Sera Prognostics, Inc. (SERA) Earnings Call Transcript & Summary

Thank you for coming. We're going to kick things straight off. We have a full day. First panel of the day is the Future Of Genetic Testing, Babies and Beyond. We're lucky to have with us today a great panel: Katherine Stueland from GeneDx; Zhenya Lindgardt from Sera Prognostics; and Stephen Kingsmore, from Rady Children's. Before we kick things off, we have different touch points in the patient journey here from post birth to prebirth. And so I'd ask each of the panelists to introduce him or herself and where you play. So Katherine, we'll start with you.

Wonderful. And thank you for having all of us. We're excited to kick off the day talking about babies and the future of how genomic medicine can really help prevent the progression of disease. So I'm President and CEO of GeneDx, spun out of the NIH 24 years ago. And today, our focus really is on trying to diagnose any genetic disorder as early as possible. The vast majority of children who have genetic disease today go through what's called a diagnostic odyssey. So these families are going to many different doctors. They're having several different tests over the course of 6 to 8 years, which is quite expensive. It's arduous on these families, and all the while, disease is progressing. And then they finally hopefully get to a place where they get a genetic test and a genetic diagnosis. And that is, as I said, over the course of 6 to 8 years. Today, we can diagnose genetic disorders within days and weeks. So that is an unnecessary odyssey for these families to be on. And our goal, as I said, is to really diagnose as early as possible. The vast majority of our focus is on utilizing 2 products. One is whole exome sequencing, which is predominantly used in the outpatient setting for children with anything from epilepsy to autism to other missed milestones and other rare conditions, including hearing loss, cerebral palsy and otherwise. We're starting to really put more of a focus in the NICU to be able to diagnose babies using whole genome sequencing in the NICU. So our focus really is in those settings, being able to provide clinically actionable information within days and weeks and be able to connect to them ideally with an FDA-approved therapy or a clinical trial or with other families who are going through a similar sort of odyssey.

And sticking with the post-birth theme, Dr. Kingsmore?

Thanks, Dan. Great to be here. Hi, everybody. I'm an MD. I've been kicking around genetics all my adult life. Now I find myself in San Diego just south of here running a research institute at Rady Children's Hospital. We invented this thing called rapid diagnostic genome sequencing about 12 years ago. At that time, I was in Kansas City. We did it in collaboration with Illumina. We set 2 Guinness World Records. And today, we continue to offer that to 103 children's hospitals around North America. And it's all about the practice of medicine, this changing of practice of medicine from being pre-genomic to genomic. So ideal conference to come to. I'll tell you more. It's exciting.

And we'll maybe conclude with how do you keep kids out of the NICU. Zhenya?

Exactly. Thank you for that introduction. I'm Zhenya Lindgardt, I'm the President and Chief Executive Officer of Sera Prognostics. We focus on getting a baby to birth and prevent NICU stays. Preterm birth is actually incredibly prevalent in this country, and birth complications are more widespread than is known. One out of three women, expectant mothers will have complications. And if you include miscarriage, it's one out of two. We specifically focus with our proteomic testing, a blood test, finger-prick blood test for pregnant women to screen for higher risk of preterm birth, because one out of three babies unfortunately die because of preterm birth, defined as being born before 37 weeks of gestation. So our blood test allows to identify and prevent preterm birth and clinically proven to extend gestation and therefore, for payers, significantly reduce the cost of NICU stay, which in this country ranges from $4,000 to $20,000 per day.

Well, maybe we'll stick with the pre-birth opportunity for a moment. So Zhenya, that is expensive from a NICU cost -- or I'm sorry, yes, cost per day in the NICU. How do you turn that into value for a PreTRM test? Like how do you frame that market opportunity?

Opportunity not just to save lives, which is our key priority, so I'm addressing Stephen as the MD here, changing the practice of maternal care is what we are after to ensure that we arm physicians with the tools to screen for preterm birth. There are no clear signs of spontaneous preterm birth. So one out of two moms have no -- that do give preterm birth have no signs of potential preterm birth. The only 2 risk factors are short cervix, fewer than 2% of women have that and previous preterm birth. So 3.2 million out of 3.6 million mothers who will give birth in this country every year should be eligible to get this test because they're asymptomatic. But a lot of them will have preterm birth, because the prevalence ranges from 10% to 15% depending on the type of population and socioeconomic status of the expectant mother. So if you think about the value proposition you asked about, Dan, is we need to screen between 3 and 4 women to save 1 NICU day. It doesn't take much napkin math to see how quickly you save on NICU stay cost. And importantly, not just NICU but also the lifelong complications preterm babies have in the first year of their life and throughout, the suffering of families of some of the children who will have lifelong complications is huge.

And then thinking on the NICU, how do you frame -- and I'll start with you, Katherine, how do you frame what proportion of kids need whole genome sequencing in the NICU? Is it all of them? Is it some predetermined proportion?

Right now, the issue is underutilization. And I think this is one of the reasons why it's so wonderful to have multiple companies focused in that setting. We estimate that the inpatient opportunity is $1 billion opportunity in and of itself. And right now, some of the barriers to entry really come down to making it easier for a neonatologist to be able to order it. There are some NICUs that are ordering today, they're having every baby run on a microarray and have an interest in flipping that to all babies having their whole genome sequence to be able to rule in or rule out whether or not there's an underlying genetic condition. And so to solve some of the workflow issues, we have announced that we are putting into place a partnership with Epic to make it easier for the clinicians to have access to testing. So that way, they can more readily be able to deploy it for any number of babies in the NICU. But today, I would say it's mainly underutilization, which is part of the reason why it's really important to get the hospital system understanding the cost savings that can be realized. As Zhenya said, it's probably about $30,000 on average per patient if we can actually utilize this testing upfront.

Dr. Kingsmore, do you have any further thoughts on that in terms of framing the proportion of kids in the NICU that could benefit from these types of services?

Yes. I think we don't fully know yet exactly how many kids will benefit. We need to do additional studies. The studies that we have to date show that we have a consistent hit rate. So we diagnose 35% to 50% of the kids who get a test. But what we find is that the test influences management, it changes management 85% of the time, positive or negative, which is not very surprising because you're ruling in and ruling out things. That's the beauty of a genome. You can rule things out. Now if there isn't a genetic defect in that gene in this patient, that's not the cause of their illness, look elsewhere. So 85% change in management, 18% change in outcome. I firmly believe that we will move to the majority of regional NICU babies getting a genome. The NICU market is stratified. You've got Level II and Level III and Level IV. And the Level II babies are mainly premature, they just need to feed and grow. The Level III and the Level IV are medically complex and require a much more complementary and holistic approach to their care with lots of subspecialists, lots of interventions. And in that latter segment, I think pretty much every baby is going to need a genome. We just completed a study, 120 babies in our NICU, which is about 50, 60 miles south of here. And the only babies we enrolled were those who were not eligible for diagnostic genome. So the neonatologist said, this is not genetic, we're not ordering genetic testing. So we enrolled moms, got the samples from babies, returned the results, fully 30% of them had a genetic disease. So it just shows you that, as Kathy mentioned, we are hopelessly underutilizing this. We think market penetration is about 2%. And we think the total addressable market is north of 350,000 families a year.

And my follow-up question to that is how do you scale those efforts? I mean, you're in the Guinness Book of World Records for rapid whole-genome sequence, not everybody can do that. Katherine, not everybody can stand up a lab like GeneDx. So how do you service, I think you said 103 hospitals from your -- from Rady?

Yes. It's very interesting, because we're dealing with a workforce who don't know genome, right? You guys know genome much more than a neonatologist does. And so we don't want to give them a test because they won't get it. They won't understand, this should change your management. Just to give you a really quick example, but you're going to love it, 14-year-old girl, 30 miles south of here, collapses after supper. She's pulseless. Mom starts CPR, EMTs arrive. They can't restore her heart rhythm, they can't restore blood pressure. Rush to the local hospital in North San Diego county, still no respite. Goes like a bat out of hell down to Rady in San Diego. Put her on a heart-lung bypass machine. And she tests positive -- because it's COVID era, she tests positive for a virus. So the diagnosis, of course, is a viral infection, which is affecting her heart muscle, viral myocarditis. The treatment is expectant management and intravenous immunoglobulin. However, that's not what's wrong with her. The neonatologist orders a genome. So you've got to teach the neonatologist to disrespect their intuition and to think genetic. And they were trained not to think genetics. That's the first thing. And then you've got to have a rapid test. This girl has days to live. You can only be on heart-lung bypass for a short period of time. It's a temporizing measure. So we get her the results in 2 days, turns out she has a genetic cardiomyopathy. Her heart is not going to recover function. It's posting like this, a 7% ejection fraction as opposed to 60%. That day, she goes on heart-lung -- on the transplant list, category 1A. Two days later, she gets a transplant, 3 weeks later, she's at home. That is genomic medicine. That's what gets us excited. That little girl, 14 years old, cheerleader, would have died pretty much anywhere else on any other day. And that's what we're trying to convert neonatologists to. And for them, it's a completely new world, and they don't really get it. So we have to -- as we scale this, it's not just a matter of having a lot of sequencers and a lot of analysts, we need clinical guidance. And we need teams who get the neonatologist mindset and can help them translate results into actions.

From listening to you, it sounds like the -- and the barriers to scaling aren't so much technological as they are educational. Is that fair?

It's changed a lot, Dan. I mean, it was reimbursement, reimbursement, reimbursement. Over the last 18 months, 14 states now have Medicaid policies to say this is a covered benefit. So does Anthem Blue Cross Blue Shield nationwide, that's great. There are still some private payers, they need to catch up. If any of you are here, you're going to lose market share to Anthem. So it used to be all about, we're not getting paid for this test. We're not ordering it. Now, it's much, much more that most neonatologists outside of the academic stand-alone places like Rady, top 10, top 50 in the country, they just don't get it yet. We need to educate them. We need to upskill them. We need to do that on the fly because they're trained, it's not like they're going back to medical school. So we need to do it on the fly. And thankfully, we can do that. We have technologies and expertise now to deliver that.

Yes, I would agree on education, 100% and making it easier for these clinicians to be able to order it. I think guidelines also help influence behavior. And so continuing to look for medical societies who are updating their guidelines. Payers, as Stephen said, we now have 14 states that are covering in-patient. We now, as of last week, have 29 states that are covering outpatient. But I do think the scalable lab is a really important element of being able to do this for as many babies as possible, being able to continue to drive down costs and being able to continue to improve turnaround times. Part of what we want to be able to do is continue to lower the cost so that way, it becomes more and more affordable. One of the misperceptions, whether it is in the NICU or in the outpatient is that genetic testing is expensive. It takes a long time, and it's going to be confusing and very difficult to understand. And thanks to companies like Illumina, PacBio, sequencing costs are coming down, thanks to the technology innovation that we're bringing to bear to be able to turnaround tests quicker, be able to deliver them with fewer variants with unknown significance to ensure that there's higher confidence in that answer. That all comes down to the ability to scale the operation of the company to be able to more rapidly and more fully deploy the technology to as many inpatient hospitals that are out there, as many babies in those NICUs as well as in the outpatient setting as well.

And who are the relevant guideline bodies?

So -- and of course, Dr. Kingsmore, would love for you to comment. There's ACMG, there's the medical genetics organizations that are issuing guidelines. But I think what's so important is looking outside of the medical genetics societies to be able to further endorse. So that way, the neonatology medical society can be able to really give their guidance as well. But welcome your...

Yes. Yes. I mean this is one of the big constraints. There are only a few hundred practicing medical geneticists in the U.S. And so they cannot be the bottleneck, right? We want to democratize this. We're talking hundreds of thousands of babies a year. And this is just one application of this marvelous technology. Remember, it's not the only one. And so we've got to go mainstream. We've got to go to the frontline pediatricians. And in the NICUs, it's neonatologists; and then in the PICU, for older children, it's intensivists, so they've got to get their heads around this; and then the subspecialists, cardiologists, hepatologists and so on, who consult on those babies. So we need a different sale, right? And we have made a lot of inroads with American College of Medical Genetics and Genomics, but now we need to migrate over to AAP and get this be recognized as the emerging standard of care as it now is in other countries like Great Britain. So we invented this, but now, we are no longer the worldwide leader in this.

And guidelines and reimbursement are as important in proteomics as well. So while proteomics is not as new as genomics, however, it's still underutilized much like genomics. And the guideline setting bodies like SMFM and ACOG are critical to get that into broad adoption and changing the behavior to give the physician's comfort level to be able to use screening and treatment protocols will absolutely be supported by the guideline-setting bodies. And for them to start looking at clinical data and engaging on that, which they're doing, they're seeing what a breakthrough genomics and proteomics can do together for the health of mothers and babies is huge. But it's just the beginning. Proteomics is still before broad reimbursement. So for genomics, it's a huge win. For proteomics, it's still to come. But clinical data, as you said, Dr. Stephen, is absolutely going to move the market and move the guideline-setting bodies.

Zhenya, it sounds like the guideline bodies are even more straightforward in your circumstance and that there are 2 of them, whereas Dr. Kingsmore and Katherine, it sounds like there might be a dozen that are relevant to what you're doing. Is that a fair summary?

Very, very fair. As a matter of fact, there's one anchor much like in genomics, in proteomics for maternal and neonatal care. It is the maternal and fetal medicine society, the SMFM, which influences a lot of the guidelines. So very straightforward, 5 individuals that are going to make a huge difference for millions of babies.

And apologies, I didn't realize we were falling behind the U.K. Dr. Kingsmore, can you bring me up to speed on what the U.K. is doing?

Well, they have pluses and minuses. Their health care system, which I grew up in, has a lot of faults. But one thing they can do is make national policy like that. And so they came to visit us in San Diego, I don't know, 7, 8 years ago. We had one conversation. They said there's enough data, let's just do this. And it became policy, government decision, it's policy. They're still implementing this nationally across the U.K., setting up regional centers of excellence who will provide inpatient rapid turnaround time diagnostic genome sequencing. But they are going to have that deployed quicker than we will.

And I actually noticed you're going to be in Estonia next month. Is there a broader global play here...

Absolutely. We have Project Baby Lion in Israel. We've got these -- they're called Project Baby, these projects that innovators will set up on a country basis or a region basis. There's another one in Germany to prove out in their system that this technology actually will work so that they then can lobby decision-makers to get it be part of their health care delivery program. And it's happening all around the world, all around high and middle income countries. It's really exciting. So yes, I get on the jet all the time and fly over to these places and get treated like a rock star, which is kind of weird when you're 64. It's like, why didn't this happen when I was 21?

Did you bring your guitar?

I'm pretty useless at anything apart from genomes.

And speaking of different projects, Katherine, can you bring me up to speed on Project GUARDIAN?

Yes. So Project GUARDIAN is a study that we are doing in New York State with Illumina, Columbia and the New York State Department of Health. So we are using whole-genome sequencing on healthy newborns. The study commenced in October of 2022. It has rapidly enrolled. We are north of 10,000 healthy newborns who we have screened and continuing to see enrollment. 75% of families who were offered the ability to enroll in the study said yes. So there is great demand for what we're seeing in the U.K. here in the U.S. And what we've learned, I think a number of things. There have been a few of these studies that have happened in the past where parents have received a whole bunch of scary information that is not actionable. So I think the way that Dr. Chung, who was at Columbia, she's now at Boston Children's, has designed the study, really gives us a helpful framework for how to deploy this in a responsible way in terms of clinical actionability. So she started looking at 200 different conditions for which there is a very clear path forward for improved medical management. It could be the addition of zinc. It could be putting a baby on a ketogenic diet. It could be a clinical trial or an FDA-approved therapy. We're now looking at more than 450 conditions based on what we learned from that first cohort. The pathogenic rate was -- is about 3%. And it's a very diverse group of families who are enrolled in this. So we're learning quite a bit about exactly how important it is to be able to deploy whole genome sequencing for babies who we expect would be healthy, but we're able to now prevent the progression of disease by diagnosing upfront. Interestingly, because we've been doing so much work in rare disease over the past 20 years, we have an incredibly rich historic database. We've run over 660,000 exomes in the past 10 years or so and genomes. And we went back to say, for these conditions, what was the average age of diagnosis, and it was 7 to 11 years old. And we're now able to find these children with these diagnoses, get them positively diagnosed at birth and be able to have a positive impact in terms of medical management moving forward. So we think this is a really important proof of principle of how to do it in a clinically responsible way. And then it comes down to who's going to pay for it and how do we ensure the policymakers really appreciate the power of this information once deployed to hospitals.

We've talked about reimbursement a couple of times. It sounds like it's gotten better but, Katherine, your company has been on a journey, and it seems like you've hit a bit of an inflection point. Could you reflect on that? And maybe what your recent experience has been financially in turning this into a business model?

Certainly, that is the hard part, is taking it from a really good technology with great promise and turning it into a business that is now on the cusp of profitability, which we are. So I joined the company 3 years ago to do exactly what we're doing, which is how do we take an exome and a genome and deploy it to the broadest patient population that may benefit from it. When I joined, we had brought about 270,000 exomes. Today were, as I said, north of 660,000. So we're showing that there is a very good demand and that we're expanding the types of clinicians who are utilizing this testing. As Dr. Kingsmore said, there's a limited number of medical geneticists. There are wait times of about 18 months to see one of those medical geneticists. So in order to really solve that diagnostic odyssey, you need to get pediatricians ordering it. Their guidelines are 10 years out of date, so we need to wait for them to update those guidelines. But we're focused in the pediatric neurology setting, to specialists who are focused on pediatric behavioral disorders and bringing our genome into those settings with an increased focus now in the NICU. But we recently just announced our second quarter earnings. We delivered $69 million of revenue. We have gross margins of north of 62%. Our net loss was $2.7 million, which it puts us right on the cusp of profitability. And it has been, I would say, a journey of focus for the entire organization. I think as the industry has been in a bit of disarray for a number of reasons, some of which are the capital markets, some of which for companies that just did not have the same sort of financial discipline, we now have brought a level of rigor to ensure that the levers of our business that are best for the business, they're actually best for patient care as well. And so we're driving utilization of our exome and our genome. We're ensuring that we're getting paid for it, more so than we have been in the past, so improving our average reimbursement rate. And we're continuing to really manage the way that we're deploying our capital. And so it has been a journey for us in terms of getting to a place where we have incredible strength in the overall operations and how we're balancing innovation with ensuring that we can deliver on good financial results.

And a dumb question, but why are you still running exomes? You mentioned that you've grown a lot of exomes and genomes. What are the pros and cons...

We debate that all the time. So exomes right now actually satisfy that outpatient setting quite well. And so there is very good reimbursement for exomes. And so we consider both to be really important tools with a very large unmet need that between Rady's and GeneDx and a few others, we're just scratching the surface of that total patient opportunity. There are so many children who are not getting diagnosed. So most clinicians are utilizing our exome today, 80% of clinical exomes are run through GeneDx. And we're ensuring that we continue to drive the market leadership that we've enjoyed in exome into whole genome, and we'll drive leadership in that goal as well. We're starting to see some payers actually leapfrog exome to genome, which is really encouraging to us, which is part of the reason why we're continuing to invest in product improvements for that whole genome product. So we are agnostic. We want to meet the market where it's at. We're going to keep a really close eye on driving demand of a need for a genetic test and being able to deliver either an exome or genome, just making sure that we're getting paid for those.

And with under 10 minutes left here, I want to pivot to forthcoming clinical readouts and data events we ought to be mindful of in the next 12 to 24 months. It could inflect the field in each of your respective areas. And maybe Dr. Kingsmore, you could start. Anything we should look forward to from an evidence perspective, coming up in the next 12 to 24 months?

Yes. There's a very rapid pace of progress, and results will be coming out. I mentioned one study. There are similar studies coming out of Mayo Clinic and Riley Children's Hospital showing that a genome-first approach, so admit the baby and get the genome is the new way on the front end of thought leadership. I think that's going to be very impactful. It will mean that the current guidelines become obsolescent even as they are being voted in, in state after state. Right now, they are complex and lengthy and difficult for a neonatologist to know, is this baby eligible or not? We're going to increasingly see pressure to move to do it on any babies admitted to a Level III or Level IV NICU. So that's happening. On the newborn screening front, there's some very exciting things happening. Kathy has told you about the GUARDIAN study, 26 different programs around the world, all competing to bring up a genome-based newborn screen, 140 million babies a year worldwide get the heel prick at birth and are tested for one or more genetic conditions. With a genome, we can take that up to 1,500, 1,800 conditions at a price point that's probably less than $200 a baby, which is very competitive with current biochemical newborn screening -- on proteomic newborn screening. And so the evidence is just starting to be generated there. We have studies. We're going to give the first results of -- our results are coming in similar to what Kathy described, we're finding about 8% of our NICU babies and 8% of infant deaths are highly preventable genetic disease. So we're seeing the first clinical utility data come out. And other people like [ Genomics England ], the Belgians, the Australians, there's a couple of groups in Boston, will all have additional data. So I really see a lot of momentum behind moving into this new era where pretty much every child will have a genome, but it will only be read out for conditions where we can really prevent disease. There's effective therapy today. Why not get that baby under care by the appropriate individual and start therapy immediately or as soon as it makes sense? That's going to be a very exciting and transformative step for us. It will probably take 5 years to unpack. We think it's about a $6 billion market opportunity just in the U.S. So that's the big one to be watching out for, I think.

And for us, we are super excited to have completed a pivotal trial at the interim point last December, it was called PRIME, and the data is forthcoming. This trial is third in a row that we've completed to look at the clinical endpoints of extending gestational age at birth, improving health of the baby as measured by a composite index called neonatal mortality and morbidity with significant health improvements for the babies as well as the length of stay in the hospital and length of stay in the NICU. We are really excited because the first 2 trials that we have completed and recently published, the second one was AVERT in -- on the front cover of the Diagnostics journal last month, showed a 2.5-week extension, gestational extension for the earliest-born babies and a week or more reduction in hospital length of stay. And for the earliest-born babies before 32 weeks, we saved a whopping 28 days in the NICU, which at the highest tier of the NICU, of course, are ranging $20,000 per day in the NICU. So we're looking forward to sharing the data from the 5,000 patients from the PRIME study that we already know met one or more of the endpoints I highlighted. And look forward to changing the care protocols across the leading hospitals and, of course, all the OB/GYNs and MSMs to start utilizing the screening tool to catch and prevent preterm birth.

Awesome. So lots of incremental data events. We only have a couple of minutes left here and probably can't do the question full justice. But maybe, Katherine, I'm curious on the regulatory angle. We're having a panel on this topic later today, but as somebody who runs a company in the space, the uncertainty around FDA regulation of lab-developed tests, how does that impact how you manage your business?

So GeneDx having been a CAP-approved, CLIA-approved, New York State-approved lab for many years, we have -- we're in a very good position to be able to be fully compliant with the FDA regulations moving forward. And I think that just given the real opportunity with the number of rare disease therapeutics and gene therapies coming through FDA, I think that there's a tremendous opportunity to be able to close the loop completely from diagnostics to now being able to have really important FDA-approved treatment options for them. But for us, as a lab, we're really well positioned. We've been doing this for a long time. And so we're looking forward to moving into that pathway should the regulation come into play.

Understood. So because of your track record, your current accreditation, your history, all the grandfathering mechanisms will be fully applicable and you don't need to kick off any registrational trials to that respect?

We are wonderfully equipped and have a great track record there, so yes.

If I can add to your perspective, Kathy, we also, in addition to being accredited everywhere, are looking forward to higher regulatory scrutiny for an unusual reason, not only that it moves the field forward with FDA oversight, but also I think it will help a lot of innovation -- for-profit innovation to get paid by the payers. Because the FDA stamp of approval over time, I think, will help get reimbursement faster.

I also think it will help with new markets adopting it. So pediatricians are very familiar with FDA approvals. So having that imprimatur, I think whether it's a neonatologist or a pediatrician, I think it will make them more comfortable with it as well.

Okay. Well, with that, with a minute left, let's wrap it up. Thank you, all three of you, for joining us today. This was a great panel.

Thank you.

Thank you.

Thank you.