SEER - Seer Grows From A Small Base But Sales Cycles Slow

2023-07-12 14:09:52 ET

Summary

• Seer sells an integrated proteomics analysis system to biopharma firms and academic researchers.
• The firm's revenue growth is high from a small base and it is generating high and worsening operating losses.
• With sales cycles lengthening, I'm Neutral [Hold] on SEER stock until that improves and management makes meaningful progress on reducing high operating losses.

A Quick Take On Seer

Seer ( SEER ) is commercializing an integrated solution for proteomics analysis at scale.

I previously wrote about Seer with a Hold outlook.

Topline revenue is growing, but sales cycles are lengthening, and the company is generating high and increasing operating losses.

The stock may have reached a bottom at around $5.00, so it is worth putting on a watchlist, but until normal sales cycles return and operating losses are meaningfully reduced, I’m Neutral [Hold] on Seer.

Seer Overview

Redwood City, California-based Seer was founded to develop mass spectrometry-based instruments to analyze proteins for basic research and discovery.

Management is headed by co-founder and CEO Omid Farokhzad, M.D., who was previously Professor at Harvard Medical School and co-founded BIND Therapeutics, Selecta Biosciences (SELB) and Tarveda Therapeutics.

The firm is commercializing what it calls the Proteograph Product Suite, 'which will leverage our proprietary engineered nanoparticle [NP] technology to provide unbiased, deep, rapid and large-scale access across the proteome.’

Seer’s Market & Competition

According to a 2022 market research report by Grand View Research, the global market for proteomics was valued at $22.3 billion in 2021 and is forecast to reach $69.7 billion by 2030.

If achieved, this would represent a CAGR (Compound Annual Growth Rate) of 13.5% from 2022 to 2030.

The application market comprises Drug Discovery, Clinical Diagnostics and Others.

The Clinical Diagnostics segment has been the largest segment of the market.

The graphic below shows the historical and projected U.S. proteomics research market by segment from 2020 to 2030:

Key elements driving this expected growth are continued advancements in research and development efforts as well as more favorable regulations and government policies to support research activities.

North America has represented the largest market by region, at 45.9% revenue share in 2021.

The Asia Pacific region is expected to see the fastest rate of growth through 2030 ‘due to an increase in outsourcing of proteomics-based projects’, among other reasons.

Major competitive vendors that provide or are developing related treatments include:

• Illumina

• Agilent Technologies

• Bio-Rad Laboratories

• GE HealthCare

• Thermo Fisher Scientific

• Bruker Corporation

• F. Hoffmann-La Roche

• Promega

• Merck KGaA

• Danaher

Seer’s Recent Financial Trends

• Total revenue by quarter has continued to grow from a small base; Operating losses by quarter have worsened markedly in recent quarters.

• Gross profit margin by quarter has trended higher in recent quarters; Selling, G&A expenses as a percentage of total revenue by quarter have dropped, although they remain at several multiples of revenue.

• Earnings per share (Diluted) have continued to produce increasingly negative results.

(All data in the above charts is GAAP)

In the past 12 months, SEER’s stock price has dropped 51.12% as the chart indicates below.

For the balance sheet, management said the firm ended the quarter with $410.5 million in cash, equivalents and short-term investments and no debt.

Over the trailing twelve months, free cash used was $70.3 million, during which capital expenditures were $9.3 million.

The company paid $34.3 million in stock-based compensation in the last four quarters, the highest trailing twelve-month figure in the past eleven quarters, with the trend shown in the chart below.

Valuation And Other Metrics For Seer

Below is a table of relevant capitalization and valuation figures for the company.

(Source - Seeking Alpha)

Commentary On Seer

In its last earnings call (Source - Seeking Alpha), covering Q1 2023’s results, management highlighted the growth in customer publication of study data using its software, which it believes is critical ‘to developing the market’ for its products.

The company is also testing its second major product with early access customers; the unannounced product is designed ‘to capitalize on [the] need to serve a broader audience.’

Total revenue for Q1 2023 rose 24.2% YoY, while gross profit margin increased 14.9%.

Selling, G&A expenses as a percentage of revenue dropped 67.5% YoY but remain far above total revenue. Operating loss increased by 15.1% YoY and is very high.

Looking ahead, management reiterated its previous 2023 topline revenue guidance to growth of 54.5% year-over-year.

The company's financial position is reasonably strong, with ample liquidity, no debt, but substantial use of free cash in the past twelve months.

From management’s most recent earnings call, I prepared a chart showing the frequency of key terms mentioned (or not) in the call, as shown below.

I’m most interested in the frequency of potentially negative terms, so management or analyst questions cited ‘Challeng[es][ing]’ once, ‘Macro’ once and ‘Volatil[e][ity]’ once.

Analysts questioned company leadership about sales cycles. The company is seeing elongated sales cycles but did not differentiate between academic and commercial markets. It noted the Chinese market ‘kind of ramping back up and getting back up to speed’ in the wake of the pandemic lockdowns.

Regarding valuation, in the past twelve months, the firm's Price/Sales [TTM] valuation multiple has fallen approximately 64%, as the chart from Seeking Alpha shows below.

It appears the stock's valuation multiple drop has largely leveled off at the current level of around 19x.

The primary business risk to the company’s outlook is a slowing macroeconomic environment which may impact its commercial sales segments.

The stock may have reached a bottom at around $5.00, so it is worth putting on a watchlist, but until normal sales cycles return and operating losses are meaningfully reduced, I’m Neutral on Seer.

For further details see: