includes you know large hospital networks and others. The number of patients is extremely large. It's well over 200,000 if you look at those. Medicaid itself, 42% of births occur in Medicaid patients. 42% of 3 million gives you a very sizable group of patients that can be offered the PreTRM Test. I do not see it taking two years beyond the PRIME readout. Again, we already have managed Medicaid plans that are interested.
One of them has already signed on with us, and the implementation of that one as the first one is going to be an example for others. I see it happening sooner than two years down the road after PRIME. Once the results are out, once we have more implementations. By the way, some of the organizations that we're talking to, the integrated networks, are going to be publishing the results of applying the technology in their plans. That will be additional evidence that will be out there that will convince other people of the value of the preterm strategy, what it can actually do in terms of health improvements and economics.
Great. Just to follow up on that doctor education point, I guess.
Yeah.
You know, as your sales team kind of goes out and speaks to doctors after these implementation IDNs, what's their major sticking point for potentially not ordering the test and kind of how are you guys addressing that?
Well, I think that one of the important things that needs to be done is to give the physicians the wherewithal to follow up with patients who have positive tests. There are efficient ways of doing this. They are being explored not only by IDNs but also by physician groups. One of the questions that physicians ask is, how do we do this? How do we incorporate this into our workflow? There are ways to do this, and we're finding ways that are implementable and there will be examples of these as we make future announcements. You'll see examples of how this happens.
The field of prematurity is a complicated field, but there's no question that our stratification can actually find patients who have higher risk. Nearly 90% of spontaneous preterm deliveries are detected by our tests. Being proactive in managing those patients does have benefit. People are looking for publications that show that intervening makes a difference. We already have proof from our first randomized controlled trial that reported out. There are additional trials that we'll be reporting out. As those data become known, our belief is that people will not be hesitant in understanding the benefits of being proactive when you can actually identify the patients that otherwise are invisible to the way that medicine is currently practiced.
Good stuff. Just one small kind of, I guess, modeling point. Talking about kind of guardrails for next year. Have you given a number on the number of annual births you would currently be exposed to just given the lives covered in the plans you have online today?
No, we haven't done that. I'll just give you the top-line numbers. There are approximately 3 million pregnancies that are candidates for our PreTRM Test. Slightly over 3 million, okay? As we look at it, this is a modeling tip that will help you. The U.S. birth rate is approximately 12 per 1,000 individuals. So if you know the size of the organization in terms of insurance, you can do rough estimates by using that of the number of pregnancies that occur annually. Again, as we bring people on, it's important to know that it takes some time once you get a contract to actually penetrate that contract. It takes time to do that and get the pull-through that's required.
That gives you an idea of the sizes. Some of the organizations that we've talked to are happy to have us publicize that they've signed a contract, others aren't. From those that we've actually mentioned, you get a sense of the size of the number of people that are pregnant a year, and that gives you some insights into how you can model this pretty carefully.
Great. That's really helpful. I'll get back with you.
Yes. Thanks. Thanks, Tom.
As a reminder, if you have a question, please press star then one. The next question comes from François Brisebois from Oppenheimer. Please go ahead.
Hi, this is Dan on for François Brisebois. Thanks for taking the question.
You bet.
Just a question on the early adopter systems that are coming on board, like Banner and Sonrava. Are you starting to see an uptick in interest from peers, as you anticipate the ramp-up in 2023? Are you seeing any commonalities?
Yes, we are. Yeah. Here's some color. As you know, with the effects of the pandemic and the current economic challenges that we face as a country, there's intense competition for talented employees. Having benefits packages that include advanced benefits for pregnancy is a way to attract and to retain very talented women. There's no question that the payers are attuned to or that the self-insured employers are attuned to this. About 64% of U.S. companies have some form of self-insurance. As people see these announcements and learn about others doing it, the conversations are increasing. We're having a number of conversations with self-insured employers who see the benefits of actually offering superior care for women who are pregnant. That's clearly the case.
They mimic each other in some ways, and some of them want to be leaders, and that's why they step out and do it before others. Clearly this has value for them.
Great. Maybe just another one on PRIME. You mentioned 15 centers. Just wondering how the enrollment has been going. Do you still need to hit the target of 2,800 by year-end for the interim look in 2023?
Yeah. The key was to have approximately 2,800 by year-end. What I can tell you is the real important part of that was sufficient to enable the interim look to take place in 2023. We are on track with that, and we're excited about that.
Great. Just a last one on the pipeline. Could you add some color. Sorry if I missed this, but could you add some color on the ambient temperature blood sampling that you talked about?
The origin of the work that we did in the earliest days was to see if we could build a predictor that would predict the event spontaneous preterm birth. We did not know which biomarkers would work. We collected specimens in a very pristine way and snap-froze the serum that was sent into the laboratory. In the earliest days of Sera, that has been the process for commercial samples as well. It is a process that requires centrifugation followed by freezing and then shipping. We have a new way that we will be deploying, and we're very excited about it. We validated that the collection works, the results are equivalent. It's exciting to see this because the cost will go down.
Dry ice is in shorter supply than it's ever been. Some of that is because of the pandemic that has occurred. Now going to ambient temperature collection, there are more offices that can draw blood. There are more sites that can do it. They can do it more efficiently, and it costs less money. We're very excited about rolling that out. During 2023, you'll see a bigger rollout of that technology as we make that the predominant way that samples are collected.
Great. Thanks for taking my questions.
You bet.
This concludes our question and answer session. I would like to turn the conference back over to Peter DeNardo for closing remarks.
Thank you, Danielle. This concludes the call. We look forward to providing an update on our business when we report fourth quarter 2022 financial results. Thank you and good afternoon, everyone.