Seer, Inc. (SEER) Q1 2022 Earnings Call Transcript

Seer, Inc. (SEER -1.66%)
Q1 2022 Earnings Call
May 04, 2022, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day and thank you for standing by. Welcome to the Seer, Inc. first-quarter 2022 earnings conference 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] Please be advised that today's conference is being recorded. [Operator instructions] I would now like to hand the conference over to your speaker today, Carrie Mendivil, Investor Relations. Please go ahead. 

Carrie Mendivil -- Investor Relations

Thank you. Earlier today, Seer released financial results for the quarter ending March 31, 2022. If you have not received this news release or if you'd like to be added to the company's distribution list, please send an email to [email protected]. Joining me today from Seer is Omid Farokhzad, chairman, chief executive officer and founder; Omead Ostadan, president; and David Horn, chief financial officer.

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 here 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 ending March 31, 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 accurate only as of the live broadcast, May 4, 2022. With that, I'd like to turn the call over to Omid.

Omid Farokhzad -- Chairman, Chief Executive Officer, and Founder

Thanks, Carrie, and thanks, everyone, for joining us this afternoon. We had a strong start to the year as we further ramp our commercial efforts, expanded our installed base and made tangible progress across all areas of our strategic plan. These efforts led us to close the first quarter with $3.3 million in revenue and continued growth in our installed base. I'm particularly excited by the growing body of customer data, demonstrating in a concrete way the unique capabilities of the Proteograph Product Suite to provide proteomic insights at a depth and scale that was previously not possible.

We've not seen presentations at conferences from the Broad Institute, Oregon Health & Science University, Sanford Burnham Prebys Medical Discovery Institute, Protein Metrics and PrognomIQ. To date, there have been more than 40 public presentations on Seer's technology with four more coming up in June at ASMS, and we expect an increasing number of abstract data and presentations as more customers not only adopt the technology but scaled their use of the platform. Given the growing demonstrations of customer use of the Proteograph, coupled with the forthcoming advances on our platform, have never been more confident about our ability to become the definitive tool leader in proteomics. To reach this ambitious goal, we have a strong balance sheet and are well capitalized with more than $470 million of cash, which we believe will support us as we execute on our multiyear strategic plan and enable us to build a durable organization that will drive meaningful impact on the trajectory of science and medicine.

We're focused on five key objectives to drive growth in 2022 and to set us up for growth long term: first, supporting customers with an industry-leading onboarding experience while helping them to systematically scale their use of the Proteograph Product Suite for projects of increasing size and scope; second, expanding our installed base of instruments; third, continuing to build out our commercial capabilities, geographic footprint, and team; fourth, driving our product road map and exploring more applications for our proprietary engineered nanoparticles in 2022 and beyond; and fifth, expanding our partnership efforts, focusing on extending our global reach, making it even easier for customers to access our technology and serving an increasingly diverse customer base. Now let me give an update on our progress across a few of these objectives. Most importantly, let's start with how our customers are using the Proteograph and review some specific examples of the progress they're making. It has been incredible to get the Proteograph Product Suite into the hands of customers.

The customer experience with the Proteograph Product Suite has been excellent across key metrics, including installation and validation, training and ease of use, reproducibility, quantification, and sensitivity. In addition, with our automated assay, customers have the ability to capture proteins across the vast dynamic range in different biosamples with peptide-level resolution deciphering various proteoforms. I'm also excited by customers' data and interest in exploring the capabilities of our system to go beyond human plasma, including model organisms such as mouse, pig, bovine, and other species. Importantly, this flexibility to analyze across species type, whose biosamples have species-specific protein structure, demonstrates the inherent power of the Proteograph product to be used with different applications without the need to develop a new specific panel of nanoparticles.

In addition, customers are excited by the Proteograph data on biosamples beyond plasma, including CSF and secreted proteins and cell culture. Finally, seeing customers integrate the Proteograph with other downstream proteomics technologies, such as tandem mass tag also called TMT, demonstrates the versatility of the Proteograph to work with a variety of mass spec protocols. Now I'd like to move to two examples of the Proteograph performance that customers are sharing in conferences. A recent adopter of the Proteograph found that our product consistently and simultaneously achieves an unprecedented depth of coverage and throughput compared with methods that must trade-off between depth of coverage or throughput.

In their hands, the Proteograph robustly identifies more than twice as many cytokines with high throughput via an automated workflow. And importantly, this is happening at a 1% false discovery rate. The ability to detect higher numbers of cytokines and other low abundance signaling molecule enables researchers to reproducibly and comprehensively probe molecular phenotypes, such as the immune state of individuals. We expect this data to be presented at the upcoming ASMS Conference in early June.

At the American Association of Cancer Research, also called the AACR, conference in April, PrognomIQ presented data from one of their ongoing oncology studies. In a cohort of 212 subjects utilizing the Proteograph, their researchers were able to identify more than 5,000 proteins and hundreds of glycosylated proteins in a single experiment. The simultaneous detection of native and glycosylated versions of the same peptides enabled the analysis of differential expression of protein versions to detect association with disease progression. This demonstrates the uniquely enabling resolution of the Proteograph Product Suite and the types of studies at scale that it will open up across markets.

While PrognomIQ and OHSU have been the fastest to move to at scale studies, each with cohorts of 1,000 or more samples, we're seeing the time to ramp vary across customer sites. Customers generally go through three steps as they ramp their studies, each of which can vary in terms of duration. First, as they onboard the technology, they increase their familiarity with the Proteograph and train their staff. Most of our limited release customers have completed this step and our initial broad release customers are beginning this process now.

Next, they typically perform pilot studies to expand their hands-on use of the technology and to fine-tune their study design to answer specific biological questions. And finally, they will take those learnings to ramp up the studies of unprecedented scale designed to unlock new biological insights. While OHSU and PrognomIQ are examples of early adopters, there are also other customers who may be less familiar with at scale proteomics workflow. And for those customers, the velocity of scale-up may be more protracted.

We're building the support model to support customers of all types across this scale-up curve. Now let me turn to our growing installed base. There's a growing interest and a palpable excitement surrounding the Proteograph Product Suite across a wide range of customer types and applications. During the first quarter, we began our broad release phase of commercialization and delivered the first of three systems to customers around the world.

We now have customers up and running across North America, Europe and Asia, including China, where we continue to work through COVID constraints. While these constraints did not have a material impact on us in first quarter of this year, as restrictions continue in China, they do introduce some temporal uncertainty for our customers, prospective customers and partners in this region and challenge our ability to access the country with our own personnel. We continue to be encouraged by both the quality and quantity of prospects in our growing pipeline of roughly equal mix of academic and commercial sites. We expect our pipeline to grow as we expand our hiring around the world and bring the Proteograph Product Suite and its benefits to more customers.

While interest is strong across customer types, we continue to expect our early adopters to be more heavily weighted toward commercial settings, given their ability to move more quickly than academic institutions. As the first of its kind technology that is still in the early stages of commercialization, we continue to see third-party data is an important component of the sales process. While it takes time for this party of data to grow, customers are inclined to undertake proof of principle studies, which I'll refer to as POPS. These POPS are typically small in size in the terms of sample size, but provide a volume and depth of data that customers are rarely have been in a position to access and analyze.

While highly pleased with the data, prospective customers intend to interpret the data, leverage the insights and imagine what is possible using the Proteograph Product Suite. As the adoption curve grows and data from existing customers continue to increase via presentations and publications, we expect POPS studies to become less important in the sales process in the future. As we continue to develop the market, exemplify the power of the technology and to educate the customer base, we continue to be encouraged by our interaction with prospective customers. In addition, we are working to make it easier for them to adopt the Proteograph Product Suite in the following ways.

First, we're providing one-on-one education, making it simple for them to integrate the technology into their specific workflows. Second, we're connecting them with experienced users performing similar applications. We continue to leverage our early collaborators and limited release customers as important reference sites for this purpose. And finally, we're helping existing customers to produce data that serves as an independent third-party validation of the technology.

Now moving on to our commercial progress. As we ramp commercialization of the Proteograph Product Suite, we continue to expand and strengthen our world-class team. Our team is the key to driving our business, and we have made large strides in attracting top-performing passionate people at Seer. As of the end of 2021, we had expanded our team across key functions, such as sales, product marketing, field application scientists, field service engineers and support, as well as building core processes and infrastructure to support a diverse and geographically distributed customer base.

In a very competitive global talent market, we continue to prioritize recruiting the best talent, and we expect to significantly grow this team by year end. In mid-March, we welcomed Scott Thomas as our chief commercial officer. Scott has spent over two decades with increasing commercial responsibilities in life sciences industry, including 11 years at Illumina. He has run commercial organizations in North America, Europe and Japan, building teams, launching products and expanding geographies.

We're thrilled to welcome Scott and expect his leadership and breadth of commercial experience to help us accelerate long-term commercial growth, build a globally differentiated customer experience and nicely complement our talented executive team. Let's now move on to the scientific evidence confirming the breakthrough nature of our technology. In mid-March, we announced the publication of a seminal paper in the Proceedings of the National Academy of Sciences, or PNAS, that demonstrates our technology's ability to widen the aperture to the proteome and its vast molecular information. This paper was published by an interdisciplinary team of scientists from Seer, Oregon Health & Sciences University, Massachusetts Institute of Technology, and Harvard Medical School.

The paper examines in detail the relationship between the unique physical chemical properties of the panel of proprietary-engineered nanoparticles and the diverse pattern of protein sampling that is enabled by this panel. This protein sampling is driven by a unique tunable and reproducible nano-bio interface that is created between a given nanoparticle surface and a given biological sample. The Seer machine-learning model describes in this paper can be used to enhance the molecular interactions that occur at the nano-bio interface and to design future nanoparticles to differentially interrogate specific protein families. The technology platform simultaneously achieves an order of magnitude gain in median depth of protein coverage, twice as much higher precision, 2.5 times protein identification and significant improvement in throughput when compared to a traditional deep workflow, such as depletion or fractionation.

We're proud of the growing data and excited about what is to come this year at the scientific conferences. We're looking forward to several presentations at the upcoming American Society of Mass Spectrometry conference in early June, including multiple customer presentations. We're at a pivotal time in proteomics field. As the experience of our customers with the Proteograph Product Suite expands, we look forward to more of their data and findings becoming public, expanding the third-party demonstration of the unique capabilities of the Proteograph Product Suite and the insights that can be gained by interrogating the proteome deeply at scale and without limitations to prescribed targets.

These data will redefine deep proteomic methods, enable first-of-its-kind studies and open up a new gateway to the proteome that will be accessible to labs of nearly any type around the world. With that, I will now turn the call to David for a financial update.

David Horn -- Chief Financial Officer

Thanks, Omid. Total revenue for the first quarter of 2022 was $3.3 million, compared to $62,000 in the first quarter of 2021. The increase in first quarter revenue was primarily due to an increase in sales of products related to the Proteograph Product Suite. Product-related revenue for the first quarter of 2022 was $3.2 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 $1.2 million for the first quarter of 2022, representing a gross margin of 38%. As a reminder, in 2022, we expect gross margins will be dampened due to an anticipated larger percentage of instrument sales, a significant reduction in service and grant revenue and our continued investment in and scaling of our operations, resulting in higher overhead absorption. We continue to target long-term gross margins between 70% and 75%.

Total operating expenses for the first quarter of 2022 were $25 million, including $8.1 million of stock-based compensation, compared to $16.6 million, including $6 million of stock-based compensation in the first quarter of 2021. Research and development expenses for the first quarter of 2022 were $10.7 million, an increase of 73%, compared to $6.2 million in the first quarter of 2021. The increase in R&D expenses was primarily driven by 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 $1.9 million related to the expansion of facilities, maintenance and depreciation of laboratory equipment. Selling, general and administrative expenses for the first quarter of 2022 were $14.3 million, an increase of 39%, compared to $10.3 million in the first quarter of 2021.

The increase in SG&A expenses was primarily driven by a $2.4 million increase in employee compensation and other related expenses, including stock-based compensation. Other increases are attributable to costs related to being a publicly traded company, including a $1.5 million increase in professional and consulting fees related to accounting and audit services. Net loss for the first quarter was $23.6 million, compared to $16.4 million in the first quarter of 2021. We ended the year with approximately $472 million in cash, cash equivalents and investments and continue to be thoughtful 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 2022. We are confident in the market opportunity for the Proteograph Product Suite and expect revenue to be in the range of $14 million to $16 million. As we have previously discussed, we expect revenue for 2022 to be more heavily weighted to the back half of the year as we continue to work through the natural sales cycle for disruptive technologies and ramp the productivity of our growing commercial team.

As a reminder, the key factors that are part of the sales cycle are continuing to build market awareness of the Proteograph Product Suite, continuing to educate potential customers on the breakthrough nature of our technology and its unique capabilities, and helping customers access robust proof-of-principle data sets ahead of adoption. We remain focused on building our business over the long term and achieving our strategic objectives each year. At this point, I'd like to turn the call back to Omid for closing comments.

Omid Farokhzad -- Chairman, Chief Executive Officer, and Founder

Thanks, David. Unlocking the power of the proteome will only be possible through deep unbiased profiling of the proteome at scale. This has not been possible with previous methods and is the path forward in driving novel biological insights to transform our understanding of human health and disease. As we move forward in pursuit of our vision this year, we will continue to drive execution against our core strategies.

We're paving the way for a portfolio of products that will open up a new gateway to the proteome. I look forward to sharing updates of our progress over the course of this year. With that, we will now open it up to questions.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Tejas Savant from Morgan Stanley. Your line is now open.

Neil Vibhakar -- Morgan Stanley -- Analyst

Hey, this is Neil on for Tejas. So I just want to start on commercial sales. You previously mentioned that sales in SKU commercial, given the shareholder cycles versus academic customers. Is that still trending accordingly? And have you seen any lengthening of sales cycles from biopharma customers with all the noise around funding concerns?

Omead Ostadan -- President

Yes. This is Omead Ostadan. So far, yes, the sales are more heavily weighted toward commercial versus academic. And as we had mentioned to you previously, we expect that to continue for some period of time to a large extent because commercial entities typically go through a different set of funding cycles and are much more able to make decisions on a short-term basis.

So yes, more heavily weighted toward commercial versus academic, and I would expect that to continue at least through the balance of this year, if not leading into next year. And we are not seeing anything that is outside of what we had expected in terms of the buying cycle with biopharma. Again, keep in mind, the numbers are small. We are still early in broad commercial release, but we're not seeing anything with respect specifically to biopharma that is outside of what we had expected coming into the year.

So hopefully, that answers your question.

Neil Vibhakar -- Morgan Stanley -- Analyst

Thank you. And as a follow-up to that, on the demand funnel, is that still trending 50-50 between academic and biopharma customers?

Omead Ostadan -- President

More or less, yes. Yes, exactly.

Neil Vibhakar -- Morgan Stanley -- Analyst

Got it. And then one more from me. So on the product road map, you previously mentioned initiatives, such as increasing throughput, increasing content and reducing sample volume requirements. Any progress you can share on these fronts or when we might expect to hear some updates on that end?

Omid Farokhzad -- Chairman, Chief Executive Officer, and Founder

Neil, thanks so much. So I think I'll be able to -- this is Omid Farokhzad. I'll be able to give you more details on the next product, I would say, toward the second half of the year. As I had highlighted before, customers' needs or customers' asks were in the areas of increasing content while decreasing the required sample volume and then increasing throughput.

And by the way, keep in mind, that the throughput increases will come at the level of a detector, not so much at the level of the Proteograph. And so those asks are, in fact, areas of R&D investment for us. And you can imagine that the subsequent products and then the products that follow it reflect basically those needs of the customers. We've guided to have at least one new product coming up, and you can expect a new product in the second half of the year.

That product will address some of the requirements for the customers and then the subsequent products, the additional needs that the customers are going to be addressed.

Neil Vibhakar -- Morgan Stanley -- Analyst

Got it. That's very helpful. Thank you.

Operator

Thank you. Our next question comes from the line of Derek De Bruin from Bank of America. Your line is now open.

Nisarg Shah -- Bank of America Merrill Lynch -- Analyst

Hi. This is Nisarg on for Derek. So to start on cash, where do you expect to end 2022 from a cash balance perspective?

David Horn -- Chief Financial Officer

Sure, Nisarg. This is David Horn. And so as you saw in the release, we ended March 31 with $472 million in cash. And as you note, we feel really good about where we are with respect to a cash position.

I would point to the metric we track is free cash flow, which is operating cash flow plus capex. And this quarter, we've earned about $20 million. And so we feel pretty good about where we are. We are going to be -- continue to be prudent with our outlays and always mindful of earning an attractive rate of return on any capital we are deploying.

So we feel good about where the balance is and where we are for the rest of the year. But we're not giving guidance on where we're going to end cash balance, but I think you can look at the first quarter and feel that we've got plenty of cash for many years to come.

Nisarg Shah -- Bank of America Merrill Lynch -- Analyst

Great, thank you. That makes sense. On opex, can you talk a little bit more about like the pacing for this year? How can we think about the back half of the year? As you guys have been saying, the revenues are expected to kind of increase there. And also a little bit of color on -- in terms of instruments versus consumable kits looking toward the rest of 2022 would be helpful too.

David Horn -- Chief Financial Officer

Yes. So in terms of the investment, we have said -- we reiterated our guidance of $14 million to $16 million. As we've also said, we expect the majority of that revenue to be in the back half of the year. And so we will continue to invest to obviously realize that additional revenue in the back half of the year.

We are continuing to build the commercial organization. So I think we ended the year end with a commercial organization of approximately 30 people, and we will continue to expand that over the course of the year. So again, continued investment in some critical areas across the organization. So I think you will continue to see spend continue to increase along with revenue, although, again, we are being very mindful of that.

And I think you'll see us be prudent about that. So really being thoughtful about how we increase that spend over the course of the year. And then in terms of the instrument versus consumable I think was your second question. We do -- as we've said, we feel that over the course of the year, it probably will end up being around close to 50-50.

It may be a little bit more skewed toward instruments. But again, I think the thing to keep in mind is that we -- most of the limited release customers that we placed at the end of last year won't really -- it takes people probably kind of nine to nine-ish months approximately to really start to ramp. And so we really won't see the benefits of the consumable pull-through again toward -- until the back half of the year. But again, hopefully, that's helpful color for you.

Nisarg Shah -- Bank of America Merrill Lynch -- Analyst

Yes, great. Thank you so much.

Operator

Thank you. Our next question comes from the line of Daniel Brennan from Cowen. Your line is now open.

Kyle Boucher -- Cowen and Company -- Analyst

Hi, good afternoon. This is Kyle on for Dan. Thanks for taking my question. So I'll lump these two together here and then hop back in the queue.

So I just wanted to ask about your sort of go-to-market strategy with heavy mass spec users. Can you sort of walk through your commercialization strategy in terms of who are you targeting first? And what pushback, if any, are you getting from customers as you try to engage with them? And on that note, on the publication side, how should we think about the timing of some of these publications. And are there any, in particular, that people are really looking for to drive adoption? Thank you.

Omid Farokhzad -- Chairman, Chief Executive Officer, and Founder

This is Omid Farokhzad. Let me break that up into two questions really, and I'll tackle the second part of it first and then the first part of it second. So you may have seen that we recently published a paper in the Proceedings of the National Academy of Sciences. And this actually followed the previous publication from Seer in Nature Communications.

You can expect another paper toward the second half of the year. This would be in another top-tier journal. And by that, I mean journal with very high impact factor, which is the way quality of journals are typically measured. There may be another paper that also comes on top of that in the second half of the year, but if not, kind of beginning of the next.

We have, by the way, put these papers in print in bio archives, so you're welcome to read them. But those papers are now under peer review. On top of that, we've now had over 40 different presentations at conferences, posters, abstracts and then most recently talks coming up as well, not just from Seer but also from Seer's customers. You can expect the slope of those presentations to increase as the installed base and the number of customers increases.

So for example, if I just look at what is happening just in the first five months of the year relative to, let's say, the first five months of the year last year, there's a dramatic increase in the number of presentation that's happening from Seer and the Seer customers. And we're seeing progressively the tilt being that these presentations are coming from the Seer customers as they get experience with the instrument. So now let's go back to your -- the first part of your question, which is the go-to-the-market strategy. How do we present the solution to the mass spec users? And by the way, not just the mass spec users, if you look at our customer base, there are a number of customers that are genomic customers with literally very little experience, if at all, with a mass spec who adopted the Proteograph Product Suite and then later either implemented a mass spec or get the mass spec down to their core facility.

But what I want to do is I want to turn it to Omead Ostadan to give you kind of a deeper picture of what that commercial strategy looks like and how that has played out over the course of the last 12-plus months through the three phases of our commercialization strategy.

Omead Ostadan -- President

Thanks, Omid. So just building on what Omid Farokhzad said. If you recall, our strategy was and continues to be to start with the collaboration phase, which we commenced in late 2020, have that lead into a limited release phase, which span essentially the entirety of 2021. And that was very much focused on selecting what we call lighthouse customers among a set of key markets/applications, some of which are deeply embedded in, I would say, traditional proteomics, others of which are actually turning much more toward genomics and multiomics. And we really wanted to spend a broad spectrum where people were looking to and were capable of doing large-scale proteomics and/or multiomic studies where we believe the unique power of the Proteograph can help them advance their understanding the biology in a far more accelerated way.

And then we're building on that by starting into our broad commercial release, which commenced at the onset of this year. And so systematically, we're essentially trying to build one phase on top of the other. And so far, I think we've been very pleased with both the progress of each of those phases and, most importantly, the experience of the customers with the technology once it's in their hands and they're generating data. In terms of pushback, quite frankly, I'm not qualifying anything as a pushback.

But as you would expect with any technology, there are areas where customers would like to see some enhancements and improvements, most of which Omid already covered as he was describing some of the technology improvements that you can expect coming in the back end of this year and obviously moving forward. So far, I would say, in a nutshell, very pleased with the acceptance of the technology across the three phases of our commercialization. So hopefully, that answered your question.

Kyle Boucher -- Cowen and Company -- Analyst

Definitely. That's great. Thank you.

Operator

[Operator signoff]

Duration: 37 minutes

Call participants:

Carrie Mendivil -- Investor Relations

Omid Farokhzad -- Chairman, Chief Executive Officer, and Founder

David Horn -- Chief Financial Officer

Neil Vibhakar -- Morgan Stanley -- Analyst

Omead Ostadan -- President

Nisarg Shah -- Bank of America Merrill Lynch -- Analyst

Kyle Boucher -- Cowen and Company -- Analyst

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