Seer, Inc.
Q2 2022 Earnings Call Transcript

Published: 13 Aug 2022

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Seer Second Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator instructions] I would now like to turn the call over to your host, Carrie Mendivil. You may begin.

[Carrie Mendivil:]

Thank you. Earlier today, Seer released financial results for the quarter ended June 30, 2022. If you've not received this news release or if you'd like to be added to the Company's distribution list, please send an e-mail to [e-mail]. Joining me today from Seer is Omid Farokhzad, Chairman, Chief Executive Officer and Founder; David Horn, Chief Financial Officer; and Omead Ostadan, President, will join for Q&A. Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Forward Looking Statements in the press release Seer issued today. For a more complete list and description, please see the Risk Factors section of the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2022, and in its other filings with the Securities and Exchange Commission. Except as required by law, Seer disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is only accurate as of the live broadcast, August 9, 2022. With that, I'd like to turn the call over to Omid.

[Omid Farokhzad:]

Thanks, Carrie, and thanks, everyone, for joining us this afternoon. We continue to make strong progress across all areas of our business as we ramp our commercial footprint, expand our installed base on the Proteograph Product Suite and work closely with customers and key thought leaders. As the body of data expands to show the power of unbiased plasma proteomics at scale, we're driving our research and development road map to further advance the capabilities of our technology. We ended the second quarter with $3.6 million in revenue and more than $456 million of cash on our balance sheet, continuing to drive momentum in our business while remaining well positioned to execute on our multiyear strategic plan. Now more than 18 months since we started our phased commercialization and six months following broad commercial release, we're seeing accumulation of evidence that our technology addresses significant unmet needs. Across a wide range of research applications, our customers are seeing promising early results that they believe are unlocking biological insights never seen before. We expected that our customers' work would span discovery, translational and clinical research applications, and we are pleased to see an expanding number of customers undertaking projects in translational or clinical research relatively soon after acquiring the technology. To date, the majority of samples run by our customers are in clinical research and involve clinically relevant biomarkers. These projects span a wide range of complex diseases in studies across early cancer detection, biomarker discovery, aging and cell rejuvenation and the impact of environment on human health, among other applications. Now with that larger context, I would now like to share some updates on our execution against our five key objectives to drive growth in 2022 and beyond. As a reminder, these objectives are

[David Horn:]

Thanks, Omid. Total revenue for the second quarter of 2022 was $3.6 million, representing an increase of 171% compared to $1.3 million of revenue in the second quarter of 2021. The increase in second quarter revenue was primarily due to increased sales of the Proteograph Product Suite and its related products. Product-related revenue for the second quarter of 2022 was $3.5 million, including related-party revenue of $1.1 million, and consisted of sales of SP100 instruments, consumable kits and platform evaluations. Related-party revenue of $1.1 million represents product sales to PrognomIQ. Total gross profit, inclusive of grant and other revenue, was $1.6 million for the second quarter of 2022, representing a gross margin of 44%. As we have discussed, we expect gross margins to improve over time with increasing product volumes and continued cost reduction initiatives. We continue to target long-term gross margins between 70% and 75%. Total operating expenses for the second quarter of 2022 were $25 million, including $8.4 million of stock-based compensation, compared to $17.4 million, including $6.4 million of stock-based compensation, in the second quarter of 2021. Research and development expenses for the second quarter of 2022 were $10.9 million, an increase of 57% compared to $6.9 million in the second quarter of 2021. The increase in R&D expenses was primarily due to an increase in product development efforts related to the Proteograph Product Suite, including $2.6 million in employee compensation costs and other related expenses, including stock-based compensation, due to growth in research and development personnel and an increase in expenses related to the build-out of our facilities to support our R&D efforts. Selling, general and administrative expenses for the second quarter of 2022 were $14.2 million, an increase of 35% compared to $10.5 million in the second quarter of 2021. The increase in SG&A expenses was primarily driven by a $1.4 million increase in employee compensation and other related expenses and a $700,000 increase in stock-based compensation. Other increases are attributable to an increase in professional services and consulting fees and our facility expansion. Net loss for the second quarter was $22.8 million, compared to $16.6 million in the second quarter of 2021. We ended the quarter with approximately $456.1 million in cash, cash equivalents and investments and continue to be disciplined about our level of spend and the rate of return that we will earn on our deployed capital. With our extremely strong balance sheet, we believe we are well capitalized to execute on our strategic plan for many years to come. Turning to our outlook for the year. We remain focused on building our business over the long term and achieving our strategic objectives each year. We're encouraged by the feedback we have received from our customers as well as the breadth and quality of our pipeline. While we have managed to navigate the complexities of COVID, especially in China, and uncertain macroeconomic conditions globally, we remain cautious and vigilant as we aim to successfully navigate the coming months. With that said, we continue to expect revenue to be in the range of $14 million to $16 million in 2022. We realize the opportunity in front of us is significant, and we remain focused on thoughtfully deploying capital to develop the market for a first-of-its-kind technology that is opening new avenues of investigation into biology across a range of applications. At this point, I would like to turn the call back to Omid for closing comments.

[Omid Farokhzad:]

Thanks, David. We're at a pivotal time in proteomics. It is inspiring to support our customers as they generate data that is redefining what's possible in deep proteomics, enabling first-of-their-kind studies and opening up a new gateway to the proteome. I have never been more excited about the opportunities that lie ahead of us. With that, we will now open it up to questions.

[Operator:]

[Operator Instructions] Our first question comes from Derik De Bruin with Bank of America.

[Derik De Bruin:]

So a couple of questions. Just wondering, from your customers that have been doing experiments, what's sort of like the reorder time? Meaning, when they do an experiment and then they come back to do the next iteration of it, I'm just curious what's the time lag. How quick are the iterations in the experiment going on? Is there a lag as people are doing more data analysis? Is it taking more data analysis? Just give me a sense on what the turnaround time is between experiments.

[Omid Farokhzad:]

Sure. Omid here. So I think that depends on the customer type. As you remember, the number of customers are relatively small. So the point I'm going to make, it may change over time. So typically, a customer gets the Proteograph, runs a relatively small study, maybe in the tens of samples, to understand the platform, the way it operates. That data set then prompts them to get the resources to run a larger sample. It may be in the tune of many tens of samples or hundreds of samples. And then those samples get run and then the data analysis part of it that follows before they kind of build on. I would say a case in hand would be if you look at the way Oregon Health, for example, played out. They were the first customer to receive the instrument. They ran a relatively small, in the 10s of sample size, study that they then presented that at a conference. That formed the basis for them to secure the resources, which, by the way, is not just funding, it's also access to samples, because these sites are -- they don't necessarily have the number of samples, as you can imagine, ready to go. So they secured the funding and the sample to then run about a 1,000-sample study. That study took approximately just a little bit north of a quarter to complete and now they're in the data analysis part of it. So I would say that's probably representative of a robust customer if you can think about it. Now there are customers that are even more aggressive than that, if you would. A customer like PrognomIQ, obviously, knows the technology well. They hit the ground running with a large number of samples, and those study sizes have only grown and my expectation is they will continue to grow. The other point I would make there related to it is it's also a function of external data being presented. I think that's going to facilitate this for these customers to be able to access resources and also the samples to run. Progressively, we're seeing customers present data. So if you look at the most recent ASMS conference, 17 posters got presented

[Derik De Bruin:]

Got it. So just a couple of ones here. So is that $1.1 million run rate in PrognomIQ, is that a good sort of, like, number to use going forward for the next couple of quarters? Or are you expecting to see them scale higher?

[David Horn:]

Derik, it's David. PrognomIQ, if you look over time, what that related-party revenue is, and you're right that is all PrognomIQ, it's been fairly consistent. We do think, certainly our anticipation that it will continue. But again, it really depends on PrognomIQ and if at some point they decide to pause and do another, setup for another study or what. But we do have some visibility that it will continue at least in the short term. And again, it's something where we hope over time that that will continue to trend down a little bit just as an overall percentage of revenue as our non-PrognomIQ customer base grows. So that's -- again, it's been a strong pull-through from PrognomIQ, certainly. I would also caution you, Derik, that they're not like a typical customer, if you will.

[Derik De Bruin:]

Understood. Understood. So while I have you, what were the number of units sold in the quarter?

[David Horn:]

We're not going to give the quarterly units, Derik, as you know. We will give you kind of where we sit at the end of the year, as we gave you at the end of last year. But again, we feel good with where we are to being on pace for that.

[Operator:]

Our next question comes from Tejas Savant with Morgan Stanley.

[Neel Ram:]

This is Neel on for Tejas. Congrats on the launch of your proteogenomics workflow. Any color you can provide us what the early customer feedback and how you may anticipate this release to influence potential purchasing decisions or possibly pull forward some decision-making on the academic side, giving you longer sales cycles?

[Omid Farokhzad:]

I'm sorry. Can you, if you don't mind, just repeat your question one more time for me?

[Neel Ram:]

Sure. Just wanted to know about any early feedback on PAS 2.0 and how you anticipate it influencing sales cycles or potentially pulling forward purchasing decisions.

[Omid Farokhzad:]

Sure. Let me maybe answer the first half of it, which is what the PAS is and the feedback that we're getting, and then its implication maybe on the commercial. I might ask Omead to also provide an input on that. So first of all, the PAS programs really enable for the user to access proteogenomic content. So it gives them [workflow that] lets them get peptide-level information and match it against genomic data to identify sample-specific variants of peptides that's obviously a mechanism to identify variants of protein. And then these variants would not be present in canonical reference databases. So these are really new content that the PAS enables for the customer to get. And it's very easy to use. So this all gets presented in an interactive table plot. Visualization is very easy. It gives information in terms of where the peptide is in relation to its gene structure, the peptide domain, the functional regions. So it really kind of makes it very easy for the customer to be able to connect genomic information and functionalizing it at the protein variant level of information, at peptide- and amino acid-level resolution, at a scale that was previously not possible. And the customers find this really compelling. Omead, do you want to maybe comment on implication on the commercial side from a customer perspective?

[Omead Ostadan:]

Sure. We don't really see PAS 2.0 directly impacting our revenue for the balance of this year; in particular, because it was already -- it's currently included as a part of the overall Proteograph Product Suite offering. So for this year, we don't expect it to have any material impact. Suffice it to say, as more of these self-analysis tools come out, it makes the overall workflow simpler and more intuitive. And over the course of time, we would expect that is going to have a positive impact in both adoption and the rate at which customers can not only execute experiments but extract useful information out of it.

[Operator:]

Our next question comes from Dan Brennan with Cowen.

[Kyle Boucher:]

This is Kyle on for Dan. I wanted to sort of jump into the sales funnel here. In a slowing economy, have you noticed any delays or push-outs of any customer purchases to date? And maybe [after this], can you give us a sense for your confidence about getting to around 35 box placements this year?

[Omead Ostadan:]

So let me start on the first part of it. I mean, in terms of pushbacks or delays on the parts of the customers, I think overall, I would say, obviously, you've seen numbers for the first two quarters of the year. We've managed to execute, I would say, really well. Now that is in the face of just some real factors out there in terms of COVID, particularly in terms of the lockdown and the impact that has had in China, as well as macroeconomic issues that have played a role certainly, I would say, ex-U.S. more, but I think increasingly inside the U.S. I wouldn't say we have seen any material pushback in terms of purchasing decisions. But suffice it to say, these sales cycles are taking a lot of required focus on our part to make sure we execute on time. So, so far, we've managed to actually execute through those headwinds, I would say, quite well. And in terms of the boxes, I'll turn that over to David just so that he reiterate it. I think maybe perhaps reiterating what he was saying, that we're going to provide our number retrospectively at the end of the year, but we feel good about the overall plan that we laid out at the beginning of the year. David, do you want to comment on this anymore?

[David Horn:]

No, I think that's right, Kyle. Again, I think we feel good about where we are. But again, we're not going to provide any detail until probably the -- well, it will be the year-end call in February. So stay tuned.

[Kyle Boucher:]

Great. And then just one more on sort of the publication side. Can you just remind us what the big key publications we should be looking out for? And are you viewing these sort of incremental validation of the platform? Or could they be meaningful drivers to adoption?

[Omid Farokhzad:]

Got it. Kyle, Omid here. Look, we're seeing both an acceleration in the pace of presentations and publications both in terms of breadth of topics and also the number of presenting customers, right? So if you look at ASMS, for example, the number of posters, talks being presented by number of different customers, quite different than a quarter ago or two quarters ago. And I actually think that slope will continue to increase. As we head into the second half of 2022, we have another robust conference season, a number of presentations forthcoming at the American Society of Biochemistry and Molecular Biology, at the International Society of Mass Spec, at the ASAG, at the iHUPO. And you'll see talks, presentation from both Seer and Seer customers. Now similarly, publications are going to continue to increase as well. So as mentioned before, there should be a sea of publications coming in 2022. So I expect that to be out in the second half of the year. Similarly, we're now seeing at least a handful of customers with manuscripts that are now in preparation that are going to be submitted, and I expect a number of those manuscripts to be submitted in the second half of the year. So while I consider what's happening today in terms of both the pace and the quality to already be quite high and the insight that's gaining to be quite robust, I think that slope is just going to continue to be sharp in the upward direction, and I don't expect any slowing of that.

[Operator:]

And I'm not showing any further questions. I would like to turn the call back over to our host for any remarks.

[David Horn:]

Thanks, everyone. Appreciate you taking the time today, and look forward to being in touch.

[Operator:]

Ladies and gentlemen, this does conclude today's call.