Q2 2021 Rapid Micro Biosystems Inc Earnings Call

August 26, 2021

[music].

Ladies and gentlemen, thank you for standing by and welcome to the rapid micro bio systems second quarter 2021 earnings 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 session to ask a question. During the session you will need to press star one on your telephone.

If you require any further assistance. Please press star zero I would now like to hand, the conflict over to your speaker, Mr. David <unk> with Investor Relations.

Please go ahead Sir.

Good afternoon, everyone and thank you for joining rapid micro Biosystems second quarter 2021 earnings call I'm, David Diglyph Gilmartin group.

On the call from rapid micro we have Rob speak Messing, Chief Executive Officer, and John <unk>, Chief Financial Officer earlier today rapid micro released financial results for the second quarter ended June 32021.

Copy of the press release is available on the Companys website.

Before we begin I'd like to remind you that management will make statements. During this call that include forward looking statements within the meaning of federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

Statements contained in this call that relate to expectations or predictions of future events.

It's a performance are forward looking statements.

Actual results may differ materially from those expressed or implied in the forward looking statements due to a variety of factors for list and description of the risks and uncertainties associated with wrapping micros business. Please refer to risk factors section of our form S. One filed with Securities and Exchange Commission on July 12.2021.

We urge you.

These factors and you should be aware that these statements should be considered estimates only and are not guarantee of future performance. This conference call contains time sensitive information and is accurate only as of the live broadcast today August six 2021 bathroom micro disclaims any intention or obligation except as required by law to update or revise any financial projections.

Such forward looking statements, whether because of new information future events or otherwise.

With that I will turn the call over to Rob.

Thank you David and good afternoon, everyone I'll begin my remarks, with a review of financial and operational highlights for the second quarter, followed by an overview of our business and the significant opportunity we see in front of us.

I'll then pass it over to Sean for a detailed financial review before we open the call up for questions.

I'd like to start by saying that we're very excited to be speaking with you for the first time following our IPO on July 15.

We listed on the NASDAQ and raised approximately $165 million in net proceeds, including the underwriters' exercise of their.

Overallotment option wed like to thank everyone, who supported us during our IPO. We are thankful for the hard work of our dedicated rapid micro team and for the support of our customers and shareholders.

But the IPO now complete we are better positioned than ever to execute on our strategy to accelerate the global adoption of our growth direct platform within.

In biopharmaceutical manufacturing we are pleased to report that we had a strong second quarter with reported commercial revenue of $5.7 million Rep.

Representing year over year growth of 135%.

This performance demonstrates continued robust adoption of our growth direct platform with eight systems placed and 11 systems validated.

During the quarter.

We also announced today that we expect our full year 2021 commercial revenue to be at least $24 million.

Which would represent growth of at least 70% compared to 2020. Additionally, we shipped our one millionth consumable since the launch of our current generation gross direct system.

We're also very pleased to report that we are continuing to grow our team with the addition of great new talent across the company.

During the second quarter, we expanded our board of directors and our executive leadership team to include a general counsel and Vice President of R&D as well as a new general manager manager in Asia Pacific We believe these new <unk>.

<unk> to our team will expand our capability and support our growth and innovation goals.

While we had a chance to tell our story to many of you through our IPO process I would like to take a few minutes today to provide a brief overview of our company our end markets and our product platform.

For background and context rapid micro bias.

Biosystems is revolutionizing microbial quality control or <unk>, a critical regulated aspect of the global pharmaceutical manufacturing process and fundamental element of the global pharmaceutical quality control infrastructure. The one trillion dollar global pharmaceutical market is undergoing tremendous change growing.

Growing at 7% per year to meet global demand for therapies, while transitioning from traditional small molecule modalities to advanced modalities, including biologics and cell and gene therapies.

To meet the growing scale complexity capacity and regulatory demands confronting global pharmaceutical companies the future.

<unk> pharmaceutical manufacturing depends on a massive deployment of automation and digital technologies.

The Mtc process includes a constant testing of raw materials production environments personnel and process materials and final sterility testing of drug products for microbial contamination such as bacteria.

Bacteria mold and other harmful organisms.

The Mtc process is critical because it ultimately helps to ensure patient safety.

A single drug production facility may conduct anywhere from tens of thousands to $1 million Mtc test per year.

Mtc testing has mandated and closely monitored by the FDA and.

Other global regulatory agencies with serious regulatory and financial consequences for lack of compliance, including 443 observations warning letters or even consent decrees.

Traditional methods to conduct and QC testing this call growth promotion, where samples are manually collected on media plagued by Mtc specialists.

Manually processed incubated and then visually inspected for growing colonies of micro organisms.

This labor intensive manual method was developed about a 100 years ago and that has not fundamentally changed.

Today, well over 95% of global Mtc testing still uses this legacy.

Approach, despite drilling costs complexity and risk posed by a non automated process.

The legacy MTBC process is slow.

Wiring up to 14 days to deliver results second the legacy process is entirely dependent on human labor for each of the 15 steps and involves.

Third.

The legacy process is subject to the technician availability.

<unk> and even the potential for falsification of data.

Finally, the legacy processes unsecured, which can result in noncompliance with data integrity regulations.

These risks have spanned multiple real world problems for pharmaceutical.

Factors, including long regulatory investigations.

Costly enforcement actions and in some cases substantial shareholder value destruction.

For these reasons the legacy manual Mtc process has become less reliable as it is unable to match the growing scale and requirements of modern pharmaceutical manufacturing.

Third we developed our technology to specifically solve this problem or growth direct platform as the only fully automated high throughput and secure <unk> solution in the world.

Developed with over 15 years of active feedback from our customers, we have made significant investments and difficult to replicate engineering improvements.

These investments have resulted in a purpose built robust and scalable solution to support the rapidly expanding demand for novel and complex therapeutic modalities, such as biologics vaccines cell and gene therapies and sterile injectables.

Our growth rate platform is designed to fully automate and replace the traditional.

Additional manual Mtc process.

Our proprietary technology works by replacing human counting and growing colonies with software and algorithm driven detection and counting based on image analysis of natural microbial auto florescence.

Our system wraps this core detection technology with fully automated high volume high capacity.

Capacity walkaway robotic sample handling and incubation locked behind a secured interface that enables compliance with data integrity regulations.

Our technology delivers a speed accuracy scalability and security required by advanced pharmaceutical manufacturing growth direct accelerates time to result by several.

<unk> days.

<unk>, 50% improvement over the traditional method.

Growth Ret Mtc testing as a simple two step of workflow, eliminating 85% of the manual steps of the traditional <unk> process.

Our customers benefit from the advantages of our growth through X system with accelerated time to test results.

Reduction of human errors cost savings data integrity compliance and ultimately more efficient higher capacity and lower risk manufacturing operations.

Moreover, the growth <unk> system is designed to absorb and automate the vast majority of daily and QC test volume any pharmaceutical manufacturing facility.

And can be operated and fleets of multiple systems to scale with high volume manufacturing.

And microbial quality control test market is large globally, we estimate 350 million Mtc tests are conducted annually in thousands of dedicated pharmaceutical manufacturing facilities producing billions of doses.

As a therapeutics every year.

Based on our recent market research study, we commissioned we estimate our total addressable market or Tam to be approximately $10 billion in 2021, which we expect to grow at an 8% CAGR to over $14 billion by 2026.

As we embed our products within global pharmaceutical manufacturing operations and begin to automate and digitize customer workflows. We believe our platform is exceptionally well positioned to enable the future of quality control automation.

The strength of our value proposition has attracted a top tier customer base.

<unk> the majority of the global top.

<unk> pharmaceutical manufacturers as well as small and mid sized customers.

Our customers include manufacturers of biologics small molecules cell and gene therapies, <unk> compounds, <unk> and personal care products we.

We have installed our systems across manufacturing site networks in North America, Europe and Asia.

More than half of our global customer base has purchased multiple systems, many of which are installed across multiple manufacturing sites within a customer's network.

We see significant opportunity to expand our market share within existing customers as well as acquire new customers.

Why don't we address all pharmaceutical modalities.

Today, we are especially strong in biologics and cell and gene therapies of note, 30% of all approved cell and gene therapies are currently using the growth direct system.

As I mentioned earlier, we completed eight system placements and 11 system validation during the second quarter, bringing our cumulative total to 103 systems placed.

<unk> and 63 systems validated.

While we are excited about this initial start we have significant commercial runway ahead.

Our growth direct platform drives multiple revenue streams would be an attractive razor razorblade revenue model.

Initial customer revenue begins with a capital equipment sale of the growth direct system.

<unk> associated lab information management system connection software.

Which provides customers a two way secure and paperless data workflow we've.

We then provide global support and validation services to help our customers install and validate the drug direct.

Once the system is validated and transitions to routine use.

Each growth direct system starts to pull through increasingly high volumes of our proprietary and broad suite of consumables.

As we add to our base of validated systems and utilization increases, we expect consumables will drive a substantial recurring and durable revenue stream with an attractive profitability profile. We also provide.

Provide ongoing preventative maintenance services, which drive recurring service revenue in addition to recurring consumable revenue.

Looking forward, we're tremendously excited about the growth opportunities for our business. We're focused on the globe on the goal of standardizing the global microbial quality control test market on a growth platform and ultimately.

Suddenly delivering mtc automation more broadly across pharmaceutical manufacturing industry.

We believe we are in a very strong position to capitalize on a large and growing market with low competitive intensity. We are leveraging our strategic advantage to accelerate strong commercial momentum, especially in our hydro biologics and cell and gene therapy segments.

<unk>.

Our growth strategy is clear.

We continue to drive new customer adoption across the global pharmaceutical industry, we're expanding within our existing customers, placing more systems expanding to new sites and broadening the applications we deliver.

We are targeting new geographies to include Asia Pacific, where we see substantial opportunity to build our.

One operational footprint and as we look to the future we intend to launch new products spanning data consumables automation and services that deliver integrated QC automation, we expect to grow our influence upstream and downstream within customer workflows and secure more customer share of wallet over time.

We are well established commercial teams in the U S and Europe with significant opportunity to continue to build these teams to drive future revenue growth.

We see our investment in commercial infrastructure as a key driver to accelerated adoption in the U S and Europe as well as geographic expansion to Asia Pac.

With our IPO proceeds.

We are also increasing investment in research and development to accelerate innovation.

In addition to organic investments for the future. We may also use M&A selectively to add complimentary products and services to enhance our value proposition to customers.

In closing we have had a strong start to 2021 and we're very.

<unk> about our business going forward. We believe there is an exciting opportunity to own the microbial quality control space and define the future Global standard we look forward to updating you as we invest in and expand our business over the coming years ill now turn the call over to Sean to discuss our financial results Sean.

Thanks, Rob.

Rob and good afternoon, everyone.

Before I review, our Q2 results I'd like to walk you through the revenue streams and Kpis that we're reporting today and why we believe they are important to understanding our business.

Our revenues currently have both a commercial component and a noncommercial component commercial revenues represent over 90% of our total revenues today and are comprised of.

Sales of both our products and our services to customers noncommercial revenues relate to funding we received from BARDA under an existing contract to develop a new consumable for rapid sterility testing on our growth direct system.

Within commercial the product revenue component includes sales of our growth through our system and our <unk> connection software both of which are nonrecurring.

<unk> as well as consumables, which are recurring the.

The service revenue component includes sales of our installation and validation services, which are nonrecurring as well as recurring annual service contracts, we breakout recurring revenues and report them as a kpis because we view them as an important measure of our business progress over time.

In terms of other kpis.

We plan to provide information about the number of systems placed a system placement occurs when we ship or deliver a system to a customer depending on the contractual terms.

System placements are important because they drive the systems component of our product revenue. We also plan to provide the number of validated systems at customer sites validation are important because once the CIS.

Elevated we can then work with our customer to transition that system to routine use unlocking meaningful consumable pull through.

Now turning to our Q2 results total revenue for the second quarter of 2021 was $6.1 million commercial revenues made up $5.7 million of this total representing growth of 135% over Q2 last.

<unk> is here.

Within commercial revenue product revenues were $4.1 million and grew 146% over Q2 last year with revenue from both systems and consumables growing over 100% in the quarter.

From a system standpoint, we placed eight systems in the quarter. This compares to three system placements in Q2 last year, which was negatively impacted.

Last year Covid related border closures and other customer site access limitations. Many of those issues are resolved in Q3 last year, which positively impacted our results for that period.

Service revenue was $1.6 million in the second quarter up 113% compared to the same period last year.

The increase was due to higher revenue from validation.

<unk> <unk> and to a lesser extent recurring service contracts during the quarter. We completed the validation process on 11, new systems, bringing the cumulative number of our systems in the field that are validated to 63.

This represents an increase of almost 100% over the past 12 months given the implications of this metric to our potential for future consumables revenue growth.

We view this as significant and important progress.

Recurring revenue, which includes consumables and service contracts was $1.9 million in Q2 and grew 91% compared to Q2 last year.

This growth was driven by triple digit growth in consumables as well as solid growth in revenue from service contracts as we continue to grow our base of validated systems.

To finish up on revenue noncommercial revenue related to our contract with BARDA was zero point $4 million compared to zero point $2 million in the second quarter of 2020.

Moving on to gross margins product margins were negative 2.0 million or.

Or negative 49% in Q2, this year compared to negative $1 two.

$2 million or negative <unk>, 74% in the same period last year.

Service margins were zero point $3 million or 16% in the second quarter compared to breakeven in Q2 last year.

The improvements in gross margin percentage for both products and services were mainly attributable to cost leverage resulting from higher revenues in Q2 this year.

Moving down the P&L.

Total operating expenses were $9.1 million in the second quarter with spending of $3.1 million in sales and marketing $2.3 million in R&D and $3.6 million in G&A.

This compares to total opex of $4.4 million in the second quarter of 2020.

The primary drivers of the year over year increase in Opex spending.

<unk> and sales and marketing and R&D costs included in G&A related to our IPO process and investments we made in anticipation of operating as a public company also contributed to the increase.

Net loss in the second quarter of 2021 was $11.8 million, which compares to a net loss of $9.3 million in the second quarter.

2020, net loss per share attributable to common stockholders was $20 in <unk> in Q2, 2021 compared to a net loss per share of <unk> $31.93 in Q2 last year.

With respect to noncash expenses and Capex depreciation and amortization expense was 0.4 million stock comp.

Comp expense was <unk> 4 million and capital expenditures were <unk> 5 million in the second quarter of 2021.

We ended the second quarter of 2021 with $100 million in cash and cash equivalents and $26.2 million in debt, excluding unamortized debt discount.

Following the closing of our IPO in July in the underwriting.

Our writers partial exercise of their overallotment option in early August we had roughly $260 million in cash and cash equivalents on our balance sheet.

Prior to our IPO. We finished Q2 with approximately 1 million common shares outstanding following the closing of our IPO, which also triggered the conversion of all of our outstanding preferred stock into common stock.

And the underwriters' exercise of their over allotment option. We now have approximately $41.1 million class, a and class B common shares outstanding on an aggregate basis.

Now shifting to guidance, we expect our full year 2021 commercial revenues to at least $24 million, which would represent growth of at least 70% compared to two.

2020.

On a sequential basis, we expect our commercial revenues to increase gross margins to improve in opex spending to increase as we progressed through Q3, and then Q4.

These expectations are predicated on the assumption that we won't see material changes in our business environment, including any significant tightening of governmental and customer policies relating to COVID-19.

We remain vigilant in monitoring these COVID-19 policies and their potential impacts, but we haven't seen any indication of material changes in our business environment to date.

Finally, as you model Q3, this year I'd like to remind you that we were required to pay an $800000 exit PTO a former lender upon the closing of the IPO. We currently expect to record this amount below.

The line in other expense and our Q3 P&L.

That concludes our prepared remarks. So at this point, we will now open the call up for questions operator.

Thank you as a reminder to ask a question you will need to press star one on your telephone.

Please limit yourself to one question and one follow up question.

So with that in your question. Please press the pound key.

Hey, Sam Burwell with her part of the Q&A roster.

Our first question will come from Tycho Peterson with Jpmorgan. Please go ahead.

Hi, guys. This is Casey on for Tycho, Thanks for taking our questions I.

I guess the first one is around the competitive landscape.

Can you.

Talk a little bit about.

Competitors in QC testing space into science has sort of a similar product.

I think Charles River competes.

Can you just talk a little bit about what youre seeing on the competitive side and how.

How is the growth direct system is differentiated a little bit from competition.

Yes, I'd say generally.

Generally the Desmond.

No change in the competitive environment and the competitive intensity.

Is remains low by far the largest competitor. We have we believe is a legacy method with 95 plus percent of the market using it and we of course are Washington competitive landscape, but again.

We.

We believe the competitive intensity remains remains below Moreover, our we believe our system is highly differentiated against.

Any of the I would call the technology enabled.

<unk> is out there.

We have the right high capacity high throughput.

System with the right.

Makeup and.

Custom built effectively for the pharmaceutical market and we believe it's highly differentiated compares to the other players out there and we believe our commercial traction globally and our customer base.

It represents that.

Yeah.

Gotcha and then just following up on that during the IPO process, we got the question.

I think.

Compared to how long you guys have been on the market I think around 15 years.

I think you've only penetrated around 50% of pharma customers. So maybe can you talk a little bit about.

Historically.

Pharma penetration and how you're going to drive sort of further penetration here moving forward.

Yes, so I think for context, it's important to note that really we count the first full launch of our current growth or X system in 2017.

Relatively recently so from that perspective.

Aspect if it was it was initially launched in 2014 and effectively a beta format, but we view the official commercial launch in 2017, and we've had a phenomenal reaction to the global customer.

Customer base, especially among the global top 20, and in particular in the biologics and cell and gene therapy segments.

Continue to see broad based.

Uptake of our system globally, not only in a global top 20, but also in small and mid customers.

As well so we have a broad based value proposition that is highly differentiated and as I mentioned, it's the right system for this market was purpose built again specific.

Specifically to solve the challenges.

In this market that these globally that pharmaceutical companies are experiencing.

Gotcha, and then last one for me and then I'll hop back in the queue in terms of menu buildout priorities longer term I guess.

With personal care and QC test.

<unk> be something you guys would look at and I guess, how near term would we expect some menu buildout.

Or is that something that you guys are thinking about at this point well.

We're certainly aware of it as I mentioned in my remarks, we have sales into this segment. Although we are currently focused on the pharmaceutical.

Nickel market, it's just a tremendous amount of runway we have in front of US we've got very strong brand momentum.

And credibility and trust and global pharmaceutical so we're focused on that market for those reasons.

And others are you mentioned menu, it's important to note that we can address the personal care market with our current platform.

So it would be more of a it would be less of an R&D activity and more of an extension of our of our commercial operation, but again, we're focused our commercial resources.

Currently.

On the global pharmaceutical market more to follow up perhaps in the future, but our focus right now is global pharma and Biopharma.

Thank you. Our next question will come from <unk> with Morgan Stanley. Please go ahead.

Hey, guys good evening.

Just a couple of quick ones from me.

On backlog I mean can you share a little bit more color on backlog mix in terms of any large multi.

The orders, we should be thinking about and then in terms of slicing up the backlog in a slightly different way in terms of placements.

The same sites same customer, but we have a site and then new customers can you shed some color on that.

And what that means for your sales and installation cycle heading into the back.

Half of the year.

Yes.

Get into any specific customer or pay Jos but thematically.

Per my previous remarks, we are seeing.

Large companies in particular rolling this out across their global networks. So.

Backlog I'll refer to I'll call it funnel our forward funnel.

<unk> consists of a healthy mix of both our current customers executing those rollouts across their within their current size they have systems into new sites and new geographies.

That we expect will drive continuing.

Strong order orders from those customers as well as new customers starting with us.

So all of those are.

Our funnel is very healthy and we are.

Quite confident in our forward looking funnel with regard to both general categories of customers.

Got it fair enough.

And then.

On a somewhat related note Rob can you share some details around the kinds of guidance projects do you have under way to shorten the cycle from instrument orders generation of consumable pull through and specifically around the validation process.

Yeah sure so yeah. So.

If kazan or lean tools, we apply.

Fly across our business holistically to for process improvement and productivity and clearly.

Looking at our continuing to improve our our speed.

One of them apart.

The partner with our customers to do that and we have we have and do value stream mapped our validation process from PEO through.

Routine use and where.

And working through ways don't get into the details on this call. We can not only within rapid micro but in partnership with our customers improve the speed and throughput and efficacy of the validation process.

Got it Okay, and then any updates on <unk>.

The testing plans, obviously the BARDA contract is scheduled to run out in November this year, but are you in a good place to launch that capability, perhaps next year and can you help us think about how big that opportunity could be in the competitive differentiation there versus folks like cell phones et cetera.

Yes, so maybe in reverse order the total market size.

This is better than $2 billion.

Additive.

The consumable will run on our system. So the sterility platform sterility consumable will benefit from.

The full automation the walkaway automation the speed of data integrity.

Digital nature of our system that.

Our other assays and the benefit from that's clearly differentiated from.

From any other any other player on the market to include capacity and throughput.

Regard to the program is proceeding well.

At a high level I can tell you. We're looking we're speaking to current and.

And potential.

New customers.

Beta test, we'll call. It in 2022 for stability that would be the high level of steer I can give you with regard to how the development is going.

Perfect and one final one for Sean Sean.

John are you seeing any supply chain cost pressures given all the chatter around inflation et cetera, and in terms of just.

Your hiring plans for the back half of the year, I mean, any possibility of a slower than expected cadence.

In terms of Opex given the.

The.

Pressures to hiring good people that a lot of life science companies are seeing at the moment.

Yeah sure Yeah, So I think as we.

Think about the costs and inflation and things like that and we've been very proactive.

Starting pretty early on when Covid hit.

Doing things like building safety stock and locking in supply through longer term commitments with our vendors. So there is clearly some inflationary.

I guess headwinds out there.

In the marketplace, we've done I think a pretty good job of being able to avoid most of those by doing that and being proactive with that.

Bits and pieces of it.

Hitting us I would say, it's nothing that we view as significant at this point or something that we can't continue to kind of manage and mitigate going forward.

In terms of hiring clearly a competitive marketplace.

Out there in life Sciences and in general.

We have been actively hiring through this entire year.

I'd say pretty successful with it we are looking at accelerating and adding to some of that as we move into the second half of the year, we are supplementing our recruiting capabilities both internally and.

Externally to help us with that so we feel very optimistic that we'll be able to meet our goals for hiring in the second half of the year.

It's a tough market. So we're going to continue to look at things, we can do to make sure we're able to execute on that.

Perfect. Thank you guys.

Thanks, Hey, John Thank.

Thank you.

Our next question will come from Max Masucci with Cowen. Please go ahead.

Hi, Robert and John Congrats on a strong debut.

Thanks, Max Thank Max.

So I appreciate you providing the full year commercial revenue target at least $24 million.

Above where you are can.

Can you just maybe touch on some of the underlying assumptions that get you to that 24 million number and then what types of events, whether it be a large customer order or a quicker pace of validation could could mark upside.

Yes, sure it's Sean.

Max I think.

I talked a little bit in my prepared remarks around sequential cadence, what we expect to happen to drive some of that right. So our expectation is youre going to see placements sequentially go up in Q3, and then again in Q4 were validating more systems, we've almost doubled the number of systems we have.

Validated in the field over the past 12 months.

So that's going to help us to drive consumable growth over time.

And we still have a pretty healthy backlog of validation work to do and we're adding to our service contract backlog. So.

We build that base across.

Our growing customer base.

Base all of those things are going to be drivers for the revenue. So I think that's kind of this construct that we expect the rest of the year to play out under.

I think across all of those areas there is the potential for some upside.

Okay.

We have relatively good visibility on the system side.

Looking out into the second half.

I think we feel good about where we are.

But want to make sure that we're managing the business carefully there as well I think consumables is an area, where we're pushing very hard.

Is there some opportunity there we'd like to think there is but I think it's a little early to be building any of that into the forecast at this point so.

Install I think theres opportunity there.

Don't have the level of conviction, we need you to put it into the forecast, but we're going to continue to go after that as we work our way through the second half.

Yeah, absolutely makes sense and then if we look at a few of your customers sort of rolled out growth direct assistance to multiple sites over say four.

The five year period can you just help us understand how these customers thinking about when it's the right time to expand the growth direct platform from from one to several manufacturing sites and then just generally how customers think about the pace.

Which they want to rollout the system to their global.

Network.

Yes, Max Rob at the process typically starts usually out of sight, maybe two sites, where the customers will initially purchased systems.

Go through a little bit.

I'll go through a validation installation.

Installation and validation process and then from there they will typically start the follow on.

Purchases.

<unk> customers have different initial problems, we're solving some rollout.

More thematically across a application like a water applications at multiple sites.

Across maybe multiple products and maybe even environmental monitoring across multiple sites as well other customers.

<unk> will.

<unk> focus on a single product category, even a therapeutic.

<unk> rollout globally that way so there's not really one size fits all with regard to how the rollout is driven.

But from a high level typically starts at a site where it's validated.

And again and it rolls out from there and and.

Many many customers have have have done that and are doing that now.

Round, the world across North America, Europe and Asia.

As far as far as timing.

We are seeing I would say.

A quickening of the pace as we as we mature and customer.

Customers are more aware of us and we've got more and more brand and capability in the market.

I wouldn't call it out as a as a necessarily.

Different feature, but we are seeing that.

We are seeing a strong demand from the market to roll our systems out to their their global networks globally.

The global manufacturing networks.

And Max first thing I would add to that as we've as we build out our sales organization. We have a component that is focused on key accounts and part of their remit is to look at these opportunities and try to accelerate that rollout. So theyre going to have they have global visibility into customers.

And are working with our.

Our individual reps across the world to try to drive that process forward.

Alright.

And with our field reps and tandem exactly.

Makes sense good segway now that you've fortifying the balance sheet can you just give us a sense for the specific areas, where you think increased investment.

<unk> can be the most impactful is it on the sales side for new customer wins and existing customer growth or is it on the customer support side to assist in enterprise deployments.

Shortening the validation period.

Yes, it's a bit of both actually so it's starting.

<unk> with.

You may have picked up in my initial remarks, and then we do believe.

There is a very clear ROI and hiring more direct sales.

Resources around the World, we believe that we will accelerate our.

Our revenue growth.

As you May know.

We've had very relatively light investment and sales leading up to the IPO, but we do we are planning on more than doubling our.

Direct sales force globally.

This year and will continue to grow looking into 2022 and beyond.

As we sell more through that process and customers rollout.

Our previous.

Per our previous discussion that drives more demand for validation as well.

Part B of your question. So we'll continue to add validation resources, which we view as a competitive differentiator. We believe it is a among other differentiators, we have in our business our ability to partner with customers to validate.

With our <unk>.

To move them into routine use effectively and efficiently is a is a competitive advantage. We will continue to make sure we leverage that and invest in that and that validation group, that's a bit more volume driven as you may imagine, but we'll also be investing there.

And you didn't.

Separate topic, but we also see investor.

<unk> and R&D as another lever of of longer term growth and innovation for the business as well, but those are the those are the high level areas, where we're focused on incremental investment.

Great. Thanks for taking the questions.

Thank you.

Thank you. Our next question will come from Dan <unk>.

Customers with Stifel. Please go ahead.

Okay.

Good afternoon, guys. Congrats on the initial call here.

Rob can you just talk a little bit about the usage of Tensity for growth direct that you see when you look at the application focus if a customer just in terms of.

Small molecules biologics cell therapy et.

Cetera.

Just sort of trying to understand when.

When we see a company that has a box that we know that that's a car T company.

What that might mean at a high level on a relative basis just across the different types of accounts when it comes to usage.

Yes, so yes.

At a high level Dan.

The biologic and cell and gene therapy formats tend to be a bit more complex manufacturing and generally higher usage.

I would say that sterile injectables would also be at the higher end and higher usage as well.

Small molecule.

Oral type.

Format and therapies would be on the lower end and then personal care depending on what the actual product is we tend to be kind of a moderate or lower end as well.

Okay, and then maybe Sean on the gross margin line what is the path forward. There looked like I mean, I think that includes seeing the benefit of.

Leverage.

But also some cost reduction so maybe on the cost side.

The best way to think about the elements there outsourcing vendor consolidation et cetera, what's the timing that you are thinking about and where should we maybe look first for you to do some things and anything you might want to say on the target in Europe.

Helpful too.

Yes.

We have a number of different levers that we're looking at pulling to take cost out you touched on one of them kind of vendor consolidation vendor leverage.

Is one so I'd look at that and put it under the broader category of strategic procurement and looking at getting cost out of materials that we're putting into our products through a number of different strategies, including one <unk>.

As I just mentioned.

We're looking at things like value engineering, with our products or looking at how we build our products today, what they're made up today and looking at opportunities to replace materials make design changes and other ways to take cost out of the product as well.

Another category that's definitely.

In our crosshairs, but maybe a little bit further out would be.

Looking at ways to Virtu Verticalizing, our manufacturing process, so taking things that we outsource.

Including things like sterilization different parts of the manufacturing, where it's more of a variable cost.

And bringing that in house and turning it into more of a fixed cost.

We can drive leverage out of so those would be a few of the more significant areas. We're focused on some of our shorter term some are longer term.

So we will continue to work on those and we do expect to see regular.

And meaningful progress as we March forward over the next 18 months.

And getting those margins pause.

Positive and continuing to climb toward a goal.

We're quite a bit higher than that over the next several years.

Okay very good and then just last one for me, which I don't think I heard you mentioned I apologize. If you did just on Asia I mean, that's obviously a really great source of growth for these companies in our space here you have a small presence there but.

I think the plan is to grow your footprint pretty significantly can you just talk about the investment focus specific to Asia and how we should look about you're rolling out.

Capabilities and just footprint there.

Yes, so we've we started with.

Our leadership role that we recently hired in.

He's based in Singapore, Sean manner. She is joining us from Thermo Fisher scientific so he is he.

He is our commercial leader in the in this space and we plan to consistent with the previous comments on growing our sales force plan to do that in the Asia Pacific region, as well around not only direct sales, but over time the balance.

Commercial operation as well to include validation and field services.

Okay. Thanks, very much we have placements, we have placements in the region, but.

The vessel our plan is to accelerate our investment in <unk> and revenue growth in the region going forward I think we want to be fairly aggressive there just given the opportunity.

Entity I mean, we've talked before about.

Revenue mix.

As Rob said, we do have systems, there, but the relative revenue is pretty small in Asia. Today. So there is we view that opportunity is very attractive.

Okay. So we should we see this from a geographic perspective, we should assume expansion in Asia outpaces.

And anything in the rest of the regions or the other regions.

Well initially investment will.

It'll be investment and then and then getting productivity on that investment and so kind of.

Standby.

For more on that ultimately we would expect strong growth.

Yes.

Okay.

Yes.

Thank you I'm showing no further questions in the queue. At this time I would now like to turn the call back over to Mr. Rob Fink Nazi for any further remarks.

Well. Thank you all for joining us today on our first earnings call as.

As a public company I look forward to updating you on our progress during our Q3 call in a few months.

Thank you very much.

Yes.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now.

Disconnect.

[music].

Yes.

Okay.

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Yeah.

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Hum.

Thank you.

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Okay.

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Yeah.

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That answer session.

Ask a question during the session you will need to press star one on your telephone.

Or require any further assistance. Please press star then zero.

I'd now like to hand, the conference over to your Speaker, Mr. David <unk> with Investor Relations.

Please go ahead Sir.

Good afternoon, everyone and thank you for joining rapid micro Biosystems second quarter 2021 earnings call I'm David.

Martin.

On the call from my God, We have Rob Cigna's, Chief Executive Officer, and John <unk>, Chief Financial Officer.

Earlier today rapid micro released financial results for the second quarter ended June 32021.

Copy of the press release is available on the company's website.

Statements contained in this call that relate to expectations or predictions of future events.

It's a performance are forward looking statements actual results may differ materially from those expressed or implied in the forward looking statements due to a variety of factors for a list and description of the risks and uncertainties associated with wrapping micros business. Please refer to risk factors section of our form S. One filed with Securities and Exchange Commission on July 12.2021.

We urge you.

Forward looking statements, whether because of new information future events or otherwise.

With that I will turn the call over to Rob.

I'll then pass it over to Sean for a detailed financial review before we open the call up for questions.

I'd like to start by saying that we're very excited to be speaking with you for the first time following our IPO on July 15.

We listed on the NASDAQ and raised approximately $165 million and net.

<unk>, including the underwriters' exercise of.

<unk> or walkman option wed like to thank everyone, who supported us during our IPO. We are thankful for the hard work of our dedicated rapid micro team and for the support of our customers and shareholders.

But the IPO now complete we are better positioned than ever to execute on our strategy to accelerate the global adoption of our drug direct platform.

Overall pharmaceutical manufacturing we are pleased to report that we had a strong second quarter with reported commercial revenue of $5.7 million representing.

Representing year over year growth of 135%.

This performance demonstrates continued robust adoption of our growth direct platform with eight systems placed and 11 systems validated.

Looking by quarter.

We also announced today that we expect our full year 2021 commercial revenue to be at least $24 million, which.

Which would represent growth of at least 70% compared to 2020. Additionally, we shipped our one millionth consumable since the launch of our current generation close direct system.

During the we're also very pleased to report that we are continuing to grow our team with the addition of great new talent across the company during.

Our team will expand our capability and support our growth and innovation goals.

While we had a chance to tell our story to many of you through our IPO process I'd like to take a few minutes today to provide a brief overview of our company our end markets and our product platform.

For background and context rapid micro bias.

<unk> two systems is revolutionizing microbial quality control or and QC, a critical regulated aspect of the global pharmaceutical manufacturing process and fundamental element of the global pharmaceutical quality control infrastructure. The one trillion dollar global pharmaceutical market is undergoing tremendous change growing.

<unk>, 7% per year to meet global demand for therapies, while transitioning from traditional small molecule modalities to advanced modalities, including biologics and cell and gene therapies.

To meet the growing scale complexity capacity and regulatory demands confronting global pharmaceutical companies the future.

<unk> pharmaceutical manufacturing depends on a massive deployment of automation and digital technologies.

Bacteria mold and other harmful organisms.

The Mtc process is critical because it ultimately helps to ensure patient safety.

A single drug production facility may conduct anywhere from tens of thousands to 1 million Mtc test per year.

Mtc testing has mandated and closely monitored by the FDA and.

Other global regulatory agencies with serious regulatory and financial consequences for a lack of compliance, including 443 observations warning letters or even consent decrees.

The traditional method to conduct mtc testing this call growth promotion, where samples are manually collected on media plagued by MPC specialists.

Manually processed incubated and then visually inspected for growing colonies of micro organisms.

This labor intensive manual method was developed about a 100 years ago and that has not fundamentally changed.

Today, well over 95% of global and QC testing still uses this legacy approach.

Approach, despite drilling costs complexity and risk posed by a non automated process.

The legacy MTBC process is slow.

Wiring up to 14 days to deliver results second the legacy process is entirely dependent on human labor for each of the 15 steps and involves.

Third.

The legacy process is subject to a technician availability error and even the potential for falsification of data.

Finally, the legacy processes unsecured, which can result in noncompliance with data integrity regulations.

These risks have spanned multiple real world problems for pharmaceutical manufacturers.

<unk>, including long regulatory investigations.

Costly enforcement actions and in some cases substantial shareholder value destruction.

For these reasons the legacy manual Mtc process has become less reliable as it is unable to match the growing scale and requirements of modern pharmaceutical manufacturing.

We developed our technology to specifically solve this problem or growth direct platform as the only fully automated high throughput and secure <unk> solution in the world.

Developed with over 15 years of active feedback from our customers, we have made significant investments and difficult to replicate engineering improvements.

Investments have resulted in a purpose built robust and scalable solution to support the rapidly expanding demand for novel and complex therapeutic modalities, such as biologics vaccines cell and gene therapies and sterile injectables.

Our growth rate platform is designed to fully automate and replace the traditional.

Additional manual Mtc process.

Our system wraps this core detection technology with fully automated high volume high capacity.

Past, the walkaway robotic sample handling and incubation locked behind a secured interface that enables compliance with data integrity regulations.

Our technology delivers a speed accuracy scalability and security required by advanced pharmaceutical manufacturing growth direct accelerates time to results by several.

Yes.

A 50% improvement over the traditional method.

Growth wrecked mtc testing as a simple two step of workflow, eliminating 85% of the manual steps of the traditional <unk> process.

Our customers benefit from the advantages of our growth through X system with accelerated time to test results.

<unk> adoption of human errors cost savings data integrity compliance and ultimately more efficient higher capacity and lower risk manufacturing operations.

Moreover, the growth <unk> system is designed to absorb and automate the vast majority of daily Mtc test volume any pharmaceutical manufacturing facility.

And can be operated and fleets of multiple systems to scale with high volume manufacturing.

<unk> every year.

As a as we embed our products within global pharmaceutical manufacturing operations and begin to automate and digitize customer workflows. We believe our platform is exceptionally well positioned to enable the future of quality control automation.

The strength of our value proposition has attracted a top tier customer base.

Clearly the majority of our global top.

And pharmaceutical manufacturers as well as small and mid sized customers.

Our customers include manufacturers of biologics small molecules cell and gene therapies, <unk> compounds, <unk> and personal care products we.

We have installed our systems across manufacturing site networks in North America, Europe and Asia.

To date more than half of our global customer base has purchased multiple systems, many of which are installed across multiple manufacturing sites within a customer's network, we see significant opportunity to expand our market share within existing customers as well as acquire new customers.

Why don't we address all pharmaceutical modalities.

<unk> were especially strong in biologics and cell and gene therapies of note, 30% of all approved cell and gene therapies are currently using the growth direct system.

As I mentioned earlier, we completed eight system placements and 11 system validation during the second quarter, bringing our cumulative totals to 103 systems placed.

<unk> and 63 systems validated.

While we are excited about this initial start we have significant commercial runway ahead.

Our growth direct platform drives multiple revenue streams would be an attractive razor razorblade revenue model.

Initial customer revenue begins with a capital equipment sale of the growth direct system.

And associated lab information management system connection software.

This provides customers a two way secure and paperless data workflow with.

We then provide global support and validation services to help our customers install and validate the CRO correct.

Once the system is validated and transitions to routine use.

Each growth direct system starts to pull through increasingly high volumes of our proprietary and broad suite of consumables.

Provide ongoing preventative maintenance services, which drive recurring service revenue in addition to recurring consumable revenue.

Wavering Mtc automation more broadly across pharmaceutical manufacturing industry. We believe we are in a very strong position to capitalize on a large and growing market with low competitive intensity.

We are leveraging our strategic advantage to accelerate strong commercial momentum, especially in our high growth biologics and cell and gene therapy segment.

<unk>.

Our growth strategy is clear.

We continue to drive new customer adoption across the global pharmaceutical industry, we are.

Standing within our existing customers, placing more systems expanding to new sites and broadening the applications we deliver.

We are targeting new geographies to include Asia Pacific, where we see substantial opportunity to build our.

Commercial and operational footprint and as we look to the future we intend to launch new products spanning data consumables automation and services that deliver integrated QC automation, we expect to grow our influence upstream and downstream within customer workflows and secure more customer share of wallet over time.

We have well established commercial teams in the U S and Europe with significant opportunity to continue to build these teams to drive future revenue growth.

We see our investment in commercial infrastructure as a key driver to accelerated adoption in the U S and Europe as well as geographic expansion to Asia Pac.

With our IPO proceeds.

We are also increasing investment in research and development to accelerate innovation.

In addition to organic investments for the future. We may also use M&A selectively to add complimentary products and services to enhance our value proposition to customers.

In closing we have had a strong start to 2021 and we are very.

Thanks, Rob.

Excited and good afternoon, everyone.

Before I review, our Q2 results I'd like to walk you through the revenue streams and Kpis that we're reporting today and why we believe they are important to understanding our business.

Our revenue is currently have both a commercial component and a noncommercial component commercial revenues represent over 90% of our total revenues today and are comprised of <unk>.

Within commercial the product revenue component includes sales of our growth through our system and our <unk> connection software both of which are nonrecurring.

<unk> as well as consumables, which are recurring this.

In terms of other kpis.

We plan to provide information about the number of systems placed a system placement occurs when we ship or deliver a system to a customer depending on the contractual terms.

Validated we can then work with our customer to transition that system to routine use unlocking meaningful consumable pull through.

Now turning to our Q2 results total revenue for the second quarter of 2021 was $6.1 million.

Commercial revenues made up $5.7 million of this total representing growth of 135% over Q2 last.

Last year.

Within commercial revenue product revenues were $4.1 million and grew 146% over Q2 last year with revenue from both systems and consumables growing over 100% in the quarter.

From a system standpoint, we placed eight systems in the quarter. This compares to three system placements in Q2 last year, which was negatively impacted.

<unk> by some COVID-19 related border closures and other customer site access limitations. Many of those issues are resolved in Q3 last year, which positively impacted our results for that period.

Service revenue was $1.6 million in the second quarter up 113% compared to the same period last year.

The increase was due to higher revenue from validation.

<unk> services and to a lesser extent recurring service contracts during the quarter. We completed the validation process on 11, new systems, bringing the cumulative number of our systems in the field that are validated to 63.

This represents an increase of almost 100% over the past 12 months given the implications of this metric to our potential for future consumables revenue growth.

We view this as significant and important progress.

Recurring revenue, which includes consumables and service contracts was $1.9 million in Q2 and grew 91% compared to Q2 last year.

This growth was driven by triple digit growth in consumables as well as solid growth in revenue from service contracts as we continue to grow our base of validated systems.

To finish up on revenue noncommercial revenue related to our contract with BARDA was zero.

Zero point $4 million compared to zero point $2 million in the second quarter of 2020.

Moving on to gross margins product margins were negative 2.0 million or negative 49% in Q2, this year compared to negative $1 two.

$2 million or negative <unk>, 74% in the same period last year.

Service margins were zero point $3 million or 16% in the second quarter compared to breakeven in Q2 last year.

The improvements in gross margin percentage for both products and services were mainly attributable to cost leverage resulting from higher revenues in Q2 this year.

Moving down the P&L.

Total operating expenses were $9.1 million in the second quarter with spending of $3.1 million in sales and marketing $2.3 million in R&D and $3.6 million in G&A. This.

This compares to total opex of $4.4 million in the second quarter of 2020, the primary drivers of the year over year increase in Opex spending.

Our investments in sales and marketing and R&D.

Costs included in G&A related to our IPO process and investments we made in anticipation of operating as a public company also contributed to the increase.

Net loss in the second quarter of 2021 was $11.8 million, which compares to a net loss of $9.3 million in the second quarter.

<unk> 2020, net loss per share attributable to common stockholders was $20. One in Q2 2021 compared to a net loss per share of $31.93 in Q2 last year.

With respect to noncash expenses and Capex depreciation and amortization expense was 0.4 million stock comp.

<unk> expense was <unk> 4 million in capital.

<unk> was <unk> 5 million in the second quarter of 2021.

We ended the second quarter of 2021 with $100 million in cash and cash equivalents and $26.2 million in debt, excluding unamortized debt discount.

Following the closing of our IPO in July in the underwriting.

We will exercise of their overallotment option in early August we had roughly $260 million in cash and cash equivalents on our balance sheet.

And the underwriters' exercise of their over allotment option. We now have approximately $41.1 million class, a and class B common shares outstanding on an aggregate basis.

Now shifting to guidance, we expect our full year 2021 commercial revenues to at least $24 million, which would represent growth of at least 70% compared to two.

'twenty on.

On a sequential basis, we expect our commercial revenues to increase gross margins to improve in opex spending to increase as we progress through Q3, and then Q4.

We remain vigilant in monitoring these COVID-19 policies and their potential impacts, but we haven't seen any indication of material changes in our business environment to date.

Finally, as you model Q3, this year I would like to remind you that we were required to pay an $800000 exit PTO a former lender upon the closing of the IPO. We currently expect to record this amount below.

The line in other expense and our Q3 P&L.

That concludes our prepared remarks. So at this point, we will now open the call up for questions operator.

Thank you as a reminder to ask a question you will need to press star one on your telephone.

Please limit yourself to one question and one follow up question.

To withdraw your question. Please press the pound key.

Sam Burwell with compile the Q&A roster.

Our first question will come from Tycho Peterson with Jpmorgan. Please go ahead.

Hi, guys. This is Casey on for Tycho, Thanks for taking our questions I.

I guess the first one is around the competitive landscape.

Can you.

Talk a little bit about.

Competitors and QC testing space I know interscience has sort of a similar product.

I think Charles River competes.

Can you just talk a little bit about what youre seeing on the competitive side and.

How the growth direct system is differentiate a little bit from competition.

Yes, I'd say generally.

Generally the.

So no change in the competitive environment and the competitive intensity.

Is remains low.

By far the largest competitor we have we believe is a legacy method with 95 plus percent of the market using it and we of course are Washington competitive landscape, but again.

We believe the competitive intensity remains remains below Moreover, our we believe our system is highly differentiated against.

Any of the called the technology enabled.

Companies out there.

We have the right high capacity high throughput.

System with the right.

Make up and it was built custom built effectively for the pharmaceutical market and we believe it's highly differentiated compared to the other players out there and we believe our commercial traction globally.

Our customer base.

Presents that.

Okay.

Gotcha and then just following up on that during the IPO process, we got the question.

I think.

Compared to how long you guys have been on the market I think around 15 years.

I think you've only penetrated around 50% of pharma customers. So maybe can you talk a little bit about.

Historically.

Pharma penetration and how you are going to drive sort of further penetration here moving forward.

Yes, so I think for context, it's important to note that really we count the first full launch of our current growth or X system in 2017.

So relatively recently so from that perspective.

<unk>. It was it was initially launched in 2014 and effectively a beta format, but we view the official commercial launch in 2017, and we've had a phenomenal reaction to the global customer.

Customer base, especially among the global top 20, and in particular in the biologics and cell and gene therapy segments.

So we'll continue to see broad based.

Uptake of our system globally, not only in the global top 20, but also in small and mid customers.

As well so we have a broad based value proposition that is highly differentiated and as I mentioned, it's so rate system for this market was purpose built again specific.

Specifically to solve the challenges.

In this market that these globally that.

Pharmaceutical companies are experiencing.

Gotcha, and then last one for me and then I'll hop back in the queue in terms of menu buildout priorities longer term I guess.

Personal care Mtc test.

<unk> be something you guys would look at.

I guess, how near term would we expect sort of some menu buildout.

Or is that something that you guys are thinking about at this point well, we're certainly aware of it as I mentioned in my remarks, we have sales into this segment. Although were currently focused on the pharmaceutical.

Market, it's just a tremendous amount of runway we have in front of US we've got very strong brand momentum.

And credibility and trust and global pharmaceutical so we're focused on that market for those reasons.

And others are you mentioned menu, it's important to note that we can address the personal care market with our current platform.

It would be more of a it would be less of an R&D activity and more of an extension of our commercial operation, but again, we're focused our commercial resources.

Currently on.

Global pharmaceutical market more to follow up perhaps in the future, but our focus right now is global pharma and Biopharma.

Thank you. Our next question will come from Shanghai Zavon with Morgan Stanley. Please go ahead.

Hey, guys good evening.

A couple of quick ones for me.

Rob on backlog I mean can you share a little bit more color on backlog mix in terms of any large multi.

So the orders we should be thinking about and then in terms of slicing up the backlog in a slightly different way in terms of placements.

The same site same customer, but new site and then new customers can you shed some color on that.

And what that means for your sales and installation cycle heading into the back.

Unit of the year.

Yes.

Get into any specific customer or pay Jos but semantically.

Per my previous remarks, we are seeing.

Large companies in particular rolling this out across their global networks. So.

Half log I'll refer to I'll call it funnel our forward funnel.

<unk> consists of a healthy mix of both our current customers executing those rollouts across their within their current size they have systems into new sites and into new geographies.

That we expect will drive continuing.

Buy back a strong order orders from those customers as well as new customers starting with us.

So all of those are.

Our funnel is very healthy and we are.

Quite confident in our forward looking funnel with regard to both general categories of customers.

Got it fair enough.

And then.

On a somewhat related note can you share some details around the kinds of guys and projects you have underway to shorten the cycle from instrument orders generation of consumable pull through and specifically around the validation process.

Yeah sure Sanjay so yes so.

If python or lean tools, we apply.

Most of our business holistically to for process improvement in productivity and clearly.

Looking at our continuing to improve our our speed.

One of the.

The partner with our customers to do that and we have we have and do value stream mapped our validation process from PEO through.

Fly continues and we are.

And working through ways don't give the details on this call we can not only within rapid micro but in partnership with our customers improve the speed and throughput and efficacy of the validation process.

Got it Okay, and then any updates on <unk>.

Routine staying plans obviously the BARDA contract is scheduled to run out in November this year, but are you in a good place to launch that capability, perhaps next year and can you help us think about how big that opportunity could be in the competitive differentiation there versus folks like <unk> et cetera.

Yes, so maybe in reverse order the total market size.

To have better than $2 billion at competitive.

The consumable will run on our system. So the sterility platform sterility consumable will benefit from.

The full automation the walkaway automation the speed of data integrity.

Digital nature of our system that are.

Our other assays and the benefit from that clearly differentiated from.

From any other any other player on the market to include capacity and throughput.

Regard to the program is proceeding well.

At a high level I can tell you. We're looking we're speaking to current and.

And potential.

New customers on a beta test we'll call. It in 2020 to offer stability that would be the high level of steer I can give you with regard to how the development is going.

Perfect and one final one for Sean Sean.

Are you seeing any supply chain cost pressures given all the chatter around inflation et cetera, and in terms of just.

Your hiring plans for the back half of the year, I mean, any possibility of a slower than expected.

In terms of Opex given the.

The.

Pressures to hiring good people that a lot of life science companies are seeing at the moment.

Yeah, sure Hey, Josh, Yes, so I think as we.

Think about the costs and inflation and things like that and we've been very proactive.

Starting pretty early on when Covid hit.

Doing things like building safety stock and locking in supply through longer term commitments with our vendors. So there is clearly some inflationary.

I guess headwinds out there.

In the marketplace, we've done I think a pretty good job at being able to avoid most of those by doing that and being proactive with that.

Bits and pieces of it are hitting us I would say, it's nothing that we view as significant at this point or something that we can't continue to kind of manage and mitigate going forward.

In terms of hiring clearly a competitive marketplace.

Place out there and life Sciences and in general.

We have been actively hiring through this entire year.

Externally to help us with that so we feel very optimistic that we'll be able to meet our goals for hiring in the second half of the year.

It's a tough market. So we're going to continue to look at things, we can do to make sure we're able to execute on that.

Perfect. Thank you guys.

Thanks, Hey, Jeff. Thank you. Thank.

Thank you.

Our next question will come from Max Masucci with Cowen. Please go ahead.

Hi, Robert and John Congrats on a strong debut.

Thanks, Max and thanks Max.

So I appreciate you providing the full year commercial.

The new target at least $24 million.

Just above where you are.

Can you just maybe touch on some of the underlying assumptions that get you to that $24 million number and then what types of events, whether it be at a large customer order.

A quicker pace of validation could could mark upside.

Yes, sure it's Sean.

Max I think.

Validated in the field over the past 12 months.

So that's going to help us to drive consumable growth over time.

Then we still have a pretty healthy backlog of validation work to do and we're adding to our service contract backlog. So.

We build that base across.

Our growing customer base.

<unk> installed base all of those things are going to be drivers for the revenue. So I think thats kind of this construct that we expect for the rest of the year to play out under.

I think across all of those areas there is the potential for some upside.

Yes.

We have relatively good visibility on the system side.

<unk> looking out into the second half.

I think we feel good about where we are but want to make sure that we're managing the business carefully there as well I think consumables is an area, where we're pushing very hard.

There is some opportunity there we'd like to think there is but I think it's a little early to be building any of that into the forecast at this point so.

I think there is opportunity there.

Don't have the level of conviction, we need you to put it into the forecast, but we're going to continue to go after that as we work our way through the second half.

Yeah, absolutely makes sense and then if we look at a few of your customers sort of rolled out growth direct systems to multiple sites over say four.

A five year period can you just help us understand how these customers thinking about when it's the right time to expand the growth direct platform from one to several manufacturing sites and then just generally how customers think about the pace.

Which they want to rollout the system to their global.

Network.

Yes, Max Rob at the process typically starts usually out of sight, maybe two sites, where the customers will initially purchase systems.

Go through a <unk>.

I'll go through a validation.

Installation validation process and then from there they will typically start the follow on.

Purchases.

Customers have different initial problems are solving some rollout.

More thematically across a application like a water application to multiple sites.

Across maybe multiple products and maybe even environmental monitoring across multiple sites as well other customers.

<unk> will.

<unk> focus on a single product category, even a therapeutic.

<unk> rollout globally that way so there's not really one size fits all with regard to how the rollout is driven.

But from a high level typically starts at a site where it's validated.

And again and it rolls out from there.

Many many customers have have have done that and are doing that now.

Around the world across North America, Europe and Asia.

As far as far as timing.

We are seeing I would say.

A quickening of the pace as we as we mature and customer.

Customers are more aware of us and we've got more and more brand and capability in the market.

I wouldn't call it out as a as a necessarily.

Different feature, but we are seeing that.

We are seeing a strong demand from the market to roll our systems out to their their global networks globally.

The global manufacturing networks.

And Max one thing I would add to that as we've as we build out our sales organization. We have a component thats focused on key accounts and part of their remit is to look at these opportunities and try to accelerate that.

So theyre going to have they have global visibility into customers.

And are working with our.

Our individual reps across the world to try to drive that process forward.

Alright.

Amazon field reps and tandem exactly that makes sense. Good segway now that you've fortifying the balance sheet can you just give us a sense for the specific areas, where you think increased investment.

<unk> can be the most impactful is it on the sales side for new customer wins and existing customer growth or is it on the customer support side to assist in enterprise deployments.

Shortening the validation period.

Yes, it's a bit of both actually so it's starting.

Darting with.

You may have picked up in my initial remarks, and then we do believe.

There is a very clear ROI and hiring more direct sales.

Resources around the World, we believe that will accelerate our.

Our revenue growth.

As you May know.

We've had very relatively light investment and sales leading up to the IPO, but we do we are planning on more than doubling our our direct sales force globally. This year and will continue to grow looking into 2022 and beyond.

As we sell more through that process and customers rollout.

Our previous.

Per our previous discussion that drives more demand for validation as well.

With our <unk>.

Customers to move them into routine use effectively and efficiently is a is a competitive advantage. We will continue to make sure we leverage that and invest in that and that validation group, that's a bit more volume driven as you may imagine, but we'll also be investing there.

And you didn't.

Separate topic, but we also see invest.

And R&D as another lever of of longer term growth and innovation for the business as well, but those are the those are the high level areas, where we're focused on incremental investment.

Great. Thanks for taking the questions.

Thank you.

Thank you our next question will come from Dan.

<unk> with Stifel. Please go ahead.

Okay.

Good afternoon, guys. Congrats on the initial call here.

Rob can you just talk a little bit about the usage intensity per growth direct that you see when you look at the application focus if a customer just in terms of.

Small molecules biologics cell therapy et.

Et cetera, I ask just sort of trying to understand when.

When we see a company that has a box that we know that that's a car T company.

What that might mean at a high level on a relative basis just across the different types of accounts when it comes to usage.

Yes so.

At a high level Dan.

The biologic and cell and gene therapy formats tend to be a bit more complex manufacturing and generally higher usage.

Say that sterile Injectables would also be at the higher end and higher usage as well.

Small molecule.

Oral type.

Our format and therapies would be on the lower end and then personal care depending on what the actual product is we tend to be kind of a moderate or lower end as well.

Okay, and then maybe Sean on the gross margin line what is the path forward. There looked like I mean, I think that includes seeing the benefit of.

<unk>.

But also some cost reduction so maybe on the cost side.

It's the best way to think about the elements there outsourcing vendor consolidation et cetera, what's the timing that you are thinking about and where should we maybe look first for you to do some things and anything you might want to say on the target in Europe would be helpful too.

Yes, so we.

We have a number of different levers that we're looking at pulling to take cost out you touched on one of them kind of vendor consolidation vendor leverage.

You mentioned.

We're looking at things like value engineering with our products looking at how we build our products today, what they're made up today and looking at opportunities to replace materials make design changes and other ways to take cost out of the product as well.

Another category that's definitely.

Just in our crosshairs, but maybe a little bit further out would be.

Looking at ways to Virtu vertical is our manufacturing process, so taking things that we outsource.

Including things like sterilization different parts of the manufacturing, where it's more of a variable cost.

And bringing that in house and turning it into more of a fixed cost.

The leverage out of so those would be a few of the more significant areas. We're focused on some of our shorter term some are longer term.

We will continue to work on those and we do expect to see regular.

And meaningful progress as we March forward over the next 18 months and getting those margins pause.

That we can drive and then continuing to climb toward a goal.

We're quite a bit higher than that over the next several years.

Yes, Okay very good and then just last one for me, which I don't think I heard you mentioned, but apologies. If you did just on Asia I mean, that's obviously a really great source of growth for these companies in our space here you have a small presence there.

I think the plan is to grow your footprint pretty significantly can you just talk about the investment focused specific to Asia and how we should look about you're rolling out.

Capabilities and just footprint there.

Yes, so we've we started with.

Our leadership role that we recently hired in.

Singapore, Sean manner. She is joining us from Thermo Fisher scientific so he is.

He's based commercial operation as well to include validation and field services.

Okay. Thanks, very much we have placements, we had placements in the region, but.

So our plan is to accelerate our investment in <unk> and revenue growth in the region going forward I think we want to be fairly aggressive there just given the opportunity.

I mean, we've talked before about revenue.

Our revenue mix.

As Rob said, we do have systems, there, but the relative revenue is pretty small in Asia. Today. So there is we view that opportunity is very attractive.

Okay. So we should we see this from a geographic perspective, we should assume expansion in Asia outpaces.

<unk> and the rest of the regions or the other regions.

Well initially investment will.

It'll be investment and then and then getting productivity on that investment and so kind of.

Standby for more on that ultimately we would expect strong growth.

Anything yes.

Okay.

Yes.

Thank you I'm showing no further questions in the queue at this time.

Now I'd like to turn the call back over to Mr. Bob <unk> with Nancy for any further remarks.

Well. Thank you all for joining us today on our first earnings call as.

Out of the company I look forward to updating you on our progress during our Q3 call in a few months.

Thank you very much.

Okay.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now.

That's correct.

Q2 2021 Rapid Micro Biosystems Inc Earnings Call

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