Q1 2021 Zymergen Inc Earnings Call

If you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, No Raj J Barry. Please go ahead.

Thank you.

Year to day Zymogen released preliminary financial results for the quarter ended March 31.2021.

If you haven't received this news release for if you'd like to be added to the Companys distribution list. Please send an email to investors of zymogen Dot com.

Joining me today from Zymogen, or Josh Hoffman, co founder and Chief Executive Officer, and <unk> Singh Chief Financial Officer the.

Before we begin I would like to remind you that management will make statements. During this call that are forward looking statements within the meaning of the 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 from the press release I imaging issued today.

For a more complete list and description. Please see the risk factors section of the Companys IPO prospectus and in its other filings with the Securities and Exchange Commission, including the form 10-Q for this quarter.

Except as required by law zymogen disclaims any intention or obligation to update or revise any financial or product pipeline projections or other 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 24, 2021 with that I would like to turn the call over to Josh.

Thanks for Raj.

And thank all of you for joining us this afternoon.

I'm very pleased to welcome you to our first earnings call as the public company to review our results for the first quarter of 2021.

We completed our initial public offering in April.

Raising approximately $530 million of net proceeds.

And I'd like to start out of our call today by thanking our incredible team of its average.

This is an exciting milestone for our company.

And it's truly a testament to our team's collective dedication and passion.

Zach Jed and I founded this company with the vision to partner with nature of debris better products.

<unk> team is making that vision a reality.

On today's call I'll start with a brief overview of our company for those who are new to our story.

Next I'll provide an overview of our progress since the IPO.

Then I will turn the call over to Ina for more detailed look at our financials.

The Diamond Jen <unk>.

We partner with nature, designing manufacturing and most importantly, selling products in a better way.

Our <unk> platform enabled this by combining biology chemistry and technology in a seamless way to bring these products in the People's lives.

Our goal is to do this in approximately half the time and of the 10th of the cost on the traditional manufacturing.

With the simple business model.

We design develop manufacture and sell products that solve customer challenges with superior performance.

To do this our strategy is to identify customer market needs.

<unk> and develop products to meet those needs optum.

Optimize microbes microbes to make those products at scale and commercialize those products.

We will generate revenue primarily by selling these products across multiple industries.

The speed to market is critical for us on our growth will come both from the volume and the frequency of our product launches.

Traditionally the.

Materials are made from a half dozen molecular building blocks, mostly derived from petrochemicals.

The companies that make petrochemical derived materials are huge.

But theyre also old slow and lack of innovation.

The way the day make materials hasnt changed in decades.

<unk> offers a better way.

The diamond than we've replaced the chemical plant with the microbe microscopic engineered cell.

Because of Biomolecules of the product of billions of years of evolution and engineered cell can produce a vast array of bio molecules that do things petrochemicals camp.

Bio molecules can make adhesives, the strongest the muscles grip on.

On the optical film that is clear and thin as of dragonflies link.

And because of the biochemistry takes place inside the cell bio factoring happens safely instrumentation of ads.

Biology, as Earth's greatest innovator.

We built an engine that can make breakthrough products based on nature's own inventions.

We believe the opportunity of our Biopharma platform can address is massive represents of total market opportunity of approximately 1.2 trillion across 20 industries all of which are right for disruption.

We estimate that electronics consumer care and agriculture, our first markets. Our core verticals represented a combined market opportunity for us of around 150 billion.

Beyond these initial core verticals, we're pursuing opportunities where the market needs new materials to solve hard problems.

We choose markets, where biology based products have a functional advantage.

Create substantial value for our customers and where we believe our novel products can be rapidly adopted by the market.

Our strategy is to pursue continuous product launches.

With breakthrough products that the stack on top of each other overtime.

We currently have a pipeline of 11 products on our core verticals, including for an electronics foreign consumer care and 3 in agriculture.

At the emerging <unk> is not just the long term growth we're doing it today.

There are 5 steps from the zymogen product journey.

We identify of market for customer needs.

We designed the product to meet that need.

We create the microbe of microbes that will produce the building blocks of the product.

We scaled production of the microbes and finally, we commercialize the product.

Doing all of this requires a wide range of technological operational and commercial capabilities.

From product experts across our core on target verticals.

For the scientists and technologists, we have the manufacturing expertise to produce these products to the sales and marketing functions, we built out to bring our products to market and sell them.

We have the ability to take each products on our pipeline from the first step for the last.

Crucially, we've proven we can develop and scale products.

We identify and create bio molecules that are of critical ingredients of new products.

Our database of over 75000, Biomolecules, we've developed microbial strains for use of large number of them.

We've run over 25 programs with partners, including some of the largest companies in the world and.

Based on our work to date.

We believe there for approximately $50 million.

We can bring a product to market in about 5 years.

We've reliably discovered genomic head of it that improves the performance of microbial production.

Even though many of those edits on part of the genome the humans barely understand.

We scaled up fermentation from lab scale of 1 hundreds of leaders to tens of hundreds of thousands of liters.

We can and have produced bio molecules of industrial scale.

We've proven our platform works for <unk>.

<unk> sold over $1.3 billion of products using microbes that we've developed and engineered.

Moving to our product pipeline, our first core vertical of electronics.

We are initially focused on optical films of the range of the use cases.

In 2019, this market opportunity was estimated to be around $25 billion.

Piling our first product is the transparent film used in devices across the display stack for a range of applications with adjacent use cases as well such as in flexible printed electronics.

We're very excited about Highland and so far customer and market feedback during the product qualification phase has been positive.

We're currently in the 6 months to 18 months qualification process with multiple customers, including sampling and discussions on commercial terms.

As customers are moving through the qualification process, we expect net product sales later in 2021.

And in addition, we're on track to convert to a fermentation based molecule in 2022.

The next year, we're targeting launch of the second film product, which is of different chemistry in the range of different use cases.

'twenty 3 we plan to introduce a third product in this vertical and the optical film for Foldable electronic devices.

As of our other film products. This product will have use cases across multiple application areas such as the installation for <unk> antennas and transparent heaters edmar.

The on films, we're currently developing of bio based adhesive product in our electronics vertical which was distinctive features for components assembly and smartphones the surface mounting of vehicle electronics.

In all we expect our market opportunity of electronics is around 59 billion.

And our consumer care vertical our first product will be <unk> hundred 1 of.

And naturally derived and technical on.

Every year, an estimated 1 third of the U S population use of repellents containing the chemical deed to protect them from intake borne illnesses.

Peter the neurotoxin from consumers face the unappealing choice of applying it for being subject to various insect borne diseases.

Plan to launch our intent to come on in 2023 and.

And are in the process of scaling production branding and developing the distribution plan.

Beyond <unk> hundred 1 we of 3 additional consumer care products in development, including of naturally derived beauty protected and of Silicon free zone former.

So the farmers of the chemicals used in personal products shampoos lotions and the like the give these products of the texture of consumers have come to expect.

However, the current silicon based on how the number of problematic end of life properties.

Unlike the <unk> hundred 1 our consumer care products address the increasingly stringent regulatory backdrop, along with meeting customer demand for better products made without harmful ingredients.

Agriculture is our third core vertical.

And as the market that needs economic sustainable solutions to address a diverse array of problems that are increasing in urgency because of the climate change and population growth.

<unk> can provide natural products with June level of precision to address the challenges.

Achieving levels of the effectiveness and specificity not possible with traditional chemistry.

And being compliant with evolving regulations that aimed at the phase out legacy products at Hanmi environment.

We are developing our first agricultural products the <unk> hundred 1 of the partner.

It's an alternative to synthetic nitrogen fertilizer, helping to improve crop nutrient uptake and thereby increasing farmer yields.

Beyond that the <unk> hundred to target specific crop pests.

And the <unk> hundred 3 is of crop specific herbicide.

Both of the increased gross profit through their efficacy and application requirements compared to on market products.

While we're excited about the products currently on our pipeline. This is just the start.

Consumers are demanding products with better performance sustainability on safety.

By overcoming the challenges of discovering and scaling products to market. The biology of <unk> platform conceived this massive market opportunity.

We plan to expand beyond our core verticals and enter new markets through partnerships with industry leaders. We currently of several of these efforts underway and look forward to sharing announcements regarding progress in the coming quarters.

We continue to make progress since we completed our IPO for weeks ago at the end of April.

Key drivers of our success over the long term will be both the volume and frequency of product launches as well as our ability to enter new markets.

And the foundation of all of this will be contingent on continuing to grow our incredibly talented team.

And I'm excited to welcome Andrea Campbell, as our new Chief manufacturing Officer.

Andrea comes to us with over 2 decades of experience, leading multibillion dollars of manufacturing teams of World class brands push it forward and most recently as the senior director of the iPad operations Apple.

Interest experience across manufacturing procurement and supply chain will be instrumental as we continue to scale our production capabilities for our commercial markets.

We the mission driven culture zymogen that inspires our commitment to each other and to our customers to achieve things that have never been done before.

As we continue to invest heavily across our platform. We are committed to retaining these core values that we believe are critical to our long term success.

And with that I'll now turn the call over to Ina for more detail on our financials.

Anna.

Thanks, Josh.

Total revenue for the first quarter of 2021 with $3.7 million.

All of relating to the R&D service agreements and collaboration revenue.

This.

<unk> of 26% increase of the same quarter in 2020 and was primarily driven by the impact of new and acquired contracts offset by a decrease in revenue from contracts ending in 2012.

Total operating expenses for the first quarter of 2021, 87.1 million.

33% increase from $65.6 million in the first quarter of 2020.

The increase was primarily attributable to an increase in R&D activities and the continued development of the hyaline production process as well as the costs associated with becoming a public company.

I would like to highlight that we plan to continue to increase our investments in R&D sales and marketing as well on G&A as we scale the company.

We also expect our ongoing operating expenses to increase as we continue to incur public company costs that we did not previously have prior to our IPO in April.

Okay.

R&D expenses for the first quarter of 2021 with <unk> 9.8 million.

In fact, the $21.8 million in the first quarter of 2020.

This was primarily due to an increase in resources focused on our product of our plant along with further investments in new products for our pipeline, including the continued development of highly.

We expect R&D expenses will continue to increase in absolute dollars as we invest in growing our product pipeline and further improving our bio factoring platform.

Sales and marketing expenses for the first quarter of 2021 was $6.9 million.

Compared to $5.5 million in the first quarter of 2020.

The increase was primarily due to an increase in customer and brand marketing activities.

We expect sales and marketing expenses will continue to increase in absolute dollars as we invest on activities to commercialize our products.

General and administrative expenses for the first quarter of 2021 for $19.3 million.

Compared to $13.7 million from the first quarter of 2020.

This increase was primarily driven by fees associated with becoming a public company on increased head count and an increase from facilities costs as we continue to expand our footprint.

We expect general and administrative expenses will continue to increase in absolute dollars as we support the operations as a public company and additional facilities costs as we expand our office and lab space.

Net loss in the first quarter of 2021 with $84.6 million compared.

Compared to $65.3 million in the first quarter of 2020.

We ended the first quarter of 2021 with approximately $121 million in cash on cash equivalents.

Subsequent to quarter end, we completed our IPO in April 2021, raising.

The raising approximately $575 million of.

Gross proceeds.

Resulting in $530 million of net proceeds.

We also wanted to note that in our second quarter, we closed on the acquisition of <unk> Therapeutics on you.

New York based company with technology that is complementary to our existing meta genomics platform.

This acquisition increases on molecular and genomics libraries, and accelerates on natural product discovery capabilities across our business.

We believe this is going to be an exciting year for Diamond day, and we are really just getting started.

As Josh mentioned, our business model is to sell products.

On our strategy is to pursue continuous product launches.

Key drivers of our success over the long term will be both of the volume and frequency of product launches as.

As well as our ability to enter new markets.

We currently have a pipeline of 11 products on our call verticals, including for in electronics for him consumer cash entry in agriculture.

We expect to launch of second commercial product in 2022.

On 2 additional products in 2023.

Although the long term, we will target at least 3 new product launches every year across markets.

Our plan focuses on products that we estimate will generate average annual revenue of $100 million to $300 million.

1 set of scale will generate combined long term gross margins of approximately 50% and combined long term EBITDA margins of approximately 20%.

In 2021.

We will continue to invest across all areas of our business, including production capacity and our commercial operations as we continue with the commercial rollout of Haile.

With Bayou factoring we are committed to transforming what is possible by partnering with nature to make better products in a better way.

With that I would like to turn the call back over to Josh for closing comments Josh.

Thank you Anna.

Our new biological century demands, we replace the way products and materials are made.

Through <unk> <unk> is leading the way for this inevitable future.

The nature of the molecular catalog of at our fingertips.

We are designing high performance solutions that are beyond the reach of convention of manufacturing.

We believe we can go from molecule the market and have the time and 110th the cost of traditional methods.

And our platform is getting smarter and faster all the time.

We found the dimension to create an economically vibrant environmentally sustainable future through biology.

The demand for material solutions for a big problem. The big problems has never been greater.

I am so excited about what's ahead for zymogen and.

And I look forward to updating you on our progress.

Operator, I think of ready to take questions.

As a reminder, task of question you will need to press star 1 on your telephone to withdraw your question press the pound key please stand by while we compile the Q&A roster.

Our first question comes from the line of Doug Schenkel from Cowen. Your line is now open.

Good afternoon, and thank you for taking my questions I wanted to ask about.

Really 2 topics first non fermented hiring and then second progress towards for medicine piling on star.

Starting on the first the topic as you continue to advance through the qualification process with customers.

How is your preparation for scaling production of non for Matt to the highly progressing.

And Relatedly, we are looking for product revenue as a sign of progress with your qualification initiatives should we expect product product revenue in the second quarter.

And then on the second topic.

For months at Highland.

First are you on track for a 2022 product launch second what are the key milestones you were targeting of Richard watch for over the course of this year and then third is there any concern among existing and potential partners about your ability to maintain the spec for filing as you move from a non fermented.

2 of firm at the product. Thank you.

Yes.

Okay, a lot of questions there Doug.

Let me, let me try and get through the.

The first.

We are on track we continue to manufacture.

Non fermentation based highly in our supply chain in Japan and are on track to qualify our supply chain U S supply chain in the United in 2021, giving us sufficient capacity for all of the film we expect debt.

Okay.

Number 1.

Number 2 on from inpatient based supply we continue to be on track for a 2022.

The drop in as we've indicated.

And we have continued to demonstrate equivalent performance and I've heard no customer anxiety of concern about this time.

I think did I get you on all of the operations I want to just yes, no I think you've got everything other than.

Probably I mean a question.

Do you want us to have product revenue in the Q2 model or would you prefer that is not at.

In the second half.

I was kind of.

I'll take that Dino GAAP.

So Doug.

We're still expecting product revenue later in 2021.

We're still going true 6 to 18 months.

The process simplification with the customer and not expecting any product revenue until later in 2021.

Okay, Alright, thank you very much.

Okay.

Thank you. Our next question comes from the line of Tycho Peterson from Jpmorgan. Your line is now open.

Yeah.

Hi, Tycho.

Yeah.

Okay.

Tycho Tycho please check your mute button.

On a couple of follow ups on Haile.

On the past I think you've given us an update on the number of customers evaluating I think you talked about 2 customers of the approval stage, maybe 9 or so on late stage of evaluation. So can you just maybe talk a little bit about where your customers are on the evaluation process.

The impact on the semiconductor shortage in terms of kind of timelines to order.

And then in most cases are they just evaluating highway or we can talk to some customers of the diligence process that we're on.

Adding multiple films from for you guys. So how many of them are actually evaluating more than 1 zone at this point.

Yes, so what I would say is.

That as <unk> indicated are we continue to customers continue to work with us on the 6 to 18 months customer qualification process and that process is progressing in line with expectations. We continue to build our pipeline of customers.

So while we're not talking about specific numbers.

We continue to strengthen the pipeline.

Number 1 number 2.

We do see debt because of the breadth of different use cases, and it's important to understanding of our films portfolio. These don't cannibalize. Each other you certainly see excitement from the customers about multiple films in our in our portfolio.

And so we are seeing folks who are trialing.

Especially as the <unk> hundred 7 alongside Highland given the expected launch next year.

And then lastly, we are not today seeing delays because of the semiconductor shortage, but we're sufficiently upstream debt I mean, I think we would but right now it's on it's not causing us to have concerns.

And then the follow up to Doug's question on the fermentation because that came up a lot during the IPO discussions here of how did you get customers comfortable with your ability to transition over to of fermentation molecule and ultimately scale that up.

Yes, it's a great question.

As we've talked about we started our company with the R&D service contracts.

And as part of the R&D service contract and I think we've talked about now we've done 25 of them.

We did a number of contracts on late stage development of scale up and have a very successful record of scaling strength. So microbes that we've engineered have gone into production on the sold over 1 point for our partners over $1.3 billion of products.

From a technical.

Of technical risks our customers were in no way concern that we're going to be able to unable to deliver against that.

And the customers love. The fact that we have the dual source of raw material for their products right. So for them. They are very very comfortable about it and they have lots of confidence based on our track record that we're going to be able to do so.

Okay, I understand that's sort of I'm, sorry kind of as I got it.

It's also important to understand we've made the film with the fermentation based monomer. We've qualified the fermentation based process amount of on each of our production process. We validated the Selman this is.

In a sense, there's no there's no risk of that makes sense.

Yeah, No that's helpful.

Maybe shifting over to consumer.

<unk> 2 of 1 I know that's not till 2023, but other things we should be paying attention to in the back half of this year of next year as you did the evaluation and development.

I don't think there's anything in the back half of this year.

And I think you might ask the question again 6 months from now on them.

Net of a different answer but right now theres nothing that I would suggest you should be paying attention to.

Okay, and then last 1 of the answers I spent a lot of cash capital coming into the space, obviously, some big specs not not just ginkgo the pension Hill did 1 as well I'm just curious.

Any of this changed your view on competitive dynamics.

Given how much capital is kind of coming into the <unk> space right now.

We continue to pay attention to what's happening in the market, but we have a simple business model right we sell products.

Debt, our debt compete and win on the unique performance that's available because we're able to access of large and proprietary library of bio molecules.

This is a <unk>.

Vertically integrated market that has required us to build and operate and demonstrate capabilities from product design and scale up in commercialization.

On that that allows us to reliably target.

We've estimated of 1.2 trillion dollar market opportunity and the.

Of that plenty large enough for us to build an enormous business is obviously the case of that in the.

The market this big they're going to be other companies with other business model.

And I think that the market opportunity of certainly large enough to allow others to be successful as well as us what I would say is for US. Our success is going to be the ability for us to continue to meet customer demands and there is a lot of customer demand and be able to rapidly get products from customer dreams to customer.

<unk>.

The shipping and receiving at the customer right, that's what's going to determine success for us.

And our ability to do that is I think we feel great about.

Would you add anything.

The only thing I'd.

Highlights of little there is our success in the long term finally said this a few times before and driven by both the volume and frequency of product launches.

As well as our ability to continue to prosecute against that broader market opportunity and the <unk> industries in the future.

Okay. Thanks I appreciate it.

Okay.

Thank you. Our next question comes from the line of Mac Sykes from Goldman Sachs. Your line is now open.

Great. Thanks for taking my questions Hey, guys how are you.

Okay.

Good.

Kind of along the lines of the competitive landscape.

As Tom mentioned, we meant we've talked to a lot of your customers.

For the evaluation phase for highly and in some of the your film products and at that time. They had mentioned that the clear advantages in terms of cost and also performance of your products versus the incumbents.

But just given there's probably a greater awareness of zymogen in general has there been any feedback from those customers as you're speaking to them that some of the incumbent competitors of actually responded on price, it's probably way too early I understand but I'm just wondering if theres been any kind of awareness of response from those incumbent competitors.

We have not heard from.

Customers anything of.

Anything similar right we think on.

And partly we think its probably maybe too earlier to early excuse me, but it's also important to understand that the core value proposition that we offer to our customers and which they are evaluating on is differentiated performance right. The.

And our conviction.

That our product offers differentiated performance remains very strong right and so the price because this is a non commodity market right. This is the feature driven market, where our ability to provide the performance of our customers are going to need to delight their customers right.

Our conviction remains very very strong.

Got it thanks for that and then just.

Again, I know the consumer care market is still in development.

As you guys ramp up the sort of the expend for that whether it's marketing sales interest in preparation for the commercial launch over the next couple of years should we expect a similar cost trends for.

For the consumer care market or given that it's low.

Largely consumer facing and slightly different in films will there be you think of higher cost in terms of whether it's marketing or sales or other aspects to launching in the consumer care market.

Okay.

Yeah, Matt so.

I think the we're not providing.

Providing any guidance on a product by product basis of yet.

What I will say is we do expect that our sales and marketing expenses will continue to increase in absolute dollar terms.

We invest in activities to commercialize future products, whether the era of future film products.

Piece of products products in consumer care.

And so we would expect our sales and marketing expenses to increase going forward in order to supply us.

Okay and then just 1 last quick 1 just on the elite Oh, sorry go on your on the other thing I'd add is that our long term blended margin.

Is the same as we have.

Guided to before so approximately 50% of long term combined gross margin and approximately 20% long term combined EBITDA much.

Perfect. Thank you for that and then just lastly on load of Therapeutics can you just talk about what the.

The quantify the increase.

Of that adding that genomic database did to your current kind of radian assets in terms of number of genomes et cetera, or however, you want to quantify it.

Yeah.

On.

Yeah.

It is of Great question the answer is a lot.

It offers us.

Had a slightly different way of sequencing and collecting the sequences and so on an apples to apples comparison is a little bit difficult, but we do think that had the increases by multiples of our dataset and really radically accelerates our natural product discovery capability.

I'd be happy to.

Hey, got somebody within the limits of the Reg FD and Safe Harbor.

To give you some details there we just closed on the deal last week.

Alright.

A lot more detail about that of Q2 I suspect.

Great. Thanks, perfect. Thanks.

Thank you. Our next question comes from the lineup of Derik de Bruin from Bank of America. Your line is now open.

Yeah.

Alright. This is wolf on for Derik, Thanks for the questions and congrats on the offering kind of building right off of that conversation.

Could you give us some color on how youre thinking about your M&A strategy going forward are there any particular areas you're looking striking and then just a few follow ups.

Yeah.

So the M&A strategy is pretty straightforward.

We are actively looking for small to mid sized transactions that would do primarily 1 thing which is to bolster our platform.

And help us use inorganic means too.

Increased the speed of which we get product to market or reduce the cost of getting product to market and if you look at our acquisitions to date, they've all been as part of that.

Sure.

Where women of field, where the cutting edge is changing every day.

And while we're super proud of the platform on the people who built here, we certainly know that the world outside is far larger than for our smarter as access to far more stuff than we could ever dream up. So we want to make sure. We're using M&A in an appropriate targeted way to help increase the speed of our platform.

We are also open to acquisitions again similar size for our pipeline products, where they would be the products that would fit in our pipeline, where the company that we're buying it from would have trouble commercializing them because they can't take it to the next stage from the can't scale of the product they can't sell certain technical issues, where we are.

Confidence on our platform.

In all cases, we're looking for acquisitions that would be.

B, where we bring huge value to the company of the assets that we acquire.

Does that answer the question, yes totally.

And then kind of pivoting to some more model based questions is $3.7 million in R&D services revenue of a good run rate to think about for the rest of the year or should we be looking at it slightly differently and then would you also mind, giving of share count for <unk> and fiscal 'twenty 1.

So in terms of the R&D service revenue Derik some of that revenue just as a reminder, these are R&D service contracts that we signed with them.

My parents that we worked with as part of building out and validating and testing on our platform.

In some cases those.

Contracts, we had a few of them that ended.

Last year.

And we have some that may and through the course of the CNA as well the only.

The revenues have a part of those revenues are milestone based revenues.

And there's also some <unk>.

Bonus payments that may be associated with some of those contracts.

And so as you think about the R&D service contracts there.

Those revenues could be lumpy.

And so just thinking about a $3.7 run rate may not necessarily be the way.

We have thinking about it we may have some more lumpiness.

In our R&D service revenue for.

Through the course of the ACO.

Yeah.

So that's on Danielle question on the R&D service revenue.

Yes, absolutely and then just if I could on share count.

Yeah on share count, it's a 12.

The $90 million is a weighted average share count adds.

On the end of the first of all time.

Great. Thank you.

And on for the <unk>.

Ongoing of 1 I think we are.

I would ask you to take a look at our IPO prospectus the ups flight.

To take into account continue shares that were issued in men.

The and the stock option plan is on all of which is disclosed in there.

Got it thanks very much for the time.

Thanks Jack.

Oh.

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

Great. Thanks for taking the questions.

Sure.

So I wondered on the electronics market, obviously, a very large tam.

And we've baked in a pretty material revenue ramp over the next 5 years, when you think about from a high level.

The opportunity for your products across both Foldable and more traditional handsets of notebooks, how should we think about the ability for your products to penetrate the 2 broad categories.

Yeah, I mean look as you know the electronics market is large.

And it's also ferociously demanding of new features.

Consumers are constantly demanding that Oems provide them new kinds of opportunities and.

On whether that's novel form factors like Foldable displays or whether it's brighter better screens, whether its lower power consumption and increasingly they are.

Demanding greater environmental and sustainability concerns, whether thats, putting less greenhouse gas out into the atmosphere or having different end of light properties UA to the big problem.

And when we look at the the capability of our platform of <unk> to meet the needs. We're Super excited right. We think that because we offer an entirely novel novel pallet of molecules that allow us to create materials would never before seen performance and performance the traditional petrochemical companies simply cannot provide.

We're super excited about our ability to penetrate that over.

Over the 3.510 year period.

Great. Thanks, Josh maybe the follow up I don't believe.

I know you sell to the sub component suppliers youre not going directly to for instance, the handset Oems.

But nonetheless, I don't believe you know the way we thought about our model that necessarily dictates you need success, penetrating Samsung or Apple, but nonetheless, maybe just to ask you is that.

Is that the correct implicit assumption and what would it take for you if youre not assuming <unk>.

Accessible penetration of what would it take for you actually.

Net your products into some of the leading handset providers.

Yes.

As much of it breaks my heart, given how excited and of our pipeline, we're not going to comment can't comment on specific names on the pipeline.

I can say is that we have a go to market strategy.

In all of our verticals and in electronics as well that means that we're talking to.

Multiple companies at multiple parts of the value chain, including those who might not be of direct customer of ours, but who are setting the terms of trade for our customers and we're excited about.

We're excited about the range of conversations we're having in electronics, we're excited about the excitement that company that multiple parts of the value chain, including Oems and.

Tier 1 suppliers and et cetera are have about our performance and we're excited about seeing how that's going to roll it into his revenue over 3 and 5 year period.

Great. Thanks, maybe just I know you talked about commercial.

Scale up which I think you guys feel very comfortable of your ability to do that in the doug's questions and you will take those questions from.

Our traditional for Afirma based approach, but what would you say if we looked out 12 months of about 24 months from now what are the biggest hurdles.

So the out of the gate success, the Diamond JV is expecting to have.

Could be commercial scale up could the other factor just wondering how you would characterize the biggest hurdles.

Your success.

Yes, I think look over it is important to measure that over a 12 to 24 months period. Our success is all about volume frequency and quality of our product launches.

So if I looked out 24 months, let's call it right what I want to make sure. We're doing is that we're launching the products. We've told you and that we're starting to see the trajectory rate of adoption that we would expect right we want to make sure that debt.

No.

That <unk>.

Sorry, the highly sorry, I got confused of the naming nomenclature that hyaline at that point is really starting to take off and get better down there. We're starting to see exciting early success in our customer pipeline for <unk> on a 7 so we're feeling great 'twenty for about 12.24 months now that the <unk> sorry, <unk> hundred 1 is high.

On an effective and successful launch.

And that we manage and this is very important and we manage it to the interest in new markets in a way that create the market opportunity that the at least as large as the 3 verticals we've disclosed today.

That's a good answer that's basically what's going to be my follow up parameters by which we could evaluate you.

Great well with that I think I'll I'll conclude the thanks Josh.

Youre welcome.

Do you think I mean, I think I am going to come back to that rate. It's really important to 24 months is going to be that will be long enough for us to really evaluate the success of our early product launches right that'll be able to evaluate the success of whether able to launch additional products.

On the schedule. We've described the continue to grow our pipeline and that'll be long enough to reasonably judge our ability to enter the market and thats really the key to success is the products. We're launching a day are they again over <unk>.

12 to 24 month period are they performing the way. We expect are we able to launch new products are able to call our shot and launch the net in the timescale. We say are we able to continue to build out our pipeline of you're able to enter new markets. It is.

Simple.

Great. Thanks.

Thank you at this time I am showing no further questions I would like to turn the call back over to CEO, Josh Hoffman for closing remarks.

Thank you I wanted to thank everybody for dialing in today.

For the questions.

We're excited about the business we're building on.

We look forward to talking to you guys again in the quarter.

Everybody.

This concludes today's conference call. Thank you for participating you may now disconnect.

Yes.

[music].

[music].

[music].

Good day, and thank you for standing by and welcome to the Cymer Jen first quarter of 2021 financial results Conference call. At this time of all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask the question. During the session you will need to press star 1 on your telephone.

Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would not like day on the conference over to your Speaker today Mirage Joe Mary. Please go ahead.

Thank you.

Earlier today Zymogen released preliminary financial results for the quarter ended March 31.2021.

If you haven't received this news release for if you'd like to be added to the Companys distribution list. Please send an email to investors zymogen dot com.

Joining me today from Zymogen are Josh Hoffman, co founder and Chief Executive Officer, and investing Chief Financial Officer the.

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 the 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 on the section entitled forward looking statements from the press release issued today.

For a more complete list and description. Please see the risk factors section of the Companys IPO prospectus and then it's the other filings with the Securities and Exchange Commission, including the form 10-Q for this quarter.

Except as required by law immersion disclaims any intention or obligation to update or revise any financial our product pipeline projections or other forward looking statements, whether because of its new information future events or otherwise.

This conference call contains time sensitive information and is accurate only as of the live broadcast may 24th 2021 with that I would like to turn the call over to Josh.

Thanks for Raj.

And thank all of you for joining us this afternoon.

I'm very pleased to welcome each of our first earnings call of the public company to review our results for the first quarter of 2021.

We completed our initial public offering in April.

Raising approximately $530 million of net proceeds.

And I'd like to start out of our call today by thanking our incredible team it's average.

This is an exciting milestone for our company.

It is truly a testament to our team's collective dedication and passion.

Zach Jed and I founded this company with the vision to partnering with nature of debris better products are true.

<unk> is making that vision a reality.

On today's call I'll start with a brief overview of our company for those who are in need of our story.

Next I'll provide an overview of our progress since the IPO.

Then I will turn the call over to Ina for a more detailed look at our financials.

The Diamond Jen <unk>.

We partner with nature.

Mining manufacturing for most importantly, selling products and the better way.

Our <unk> platform enabled this by combining biology chemistry and technology.

Seamless way to bring these products in the People's lives.

Our goal is to do this in approximately half the time and of the 10th of the cost of the traditional manufacturing.

There's the simple business model.

We design develop manufacture and sell products the top customer challenges with superior performance.

Could you debt our strategy is to identify customer market needs.

<unk> and develop products to meet their needs.

Optimize microbes microbes to make those products at scale and commercialize those products.

We will generate revenue primarily by selling these products across multiple industries.

The speed to market is critical for us on our growth will come both from the volume and the frequency of our product launches.

Traditionally the materials are made from a half dozen molecular building blocks, mostly derived from petrochemicals.

The companies that make petrochemical derived materials are huge.

But they're also old slow and lack of innovation.

The way the day make materials hasnt changed in decades.

<unk> offers a better way.

The diamond than we've replaced the chemical plant with a microbe microscopic engineered cell.

Because of bio molecules of the product of billions of years of evolution and engineered cell can produce a vast array of bio molecules that do things petrochemicals.

By the molecules can make adhesives, the strongest the muscles grip on.

On the optical film that is clear and thin as of dragonflies link.

And because of the biochemistry takes place inside the cell manufacturing happens safely implementation of that.

Biology, as Earth's greatest innovator.

We built an engine that can make breakthrough products based on nature's own inventions.

We believe the opportunity of our Biofact free platform can address these massive represent the total market opportunity of approximately $1.2 trillion across 20 industries, all of which are right for disruption.

We estimate the electronics consumer care and agriculture, our first markets. Our core verticals represented a combined market opportunity for us of around $150 billion.

Beyond these initial corporate Nichols, we're pursuing opportunities where the market needs new materials to solve hard problems.

We choose markets, where biology based products have a functional advantage.

Create substantial value for our customers and where we believe our novel products can be rapidly adopted by the market.

Our strategy is to pursue continuous product launches.

With breakthrough products that stack on top of each other overtime.

We currently have the pipeline of 11 products in our core verticals, including for an electronics foreign consumer care and 3 in agriculture.

As I imagine <unk> is not just the long term growth we're doing it today.

There are 5 steps on the zymogen product journey.

We identify a market for customer need.

We designed the product to meet that need.

We create the microbe of microbes that will produce the building blocks of the product.

The scale production of high growth and finally, we commercialize the product.

Doing all of this requires a wide range of technological operational and commercial capabilities.

From product experts across our core and target verticals to the scientists and technologists, we have the manufacturing expertise to produce these products to the sales and marketing functions, we built out to bring our products to market and sell them.

We have the ability to take each product in our pipeline from the first step for the last.

Crucially, we've proven we can develop and scale products.

We identify and create bio molecules that are of critical ingredients of new products.

Our database of over 75000 biomarker tools, we have developed microbial strains for each of the large number of them.

We've run over 25 programs of partners cleaning some of the largest companies in the world.

Based on our work to date.

We believe there for approximately $50 million.

We can bring a product to market in about 5 years.

We've reliably discovering genomic edits that improves the performance of microbial production.

Even though many of those at a certain part of the genome the humans barely understand.

We scaled up fermentation from lab scale of the hundreds of meters to tens and hundreds of thousands of liters.

We can and have produced bio molecules of industrial scale.

We've proven our platform works.

<unk> sold over $1.3 billion of products using microbes that we've developed and engineered.

Moving to our product pipeline, our first core vertical of electronics.

And we are initially focused on optical films of the range of the use cases.

In 2019, this market opportunity was estimated to be around $25 billion.

Highlighting our first product is the transparent film used in devices across the display stack for a range of applications with the adjacent use cases as well such as flexible printed electronics.

We're very excited about Highland and so far customer and market feedback during the product qualification phase has been positive.

We're currently in the 6 to 18 months qualification process with multiple customers, including sampling and discussions on commercial terms.

As customers are moving through the qualification process, we expect net product sales later in 2021.

And in addition, we're on track to convert to a fermentation based molecule in 2022.

The next year, we're targeting launch of the second film product because of different chemistry in the range of different use cases of <unk>.

'twenty 3 we plan to introduce the third product in this vertical on the optical film for Foldable electronic devices.

As of our other film products. This product will have the use cases across multiple application areas such as the installation for <unk> antennas and transparent heaters edmar.

Beyond films, we're currently developing of bio based adhesive product in our electronics vertical.

The distinctive features for components assembly and smartphones the surface mapping of vehicle electronics.

In all we expect our market opportunity electronics is around 59 billion.

And our consumer care vertical our first product will be <unk> hundred 1 of.

And naturally derived in textile.

Every year, an estimated 1 third of the U S population use repellents containing the chemical deep to protect them from insect borne illnesses.

Peter the neurotoxin the consumers face the unappealing choice of applying it for being subject to various insect borne diseases.

The plan to launch our intent to call on in 2023 and.

And are in the process of scaling production branding and developing the distribution plan.

Beyond <unk> hundred 1 we of 3 additional consumer care products in development, including of naturally derived UV protection and the silicon free from former.

From farmers of the chemicals used in personal products shampoos lotions and the like the give these products the texture of consumers have come to expect.

However, the current silicon based on the number of problematic end of life properties.

Unlike the <unk> hundred 1 of our consumer care products address the increasingly stringent regulatory backdrop, along with meeting customer demand for better products made without harmful ingredients.

The agriculture is the third core vertical.

As the market that needs economic sustainable solutions to address a diverse array of problems that are increasing and urgency.

The climate change and population growth.

By the factoring can provide natural products with June level precision to address the challenges.

Leading levels of the effectiveness of specificity not possible with traditional chemistry.

And being compliant with evolving regulations that aimed to phase out legacy products at Hanmi environment.

We're developing our first agricultural products the <unk> hundred 1 of the partner is.

On alternative to synthetic nitrogen fertilizer, helping to improve crop nutrient uptake and thereby increasing farmer yields.

Beyond that is the way of Oaktree owe to target specific crop pests.

And the <unk> of 3 is the crop specific herbicide.

Both of the the increased gross profit through their efficacy and application requirements compared to on market products.

While we're excited about the products currently on our pipeline and this is just the start.

Consumers are demanding products with better performance sustainability on safety.

By overcoming the challenges of discovering and scaling products to market in the biology.

The <unk> platform conceived this massive market opportunity.

We plan to expand beyond our core verticals and enter new markets through partnerships with industry leaders. We currently of several of these efforts underway and look forward to share any announcements regarding progress in the coming quarters.

We continue to make progress since we completed our IPO for weeks ago at the end of April.

Key drivers of our success over the long term will be both the volume and frequency of product launches as well as our ability to enter new markets.

And the foundation of all of this will be contingent on continuing to grow our incredibly talented team.

And I'm excited to welcome Andrea Campbell, as our new Chief manufacturing Officer.

Andrea comes to us with over 2 decades of experience the multibillion dollars of manufacturing teams of World class brands push it forward and most recently as the senior director of the iPad operations Apple.

Interest experience across manufacturing procurement and supply chain will be instrumental as we continue to scale our production capabilities for our commercial markets.

With the mission driven culture.

Of that inspires our commitment to each other to our customers to achieve things that have never been done before.

As we continue to invest heavily across our platform. We are committed to retaining these core values that we believe are critical to our long term success.

And with that I'll now turn the call over to Ina for more detail on our financials.

Thanks, Josh.

Total revenue for the first quarter of 2021 with $3.7 million.

All of relating to the R&D service agreements and collaboration revenue.

This represents a 26% increase of the same quarter in 2020 and was primarily driven by the impact of new and acquired contracts offset by a decrease in revenue from contracts ending in 2012.

Total operating expenses for the first quarter of 2021 $87.1 million.

The 33% increase from $65.6 million in the first quarter of 2020.

The increase was primarily attributable to an increase in R&D activities and the continued development of the Haile production process as the.

Well as the costs associated with becoming a public company.

Yeah.

I would like to highlight that we plan to continue to increase our investments in R&D sales and marketing as well on G&A as we scale the company.

We also expect our ongoing operating expenses to increase as we continue to income public company costs that we did not previously have prior to our IPO in April.

Okay.

R&D expenses for the first quarter of 2021 with $39.8 million.

Compared to $21.8 million balance in the first quarter of 2020.

This was primarily due to an increase in resources focused on our product development along with further investments in new products for our pipeline, including the continued development of house.

We expect R&D expenses will continue to increase in absolute dollars as we invest in growing our product pipeline and further improving our bio factoring platform.

Sales and marketing expenses for the first quarter of 2021 was $6.9 million.

Compared to $5.5 million in the first quarter of 2020.

The increase was primarily due to an increase in customer and brand marketing activities.

We expect sales and marketing expenses will continue to increase in absolute dollars as we invest on activities to commercialize our products.

General and administrative expenses for the first quarter of 2021 were $19.3 million.

Compared to $13.7 million from the.

First quarter of 2020.

This increase was primarily driven by fees associated with becoming a public company on increased head count and an increase in facilities costs as we continue to expand our footprint.

We expect general and administrative expenses will continue to increase in absolute dollars.

We support the operations as a public company and additional facilities costs as we expand our office and lab space.

Net loss in the first quarter of 2021 with $84.6 million.

Compared to $65.3 million in the first quarter of 2020.

We ended the first quarter of 2021 with approximately $121 million in cash on cash equivalents.

Subsequent to quarter end, we completed our IPO in April 2021, raising.

The raising approximately $575 million of.

Gross per seat.

Resulting in $530 million of <unk>.

Net proceeds.

We also wanted to note that in our second quarter, we closed on the acquisition of <unk> Therapeutics.

New York based company with technology that is complementary to our existing meta genomics platform.

This acquisition increases on molecular and genomics libraries, and accelerates on natural product discovery capabilities across our business.

We believe this is going to be an exciting year for Diamond day, and we are really just getting started.

As Josh mentioned, our business model is to sell products.

And our strategy is to pursue continuous product launches.

Key drivers of our success over the long term will be both of the volume and frequency of product launches as.

As well as our ability to enter new markets.

We currently have a pipeline of 11 products in our core verticals, including for an electronics for in consumer cash entry in agriculture.

We expect to launch of second commercial product in 2022.

On 2 additional products in 2023.

Although the long term, we will target at least 3 new product launches every year across markets.

Our plan focuses on products that we estimate will generate average annual revenue of <unk>.

$100 million to $300 million.

And 1 set of scale, where the journey.

The combined long term gross margins of approximately 50% and combined long term EBITDA margins of approximately 20%.

In 2021.

We will continue to invest across all areas of the fab business, including production capacity and our commercial operations as we continue with the commercial rollout of Haile.

With Bayou factoring we are committed to transforming what is possible by partnering with nature to make better products in a better way.

And with that I would like to turn the call back over to Josh for closing comments Josh.

Thank you Anna.

Our new biological century demands, we replace the way products and materials are made.

Through Biofact Schering Zymogen is leading the way to this inevitable future.

The nature of the molecular catalog of our fingertips redesign.

We are designing high performance solutions that are beyond the reach of convention on manufacturing.

We believe we can go from molecule the market and have the time and 110th the cost of traditional methods.

On our platform is getting smarter and faster all the time.

We found the zymogen to create an economically vibrant environmentally sustainable future through biology.

The demand for material solutions for our big problem. The big problems has never been greater.

I am so excited about what's ahead for XI imaging and.

And I look forward to updating you on our progress.

Operator, I think we're ready to take questions.

Yes.

As a reminder to ask the question you will need to press star 1 on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.

Our first question comes from the line of Doug Schenkel from Cowen. Your line is now open.

Good afternoon, and thank you for taking my questions I wanted to ask about.

Really 2 topics first non fermented hiring and then second progress towards from assets Piling Star.

Starting on the first topic as you continue to advance through the qualification process with customers.

How is your preparation for scaling production of non for Matt to the highly and progressing.

And Relatedly, we are looking for product revenue as a sign of progress with your qualification of initiatives should we expect product product revenue in the second quarter.

And then on the second topic.

For months at Haile.

The first are you on track for a 2022 product launch second what are the key milestones you were targeting of Richard watch for the all over the course of this year and then third is there any concern among existing and potential partners about your ability to maintain the spec for filing as you move from a non permitted.

2 of fermented product. Thank you.

Okay, a lot of questions there Doug.

Let me, let me try and get through them.

The first.

We are on track we continue to manufacture.

Non fermentation based highly in our supply chain in Japan and are on track to qualify our supply chain U S supply chain in the United in 2021, giving us sufficient capacity for all of the film we expect debt.

Okay.

Number 1.

Number 2 on from inpatient based supply.

Continue to be on track for a 2022.

The drop in as we've indicated.

And we have continued to demonstrate equivalent performance and I've heard no customer anxiety of concern about this plan.

I think did I get you on all of the operations I want to just yes no.

I think <unk> got everything other than it's probably I mean the question.

Do you want us to have product revenue in the Q2 model or would you prefer thats not on.

For the second half.

I was kind of letting.

I'll take that in a GAAP.

So Doug.

We're still expecting product revenue later in 2021.

We're still going true 6 to 18 months.

The process application with the customer and not expecting any product revenue until later in 2021.

Okay, Alright, thank you very much.

Okay.

Thank you. Our next question comes from the line of Tycho Peterson from Jpmorgan. Your line is now open.

Yeah.

Hi, Tycho.

Yes.

Okay.

Tycho Tycho please check the mute button.

Guys a couple of follow ups on Haile.

On the past I think you had given us an update on the number of customers evaluating I think you talked about 2 customers of the approval stage, maybe 9 or so on late stage of evaluation. So can you just maybe talk a little bit about where your customers are in the evaluation process.

The impact on the semiconductor shortage in terms of kind of timelines to order.

And then in most cases are they just evaluating highly on or we can talk to some customers of the dose the process that we're evaluating multiple films from for you guys. So how many of them are actually evaluating more than 1 zone at this point.

Yes, so what I would say is.

That is in the indicated are we continue to customers continue to work with us on the 6 to 18 months customer qualification process and that process is progressing in line with expectations. We continue to build our pipeline of customers.

So while we're not talking about specific numbers.

We continue to strengthen the pipeline.

Number 1 number 2.

We do see debt because of the breadth of different use cases, and it's important to understand in our loans portfolio. These don't cannibalize. Each other you certainly see excitement from the customers about multiple films in our in our portfolio.

And so we're seeing folks who are trialing.

Especially as the way in the 107 alongside highly and given the expected launch next year.

And then lastly, we are not today seeing delays because of the semiconductor shortage, but we're sufficiently upstream debt I mean, I think we would but right now it's on it's not causing us to have concerns.

And then the follow up to Doug's question on the fermentation because that came up a lot during the IPO discussions here of how did you get customers comfortable with your ability to transition over to fermentation molecule and ultimately scale that up.

Yes. It is of Great question Budd.

As we've talked about we started our company with the R&D service contracts.

And as part of the Army service contract and I think we've talked about now we've done 25 of them.

We did the number of contracts on late stage development of scale up and have a very successful record of scaling strength. So microbes that we've engineered have gone into production on the sold over 1 for our partners over $1.3 billion of products.

From a technical.

Of technical risks our customers were in no way concern that we're going to be able to unable to deliver against that.

And the customers love. The fact that we have the dual source of raw material for their product right. So for them. They are very very comfortable about it and they have lots of confidence based on our track record that we're going to be able to do so.

Okay.

I'm sorry go ahead of thanks, guys.

It is also important to understand we've made the film with the fermentation based monomer. We qualified the fermentation based process the amount of our each of our production process. We validated the Selman This is <unk>.

There is no there is a risk of that makes sense.

Yes, that's the.

For.

Maybe shifting over the consumer designed 2 of 1 I know that's not till 2023, but other things we should be paying attention to in the back half of this year of next year as you did the evaluation and development.

I don't think there's anything in the back half of this year.

And I think you might ask that question again 6 months from now.

And the amount of a different answer but right now theres nothing that I would suggest you should be paying attention to it.

Okay.

Okay, and then last 1 instead of a lot of cap capital coming into the space, obviously, some big specs not not just ginkgo the pension held at the 1 as well I'm just curious.

Is any of this changed your view on competitive dynamics.

Given how much capital is kind of coming into the <unk> space right now.

We continue to pay attention to what's happening in the market below we are of simple business model right, we sell products.

Debt, our debt compete and win on the unique performance that's available because we're able to access of large and proprietary library of bio molecules.

This is a vertically integrated.

Integrated market that has required us to build an effort operating demonstrate capabilities from product design to scale up and commercialization.

That that allows us to reliably target.

What we've estimated of 1.2 trillion market opportunity and.

That is plenty large enough for us to build an enormous business is obviously the case of debt.

In the market this big they're going to be other companies with other business model.

And I think that the market opportunity of certainly large enough to allow others to be successful as well as us.

I'd say is for US our success is going to be the ability for us to continue to meet customer demands and there is a lot of customer demand and be able to rapidly get products from customer dreams to customer.

The shipping and receiving at the customer right, that's what's going to determine success for us.

And our ability to do that is I think we feel great about.

Would you add anything.

The only thing.

The highlight a little there is our success in the long term friendly said this a few times per floor and driven by both the volume and frequency of product launches.

As well as our ability to continue to prosecute against that broader market opportunity as the Antonio industries in the future.

Okay. Thanks I appreciate it.

Thank you. Our next question comes from the line of Mac Sykes from Goldman Sachs. Your line is now open.

Great. Thanks for taking my questions Hey, guys. How are you getting on.

Good.

Just kind of along the lines of the competitive landscape.

As Michael mentioned, we met we talked to a lot of of your customers who are in the evaluation phase for <unk> and some of the your film products and at that time. They had mentioned that the clear advantages in terms of cost and all the performance of your products versus the incumbents.

But just given there's probably a greater awareness of zymogen in general has there been any feedback from those customers as you're speaking to them that some of the incumbent competitors of actually responded on price, it's probably way too early I understand but I'm just wondering if theres been any kind of awareness of response from those incumbent competitors.

We have not heard from customers.

Anything of.

The thing similar right we think.

Partly we think its probably maybe to earlier too early excuse me, but it's also important to understand that the core value proposition that we offer to our customers on which they are evaluating on is differentiated performance right. The.

And our conviction.

That our product offers differentiated performance remains very strong.

Right and so the price because this is a non commodity market right. This is a feature driven market, where our ability to provide the performance of our customers are going to need to delight their customers right.

Our conviction remains very very strong.

Got it thanks for that and then just.

Again, I know the consumer care market is still in development, but.

As you guys ramp up the sort of the expend for that whether it's marketing sales and just some preparation for the commercial launch over the next couple of years should we expect a similar cost trend.

For the consumer care market or given that it's on.

Largely consumer facing and slightly different in films. She will there be you think of higher cost in terms of whether it's marching on your sales or other aspects to launching in the consumer care market.

Yes, Matt.

I think the we're.

We're not providing any guidance on a product by product basis as of yet.

What I will say is we do expect that our sales and marketing expenses will continue to increase in absolute dollar terms.

We invest in activities to commercialize future products, whether the our feature film products.

Use of products product sales.

Can you hear me.

And so we would expect our sales and marketing expenses to increase going forward in order to supply for us.

Okay and then just 1 last quick 1 just on neonatal Oh, sorry go ahead on the other thing I would add is that our long term of blended margin.

Is the same as we have.

Guided to before so approximately 50% of long term combined gross margin on approximately 20% long term combined EBITDA margin.

Perfect. Thank you for that and then just lastly on load of Therapeutics can you just talk about what the.

The quantify the increase.

In terms of the adding that genomic database did to your current kind of radian assets in terms of the number of genomes et cetera, or however, you want to quantify it.

Yeah.

It's a great question the answer is a lot.

It offers us they had a slightly different way of.

Sequencing and collecting the sequences and so on an apples to apples comparison is a little bit difficult, but we do think that it increases by multiples of our dataset and really radically accelerates our natural product discovery capability.

I'd be happy to.

Hey, got somebody within the limits of the Reg FD and Safe Harbor.

The 2 gave some details there we just closed on the deal last week.

Alright got it.

On a lot more detail about that in Q2 I suspect.

Great. Thanks, perfect. Thanks.

Thank you. Our next question comes from the lineup Derik de Bruin from Bank of America. Your line is now open.

Yes.

Alright. This is wolf on for Derik, Thanks for the questions and congrats on the offering kind of building right off of that conversation would you give us some color on how youre thinking about your M&A strategy going forward are there any particular areas you're looking striking and then just a few follow ups.

Yeah.

So the M&A strategy is pretty straightforward.

We are actively looking for small to mid sized transactions that would do primarily 1 thing which is to bolster our platform.

And help us use inorganic means too.

<unk> increased the speed with which we get product to market or reduce the cost of getting product to market and if you look at our acquisitions to date, they've all been as part of that.

Sure.

Where we're in the field, where the cutting edge is changing every day.

And while we're super proud of the platform and the people rebuild here, we certainly know that the world outside as far larger and far smarter as access to far more stuff than we could ever gena. So we want to make sure. We're using M&A in an appropriate targeted way to help increase the speed of our platform.

We are also open to acquisitions again similar size for our pipeline products, where they would be the products that would fit in our pipeline, where the company that we're buying it from would have trouble commercializing them because they can't take it to the next stage from the can't scale of the product they can't sell certain technical issues, where we are.

Confidence on our platform.

In all cases, we're looking for acquisitions that would be.

B, where we bring huge value to the company of the assets that we acquire.

Does that answer the question, yes totally.

And then kind of pivoting to some more model based questions is $3.7 million in R&D services revenue of a good run rate to think about for the rest of the year or should we be looking at it slightly differently and then would you also mind, giving of share count for <unk> and fiscal 'twenty 1.

So in terms of our R&D service revenue Derik.

That revenue just as a reminder, these are R&D service contracts that we signed with.

We worked with as part of building out and validating and testing on our platform.

In some cases those.

Contracts, we had a few of them that ended.

Last year.

And we have some debt may and through the course of this year as well.

Of the revenues have part of those revenues are milestone based revenues.

And then also some bonus payments that may be associated with some of those contracts.

And so as you think about the R&D service contracts there.

Those revenues could be lumpy.

And so just thinking about a $3.7 run rate may not necessarily be the way.

I was thinking about it we may have some more lumpiness.

In our R&D service revenue for the.

Of course of the appeal.

So that's the question on the R&D service revenue.

Yes, absolutely and then just if I could on share count.

Yeah on share count.

The 12.9 million is a weighted average share count as debt.

The end of the first of all time.

Great. Thank you.

And then for the.

The ongoing with 1 I think we.

I would ask you to take a look at our IPO prospectus the Epsilon.

To take into account for the new shares that were issued and then the.

Yes, the in the stock option plan is on all of which is disclosed in there.

Got it thanks very much for the time.

Thanks, Doug.

Yes.

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

Great. Thanks for taking the questions.

So I wondered on the electronics market, obviously, a very large Tam and.

And we've baked in.

For the material revenue ramp over the next 5 years, when you think about from a high level.

The opportunity for your products across both Foldable and more traditional handsets of notebooks that how should we think about the ability for your products to penetrate those 2 broad categories.

Yeah, I mean look as you know the electronics market is large.

And it's also porosis the demanding of new features.

Consumers are constantly demanding that Oems provide them new kinds of opportunities on.

On whether that's novel form factors like Foldable displays or whether it's brighter of better screens, whether its lower power consumption and increasingly they are.

Demanding greater environmental and sustainability concerns, whether thats, putting less greenhouse gas out into the atmosphere or having different end of life properties U S is a big problem.

And when we look at the the capability of our platform of by factoring to meet these needs. We're super excited right. We think that because we offer an entirely novel novel pallet of molecules that allow us to create materials of never before seen performance and performance of the traditional petrochemical companies simply can't provide.

We're super excited about our ability to penetrate that over.

Over the 3.510 year period.

Great. Thanks, Josh maybe the follow up I don't believe.

I know you sell to the sub component suppliers youre not going directly to for instance, the handset Oems.

But nonetheless, I don't believe you know the way we thought about our model that necessarily dictates you need success, penetrating Samsung or Apple, but nonetheless, maybe just to ask you is that.

Is that the correct implicit assumption and what would it take for you if youre not assuming <unk>.

Accessible penetration of what would it take for you actually.

Net your products into some of the leading handset providers.

Yes.

As much as it breaks my heart, given how excited and of our pipeline, we're not going to comment can't comment on specific names of the pipeline. What I can say is that we have the go to market strategy.

In all of our verticals and in electronics as well that means that we're talking to.

Multiple companies at multiple parts of the value chain, including those who might not be of direct customer of ours, but who are setting the terms of trade for our customers and we're excited about.

We're excited about the range of conversations we're having in electronics. We're excited about the excitement that companies have multiple parts of the value chain, including Oems and tier.

Tier 1 suppliers and et cetera are have about our performance and we're excited about seeing how that's going to roll it into revenue over 3 and 5 year periods.

Great. Thanks, Josh maybe just I know you talked about commercial.

Scale up which I think you guys feel very comfortable of your ability to do that in the doug's questions and take those questions from.

Our traditional to affirming based approach, but what would you say if we looked out 12 months of about 24 months from now what are the biggest hurdles for.

For the out of the gate success of Diamond game is expecting to have.

Could be commercial scale up for the other factor just wondering how you would characterize the biggest hurdles for you.

The success.

Yes, I think look over it is important to measure that over a 12 to 24 months period. The readiness. Our success is all about volume of frequency and quality of our product launches.

So if I looked out 24 months, let's call it right what I want to make sure. We're doing is that we're launching the products. We've told you and that we're starting to see the trajectory rate of adoption that we would expect.

We want to make sure that debt.

No.

<unk>.

Sorry, the highly sorry, I got confused of the naming nomenclature that hyaline at that point is really starting to take off and get better down there. We're starting to see exciting early success in our customer pipeline for <unk> on a 7 so we're feeling great 'twenty for about 12 to 24 months now that the <unk> sorry, <unk> hundred 1 has had.

An effective and successful launch and we've managed and this is very important and we manage it to the interest in new markets in a way that create the market opportunity that the at least as large as the 3 verticals we've disclosed today.

That's a good answer that's basically what's going to be my follow up parameters by which we could evaluate you.

Great well with that I think I'll I'll conclude the thanks Josh.

Youre welcome.

Do you think I mean, I think I am going to come back to that rate. It's really important to 24 months is going to be that will be long enough for us to really evaluate the success of our early product launches right that'll be able to evaluate the success of whether able to launch additional products.

On the schedule. We've described the continue to grow our pipeline and that will be long enough to reasonably judge our ability to enter the market and thats really the key to success is the products. We're launching a day are they again over <unk>.

<unk> of 24 month period are they performing where we expect are we able to launch new products are able to call our shot and launch the net in the timescale. We say are we able to continue to build out our pipeline of you're able to enter new markets.

Paul.

Great. Thanks.

Thank you at this time on Im showing no further questions I would now like to turn the call back over to CEO, Josh Hoffman for closing remarks.

Thank you I wanted to thank everybody for dialing in today. Thanks.

Thanks for the questions.

We're excited about the business we're building.

We look forward to talking to you guys again in the quarter.

Everybody.

This concludes today's conference call. Thank you for participating you may now disconnect. Good day, and thank you for standing by and welcome to the Cymer Jen first quarter 2021 financial results Conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer.

To ask the question during the session you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today No Raj Jen Mary. Please go ahead.

Thank you.

Earlier today Zymogen released preliminary financial results for the quarter ended March 31.2021.

Haven't received this news release or if you'd like to be added to the Companys distribution list. Please send an email to investors of zymogen Dot com.

The me today from Zymogen, or Josh Hoffman, co founder and Chief Executive Officer, and <unk> 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 the 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 from the press release by imaging issued today for.

For a more complete list and description. Please see the risk factors section of the Companys IPO prospectus and then it's the other filings with the Securities and Exchange Commission, including the form 10-Q for this quarter.

Except as required by law, <unk> disclaims any intention or obligation to update or revise any financial or product pipeline projections or other 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 24, 2021 with that I would like to turn the call over to Josh.

Thanks for Raj.

And thank all of you for joining us this afternoon.

I'm very pleased to welcome you to our first earnings call as the public company to review our results for the first quarter of 2021.

We completed our initial public offering in April.

Raising approximately $530 million of net proceeds.

And I'd like to start out of our call today by thanking our incredible team of Sandridge.

This is an exciting milestone for our company.

And it's truly a testament to our team's collective dedication and passion.

Zach Jed and I founded this company with the vision to partner with nature of the Bruce better products.

<unk> is making that vision a reality.

On today's call I'll start with a brief overview of our company for those who are new to our story.

Next I'll provide an overview of our progress since the IPO.

Then I will turn the call over to Dana for a more detailed look at our financials.

Yeah.

The Diamond Jen <unk>.

We partner with nature, designing manufacturing and most importantly, selling products in a better way.

Our <unk> platform enabled this by combining biology chemistry and technology in a seamless way to bring these products in the People's lives.

Our goal is to do this in approximately half the time and at the 10th of the cost of the traditional manufacturing with the.

The simple business model.

We design develop manufacture and sell products the top customer challenges with superior performance.

To do this our strategy is to identify customer market needs.

Design and develop products to meet those needs of.

<unk> micro microbes to make those products at scale and commercialize those products.

We will generate revenue primarily by selling these products across multiple industries.

The speed to market is critical for us on our growth will come both from the volume and the frequency of our product launches.

Traditionally the materials are made from a half dozen molecular building blocks, mostly derived from petrochemicals.

The companies that make petrochemical derived materials are huge but.

Theyre also old slow and lack of innovation.

The way they make materials hasnt changed in decades.

<unk> offers a better way.

The zymogen, we've replaced the chemical plant with the microbe microscopic engineered cell.

Because of bio molecules of the product of billions of years of evolution and engineered cell can produce a vast array of bio molecules that do things petrochemicals.

Bio molecules can make adhesives, the strongest the muscles grip on.

For an optical film that is clear and thin as of dragonflies wing.

And because of the biochemistry takes place inside the cell <unk>.

By the factoring happens safely implementation of that.

Biology, as Earth's greatest innovator.

We built an engine that can make breakthrough products based on the nature's own inventions.

We believe the opportunity of our Biofact free platform can address these massive represents of total market opportunity of approximately $1.2 trillion across 20 industries, all of which are right for disruption.

We estimate the electronics consumer care and agriculture, our first markets of our core verticals represented a combined market opportunity for us of around $150 billion.

Beyond these initial core verticals, we're pursuing opportunities where the market needs new materials to solve hard problems.

We choose markets, where biology based products have a functional advantage.

Substantial value for our customers and where we believe our novel products can be rapidly adopted by the market.

Our strategy is to pursue continuous product launches.

With breakthrough products that the stack on top of each other overtime.

We currently have the pipeline of 11 products on our core verticals, including for an electronics foreign consumer care the 3 in agriculture.

At the non emergent <unk> is not just the long term growth we're doing it today.

There are 5 steps from the zymogen product journey.

We identify a market for customer needs.

We designed the product to meet that need.

We create the microbe of microbes that will produce the building blocks of the product.

We scaled production of microbes and finally, we commercialize the product.

Doing all of this requires a wide range of technological operational and commercial capabilities.

From product experts across our core and target verticals to the scientists and technologists, we have the manufacturing expertise to produce these products to the sales and marketing functions, we built out to bring our products to market and tell them we.

We have the ability to take each product in our pipeline from the first step for the last.

Crucially, we've proven we can develop and scale products.

We identify and create bio molecules that are of critical ingredients of new products.

Our database of over 75000 bio molecules, we have developed microbial strains for is the large number of them.

We've run over 25 programs with partners, including some of the largest companies in the world.

And based on our work to date.

We believe there for approximately $50 million.

We can bring a product to market in about 5 years.

We've reliably discover genomic edits that improves the performance of microbial production.

Even though many of those at a certain part of the genome the humans barely understand.

We scaled up fermentation from lab scale of 1 hundreds of leaders to tens and hundreds of thousands of liters.

We can and have produced bio molecules of industrial scale.

We've proven our platform works of <unk>.

<unk> sold over $1.3 billion of products using microbes that we've developed and engineered.

Moving to our product pipeline, our first core verticals of electronics.

And we are initially focused on optical films of the range of the use cases.

In 2019, this market opportunity was estimated to be around $25 billion.

Piling the first product is the transparent film Houston devices across the display stack for a range of applications with the adjacent use cases as well such as in the flexible printed electronics.

We're very excited about Highland and so far customer and market feedback during the product qualification phase has been positive.

We're currently in the 6 months to 18 months qualification process with multiple customers, including sampling and discussions on commercial terms.

As customers are moving through the qualification process, we expect net product sales later in 2021.

And in addition, we're on track to convert to a fermentation based molecule in 2022.

The next year we're.

Targeting launch of the second film product, which is of different chemistry in the range of different use cases.

2023, we plan to introduce the third product in this vertical and the optical film for Foldable electronic devices.

As of our other film products. This product will have use cases across multiple application areas such as the installation for <unk> antennas and transparent heaters edmar.

Beyond films, we're currently developing of bio based adhesive product in our electronics vertical which was distinctive features for components assembly and smartphones the surface mounting of vehicle electronics.

We expect our market opportunity of electronics is around 59 billion.

And our consumer care vertical our first product will be <unk> hundred 1 of <unk>.

Naturally derived and technical 1.

Every year, an estimated 1 third of the U of population user balance containing the chemical deed.

From intake borne illnesses.

He doesn't neurotoxin the consumers face the unappealing choice of applying it for being subject to various insect borne diseases.

The plan to launch our intent to come on in 2023.

And are in the process of scaling production branding and developing the distribution plan.

Beyond <unk> hundred 1 we of 3 additional consumer care products in development, including of naturally derived UV protection and the silicon free from former.

2 of performers of the chemicals used in personal products shampoos lotions and the like the give these products the texture of consumers have come to expect.

However, the current silicon based on the type of number of problematic end of life properties.

Unlike the <unk> hundred 1 our consumer care products address the increasingly stringent regulatory backdrop, along with meeting customer demand for better products made without harmful ingredients.

Agriculture is the <unk>.

Third core vertical.

And as the market that needs economic sustainable solutions to address a diverse array of problems that are increasing and urgency.

Because of the climate change and population growth.

By the fracturing can provide natural products with June level of precision to address the challenges.

<unk> levels of the effectiveness and specificity not possible with traditional chemistry.

And being compliant with evolving regulations that aimed to phase out legacy products at Hanmi environment.

We're developing our first agricultural products the <unk> hundred 1 of the partner is.

On alternative to synthetic nitrogen fertilizer, helping to improve crop nutrient uptake and thereby increasing farmer yields.

Beyond that <unk> hundred 2 targets specific crop pests.

<unk> 3 of 3 is of crop specific herbicide <unk>.

Both of the increased grower profits through their efficacy and application requirements compared to on market products.

While we're excited about the products currently on our pipeline. This is just the start.

Consumers are demanding products with better performance sustainability on safety.

By overcoming the challenges of discovering and scaling products to market the biology of <unk>.

Fracturing platform conceived this massive market opportunity.

We plan to expand beyond our core verticals and enter new markets through partnerships with industry leaders. We currently of several of these efforts underway and look forward to sharing announcements regarding progress in the coming quarters.

Yes.

We continue to make progress since we completed our IPO for weeks ago at the end of April.

Key drivers of our success over the long term will be both the volume and frequency of product launches as well as our ability to enter new markets.

On the foundation of all of this will be contingent on continuing to grow our incredibly talented team.

And I'm excited to welcome Andrea Campbell, as our new Chief manufacturing Officer.

Andrew It comes to us with over 2 decades of experience, leading multibillion dollars of manufacturing teams of World class brands push it forward and most recently as the senior director of the iPad operations at Apple.

Interest experience across manufacturing procurement and supply chain will be instrumental as we continue to scale of our production capabilities for our commercial markets.

We are a mission driven culture zymogen that inspires our commitment to each other to our customers to achieve things that have never been done before.

As we continue to invest heavily across our platform. We are committed to retaining these core values that we believe are critical to our long term success.

And with that I'll now turn the call over to Ina for more detail on our financials.

Yeah.

Thanks, Josh.

Total revenue for the first quarter of 2021 with $3.7 million.

All relating to R&D service agreements and collaboration revenue.

This represents a 26% increase of the same quarter in 2020 and was primarily driven by the impact of new and acquired contracts offset by a decrease in revenue from contracts ending in 2020.

Total operating expenses for the first quarter of 2021 $87.1 million.

The 33% increase from $65.6 million in the first quarter of 2020.

The increase was primarily attributable to an increase in R&D activities and the continued development of the Haile production process as the.

Well as the costs associated with becoming a public company.

Yeah.

I would like to highlight that we plan to continue to increase our investments in R&D sales and marketing as well as G&A as we scale the company.

We also expect our ongoing operating expenses to increase as we continue to income public company costs that we did not previously have prior to our IPO in April.

Okay.

R&D expenses for the first quarter of 2021 with $39.8 million.

Compared to $21.8 million in the first quarter of 2020.

This was primarily due to an increase in resources focused on our product development along with further investments in new products for our pipeline, including the continued development of highly.

We expect R&D expenses will continue to increase in absolute dollars as we invest in growing our product pipeline and further improving our bio factoring platform.

Sales and marketing expenses for the first quarter of 2021 was $6.9 million.

Compared to $5.5 million in the first quarter of 2020.

The increase was primarily due to an increase in customer and brand marketing activities.

We expect sales and marketing expenses will continue to increase in absolute dollars as we invest on activities to commercialize our products.

General and administrative expenses for the first quarter of 2021 were $19.3 million.

Compared to $13.7 million from the <unk>.

First quarter of 2020.

This increase was primarily driven by fees associated with becoming a public company on increased head count and an increase in facilities costs as we continue to expand our footprint.

We expect general and administrative expenses will continue to increase in absolute dollars.

As we support our operations as a public company and additional facilities costs as we expand our office and lab space.

Net loss in the first quarter of 2021 with $84.6 million.

Compared to $65.3 million in the first quarter of 2020.

We ended the first quarter of 2021 with approximately $121 million in cash on cash equivalents.

Subsequent to quarter end, we completed our IPO in April 2021, raising.

The raising approximately $575 million of.

Gross proceeds.

Resulting in $530 million of <unk>.

Net proceeds.

We also wanted to note that in our second quarter, we closed on the acquisition of <unk> Therapeutics.

New York based company with technology that is complementary to our existing meta genomics platform.

This acquisition increases on molecular and genomics libraries, and accelerates on natural product discovery capabilities across our business.

We believe this is going to be an exciting year for diamond and we are really just getting started.

As Josh mentioned, our business model is to sell products and our strategy is to pursue continuous product launches.

Key drivers of our success over the long term will be both of the volume and frequency of product launches as.

As well as our ability to enter new markets.

We currently have a pipeline of 11 products on our call verticals, including for electronics for in consumer cash on tree in agriculture.

We expect to launch of second commercial product in 2022.

On 2 additional products in 2023.

Although the long term, we will target at least 3 new product launches every year across markets.

Our plan focuses on products that we estimate will generate average annual revenue of <unk>.

$100 million to $300 million.

1 set of scale.

The combined long term gross margins of approximately 50% and combined long term EBITDA margins of approximately 20%.

In 2021.

We will continue to invest across all areas of our business, including production capacity and our commercial operations as we continue with the commercial rollout of Haile.

With buyer factoring we are committed to transforming what is possible by partnering with nature to make better products in a better way.

And with that I would like to turn the call back over to Josh for closing comments cash.

Thank you Anna.

Our new biological century demands, we replace the way products and materials are made.

<unk> <unk> is leading the way to this inevitable future.

The nature of the molecular catalog at the fingertips redesign.

We are designing high performance solutions that are beyond the reach of convention on manufacturing.

We believe we can go from molecule the market and have the time and 110th the cost of traditional methods.

On our platform is getting smarter and faster all the time.

We found the zymogen to create an economically vibrant environmentally sustainable future through biology.

The demand for material solutions for a big prominent big problems has never been greater.

I am so excited about what's ahead for zymogen and.

And I look forward to updating you on our progress.

Operator, I think we're ready to take questions.

As a reminder, task of question you will need to press star 1 on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.

Our first question comes from the line of Doug Schenkel from Cowen. Your line is now open.

Good afternoon, and thank you for taking my questions I wanted to ask about.

Really 2 topics first non fermented hiring and then second progress towards for Mats and piling on.

Starting on the first topic as you continue to advance through the qualification process with customers.

How is your preparation for scaling production of non for Matt to the highly progressing.

And Relatedly, we are looking for product revenue as a sign of progress with your qualification initiatives should we expect product product revenue in the second quarter.

And then on the second topic.

For months at Haile.

First are you on track for a 2022 product launch second what are the key milestones you were targeting or we should watch for the all over the course of this year and then third is there any concern among existing and potential partners.

Your ability to maintain the spec for filing as you move from a non permitted to affirm that the product. Thank you.

Okay, a lot of questions there Doug.

Let me, let me try and get through the.

The first.

The.

We are on track we continue to manufacture.

The non fermentation based highly in our supply chain in Japan and are on track to qualify our supply chain U S supply chain in the United in 2021, giving us sufficient capacity for all of the film we expect debt.

Okay.

Number 1.

Number 2 on fermentation based supply.

We continue to be on track for a 2022.

The drop in as we've indicated.

And we have.

To demonstrate equivalent performance and I've heard no customer anxiety of concern about this time.

I think did I get you on all of the operations I want to just yes, no I think you've got everything other than it's probably I mean a question.

Want us to have product revenue in the Q2 model or would you prefer thats not the.

The second half.

Kind of letting.

I'll take that.

So Doug.

We're still expecting product revenue later in 2021.

We're still going true 6 to 18 months.

The process vacation with customers and not expecting any product revenue until later in 2021.

Okay, Alright, thank you very much.

Okay.

Thank you. Our next question comes from the line of Tycho Peterson from Jpmorgan. Your line is now open.

Hi, Tycho.

Okay.

Tycho for anyway.

<unk> please check your mute button.

Guys a couple of follow ups on Haile.

For the past I think you had given us an update on the number of customers evaluating I think you talked about 2 customers of the approval stage of maybe 9 or so on late stage of evaluation. So can you just maybe talk a little bit about where your customers are in the evaluation process.

The impact on the semiconductor shortage in terms of kind of timelines to order.

And then in most cases are they just evaluating highlighting or we can talk to you. Some countries of the diligence process that we're evaluating multiple films from for you guys. So how many of them are actually evaluating more than 1 zone at this point.

Yes, so what I would say is.

That is in the indicated are we continue to customers continue to work with us on the 6 to 18 months customer qualification process and that process is progressing in line with expectations. We continue to build our pipeline of customers.

So while we're not talking about specific numbers.

We continue to strengthen the pipeline.

Number 1 number 2.

We do see debt because of the breadth of different use cases, and it's important to understand in our film portfolio. These don't cannibalize. Each other you certainly see excitement from the customers about multiple films in our in our portfolio.

And so we are seeing folks who are trialing.

Especially as the way in the 107 alongside Highland given the expected launch next year.

And then lastly, we are not today seeing delays because of the semiconductor shortage, but we're sufficiently upstream debt I mean, I think we would but right now it's on it's not causing us to have concerns.

And then the follow up to Doug's question on the fermentation because that came up a lot during the IPO discussions here of how did you get customers comfortable with your ability to transition over to the fermentation molecule and ultimately scale that up.

Yes, it's a great question.

As we've talked about we started our company with the R&D service contracts.

And as part of this R&D service contract and I think we talked about now we've done 25 of them.

We did the number of contracts on late stage development of scale up and have a very successful record of scaling strength. So microbes that we've engineered have gone into production on the sold over 1 point from our partners over $1.3 billion of products.

From a technical.

Of technical risks our customers were in no way concern that we're going to be able to unable to deliver against that.

And the customers love. The fact that we have the dual source of raw material for their product right. So for them, they're very very comfortable about it and they had lots of confidence based on our track record that we're going to be able to do so.

So definitely understand sorry I'm.

I'm sorry go ahead, Jeff.

It is also important to understand we've made the film with the fermentation based monomer. We've qualified the fermentation based process of amount of our each of our production process we thought.

Validated the film this is.

In a sense, there's no there's no risk of that makes sense.

Yes, that's helpful.

Maybe shifting over to consumer.

201, I know that's not till 2023, but other things we should be paying attention to in the back half of this year of next year as you did the evaluation and development.

I don't think Theres anything in the back half of this year.

And I think you might ask that question again 6 months from now and I'm on.

Net of a different answer but right now theres nothing that I would suggest you should be paying attention to.

Okay, and then last 1 the spent a lot of cash.

Capital coming into the space, obviously, some big specs not just ginkgo the pension held at the 1 as well I'm just curious.

Any of this changed your view on competitive dynamics.

Given how much capital is kind of coming into the sym bio space right now.

We continue to pay attention to what's happening in the market, but we have a simple business model right. We sell products right that are debt compete and win on the unique performance that's available because we're able to access of large and proprietary library of biomarker heels.

This is a a.

Our vertically integrated markets that has required us to build an FAA operating demonstrate capabilities from product design and scale up in commercialization.

That that allows us to reliably target.

What we've estimated of 1.2 trillion dollar market opportunity.

<unk>.

That is plenty large enough for us to build an enormous business is obviously the case of debt.

This big they're going to be other companies with other business model.

And I think that the market opportunity of certainly large enough to allow others to be successful as well as us what I would say is for US. Our success is going to be the ability for us to continue to meet customer demands and there is a lot of customer demand and be able to rapidly get products from customer dreams too.

Customer.

The shipping and receiving at the customer right, that's what's going to determine success for us.

And our ability to do that is I think we feel great about.

Would you add anything.

The only thing.

The highlight of little there is our success on the long term finally said this a few times before and driven by both the volume and frequency of product launches.

As well as our ability to continue to prosecute against that broader market opportunity as the Antonio industries in the future.

Okay. Thanks I appreciate it.

Thank you. Our next question comes from the line of Mac Sykes from Goldman Sachs. Your line is now open.

Great. Thanks for taking my questions Hey, guys how are you.

<unk>.

Good just kind of along the lines of the competitive landscape.

As Michael mentioned, we met we talked to a lot of of your customers who are in the evaluation phase for highly and in some of the your film products.

At that time, they had mentioned that the clear advantages in terms of costs and also the performance of your products versus the incumbents, but just given there's probably a greater awareness of zymogen in general has there been any feedback from those customers as you're speaking to them that some of the incumbent competitors of actually responded on price, it's probably way too early I understand but I'm just wondering.

If theres been any kind of awareness of response from those incumbent competitors.

We have not heard from customers any.

Thing of.

Anything similar right.

Think.

And partly we think its probably maybe too earlier to early excuse me, but it's also important to understand that the core value proposition that we offer to our customers and which they are evaluating on is differentiated performance right. The.

And our conviction.

That our product offers differentiated performance remains very strong.

And so the price because this is a non commodity market right. This is the feature driven market, where our ability to provide the performance of our customers are going to need to delight their customers right.

Our conviction remains very very strong.

Got it thanks for that and then just.

Again, I know the consumer care market is still in development, but as you guys ramp up the sort of the expend for that whether it's marketing sales and just some preparation for the commercial launch over the next couple of years should we expect a similar cost trend.

For the consumer care market or given that it's low.

Largely consumer facing and slightly different in films will there be you think of higher cost in terms of whether it's marketing or sales or other aspects to launching in the consumer care market.

Okay.

Yeah, Matt so.

I think the we're not providing any guidance on a product by product basis as of yet.

What I will say is we do expect that our sales and marketing expenses will continue to increase in absolute dollar terms.

As we invest in activities to commercialize future products.

Whether the era of feature phone products adhesive products products in consumer care.

And so we would expect our sales and marketing expenses to increase going forward in order to spot for us.

Okay and then just 1 last quick 1 just on the neonate.

Sorry go on the other.

The thing I'd add is that our long term blended margin.

Is the same as we have guide.

Guided to before so approximately 50% of long term combined gross margin on approximately 20% long term combined EBITDA margin.

Perfect. Thank you for that and then just lastly on load of Therapeutics can you just talk about what the quantify the increase.

In terms of the adding that genomic database did to your current kind of radian assets in terms of the number of genomes et cetera, or however, you want to quantify it.

Yeah.

It's a great question the answer is a lot.

It offers us they had a slightly different way of sequencing and collecting the sequences and so on an apples to apples comparison is a little bit difficult, but we do think that it increases by multiples of our dataset and really radically accelerates our natural product discovery capability.

I'd be happy to.

Hey, got somebody within the limits of the Reg FD and Safe Harbor.

To give you some details there we just closed on the deal last week.

Right got it.

Have a lot more detail about that of Q2 I suspect.

Great. Thanks, perfect. Thanks.

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

Hi, This is wolf on for Derik, Thanks for the questions and congrats on the offering kind of building rate off of that conversation would you give us some color on how youre thinking about your M&A strategy going forward are there any particular areas you're looking striking and then just for a few follow ups.

Yeah.

So the M&A strategy is pretty straightforward.

We are actively looking for small to mid sized transactions that would do primarily 1 thing which is to bolster our platform.

And help us use inorganic means too.

The increase the speed with which we get product to market or reduce the cost of getting product to market.

And if you look at our acquisitions today, they've all been as part of that.

Where we are in a field, where the cutting edge is changing every day.

While we're super proud of the platform and the people who built here, we certainly know that the world outside is far larger than for our smarter at the access to far more stuff than we could ever gena. So we want to make sure we're using M&A in an appropriate targeted way to help increase the speed of our platform.

We are also open to acquisitions again similar size for our pipeline products, where they would be the products that would fit in our pipeline, where the company that we're buying them from would have trouble of commercializing them because they can't take it for the next stage from the can't scale of the product they can't solve certain technical issues, where we of course.

Evidence of our platform could in all cases, we're looking for acquisitions that would be.

B, where we bring huge value to the company of the assets that we acquire.

Does that answer the question, yes totally.

And then kind of pivoting to some more model based questions is $3.7 million in R&D services revenue of a good run rate to think about for the rest of the year or should we be looking at it slightly differently and then would you also mind, giving of share count for <unk> and fiscal 'twenty 1.

So in terms of the R&D service revenue Derik.

That on a revenue just as a reminder, these are R&D service contracts that we signed with.

My parents that we worked with as part of building out and validating and testing on our platform.

In some cases those.

Contracts, we had a few of them that ended.

Last year.

And we have some that may and through the course of the CMA as well.

Of the revenues have quite of those revenues are milestone based revenues.

And there is.

Also some bonus payments that may be associated with some of those contracts.

And so as you think about the R&D service contracts there.

Those revenues could be lumpy.

And so just thinking about a $3.7 run rate may not necessarily be the right way of thinking about it we may have some more lumpiness.

In our R&D service revenue.

The course of this year.

Does that sound.

On the R&D service revenue.

Yes, absolutely and then just if I could on share count.

Yeah on share count.

The $12.9 million is a weighted average share count as debt.

The end of the phase.

Okay.

Great. Thank you.

And then for the.

The ongoing with 1 I think we.

I would ask you to take a look at our IPO prospectus the ASP on it.

To take into account for the new share separately issued and then the.

Yes, the in the stock option plan is on all of which is disclosed in there.

Got it thanks very much for the time.

Thanks Jack.

Yes.

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

Great. Thanks for taking the questions.

So I wondered on the electronics market, obviously, a very large tam.

We've baked in a pretty material revenue ramp over the next 5 years, when you think about from a high level.

The opportunity for your products across both Foldable and more traditional handsets of notebooks, how should we think about the ability for your products to penetrate the 2 broad categories.

Yeah, I mean look as you know the electronics market is large.

And it's also porosis the demanding of new features.

Consumers are constantly demanding that Oems provide them new kinds of opportunities.

Other that's novel form factors like Foldable displays or whether it's brighter better screens, whether its lower power consumption and increasingly they are.

Demanding greater environmental and sustainability concerns, whether thats, putting less greenhouse gas out into the atmosphere or having different end of light properties UAS is a big problem.

And when we look at the the capability of our platform of <unk> to meet these needs we're super excited.

We think that because we offer an entirely novel novel pallet of molecules that allow us to create materials would never before seen performance and performance. The traditional petrochemical companies simply can't provide we're super excited about our ability to penetrate that.

Over the 3.510 year period.

Great. Thanks, Josh maybe the follow up I don't believe.

I know you sell to the sub component suppliers youre not going directly to for instance, the handset Oems.

But nonetheless, I don't believe the way we've thought about our model that necessarily dictates you need success, penetrating Samsung or Apple, but nonetheless, maybe just to ask you is that.

Is that the correct implicit assumption and what would it take for you if youre not assuming <unk>.

Accessible penetration of what would it take for you actually.

Net your products into some of the leading handset providers.

Yes.

As much as it breaks my heart given how excited the Amazon our pipeline, we're not going to comment can't comment on specific names on the pipeline.

I can say is that we have the go to market strategy.

In all of our verticals and in electronics as well that means that we're talking to.

Multiple companies at multiple parts of the value chain, including those who might not be of direct customer of ours, but who are setting the terms of trade for our customers and we're excited about.

We're excited about the range of conversations we're having in electronics. We're excited about the excitement that companies have multiple parts of the value chain, including Oems and.

Tier 1 suppliers and et cetera are have about our performance and we're excited about seeing how that's going to roll it into revenue over 3 and 5 year period.

Great. Thanks, Josh maybe just I know you talked about commercial.

Scale up which I think you guys feel very comfortable of your ability to do that in the doug's questions and Youll take those questions from.

Our traditional for Afirma based approach, but what would you say if we looked out 12 months of about 24 months from now what are the biggest hurdles for that.

Out of the gate success of Diamond Jim is expecting to have.

Could be commercial scale up could the other factor just wondering how you would characterize the biggest hurdles to your success.

Yes, I think look over it is important to measure that over a 12 to 24 month period.

Our success is all about volume frequency and quality of our product launches and so if I looked out.

24 months, let's call it right what I want to make sure. We're doing is that we're launching the products. We've told you and that we're starting to see the trajectory of adoption that we would expect.

We want to make sure that.

Net.

Is that the YM.

Sorry, the highly sorry, I got confused with the <unk>.

Naming nomenclature that highly and at that point is really starting to take off and get better down there. We're starting to see exciting early success in our customer pipeline for <unk> on our 7 we're feeling great 'twenty for about 12 to 24 months now that the <unk>.

<unk>, sorry, <unk> hundred 1 has had an effective and successful launch and we've managed and this is very important and we manage it to interest of new markets in a way that create the market opportunity that's at least as large as the 3 verticals we've disclosed today.

That's a good answer that's basically.

You're going to be my follow up parameters by which we could evaluate you great.

Great well with that I think I'll I'll conclude the thanks Josh.

Youre welcome.

Do you think I mean, I think I am going to come back to that rate. It's really important for 24 months is going to be that will be long enough for us to really evaluate the success of our early product launches right that'll be able to evaluate the success of whether able to launch additional products.

On the schedule. We've described the continue to grow our pipeline and that will be long enough to reasonably judge our ability to enter the market and thats really the key to success is the products. We're launching a day are they again over <unk>.

<unk> hundred 24 month period are they performing the way. We expect are we able to launch new products are able to call our shop launch the net in the timescale. We say are we able to continue to build out our pipeline of you're able to enter new markets.

No.

Great. Thanks.

Yeah.

Thank you at this time I am showing no further questions I would like to turn the call back over to CEO, Josh Hoffman for closing remarks.

Yes.

Thank you I wanted to thank everybody for dialing in today.

For the questions we're.

We're excited about the business we're building.

We look forward to talking to you guys again in the quarter.

Everybody.

This concludes today's conference call. Thank you for participating you may now disconnect.