Q1 2022 Zymergen Inc Earnings Call

May 12, 2022

Good day, and thank you for standing by.

I'll come to the <unk> first quarter 2022 financial results 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 please be advised that this call is being recorded.

If you require any further assistance. Please press star zero I would now like to hand, the conference over to your host today, Gary Mandel from Investor Relations you may begin.

Okay.

Thank you.

Earlier today Zymogen released preliminary financial results for the quarter ended March 31 2022.

You haven't seen this news release or if you'd like to be added to the Companys distribution list. Please E mail to Investor Zymogen Dot com.

Joining me today from Zymogen, RJ slightly acting Chief Executive Officer, and ESI Chief Financial Officer.

Before we begin I'd like to remind you that management will make statements. During this call that are forward looking statements within the meaning of federal securities laws.

These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated.

Additional information regarding these risks and uncertainties appears in the section entitled forward looking statements in the press release issued today.

For a more complete with MS. Kirsten please see the risk factors section of the company's latest 10-K and other filings with Securities and Exchange Commission, including one filed the Form 10-Q for the first quarter of 2022.

Except as required by law zymogen disclaims any intention or obligation to update or revise any financial product pipeline projections or other forward looking statements are there 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 12 2022.

In addition, please note that the first quarter financial results discussed today are preliminary and estimated and are subject to the completion and finalization of the emerging financial and accounting closing with each person.

With that I'd like to turn the call over to Jay.

Thanks, Carrie and good afternoon, everyone. Today I'll provide a brief update on progress against a few of our key programs and then we will also share a more detailed review of our financials, including our preliminary first quarter 2022 results and our forecasted cash runway.

Let me begin by reiterating zymogen submission to partner with nature to make better product a better way for a better world.

We committed in August of last year to rapidly transform how is emerging with organize manage and operated that included restructuring and right sizing our teams instituting a robust product development process trimming refocusing and balancing our product pipeline, creating a three year strategic plan and extending our cash runway I've been.

Very pleased with our team's performance to get the new zymogen operating system fully implemented.

This infrastructure provides a foundation for great execution to deliver products in our three businesses of advanced materials drug discovery and automation.

As a reminder, our strategy is distinctly committed to bringing products to the market designing and producing molecules microbes and materials for diverse end markets.

These markets include four in advanced materials, namely agriculture water repellent see advanced polymers and enzymes.

Drug discovery, where we leverage our <unk> genomic database to uncover molecular matter that inhibit targets of interest focused initially in oncology and on partnerships with biopharmaceutical companies.

And we began to offer our proprietary automation technology outside of Zymogen in January of this year.

As I mentioned earlier, one of the key transformations. We made was to create a nimble disciplined product development process. We were fully implemented by the end of last year with all programs operating under this structure.

Since year end, we had three programs advance the phase and we promoted two research programs into our product development pipeline, both of which are in one of the four market segments that we've been targeting.

Our nitrogen fixation program is delivering engineered microbes to a partner that replaces the requirement to use nitrogen fertilizer.

The production of this fertilizer consumes 1% to 2% of the world's energy with field runoff that creates algae blooms and dead zones and waterways around the globe.

We believe that microbes can ultimately need olive corn nitrogen needs and can be expanded to include additional cereal cereal crops, such as wheat, sorghum as well as other nutrients.

To ensure that microbes will have consistent performance and a variable agricultural environment, we measure strained performance in a suite of assays each of them representing very specific conditions.

This is a process of iterative improvement our gen. One microbes validated the predictive power of our lab assays.

Based on that we're quite optimistic about the gen. Two microbes being planted now and we're already hard at work on Gen. Three for 2023 trials.

Our best Gen. III microbes are early in development, but the best variant is already showing over a 50% improvement against the commercial benchmark under defined lab conditions and this is after only a few months of work.

An excellent example of how powerful the iterative learning cycle is.

Can be implemented using our technology platform.

We expect this annual development and test cycle to continue over at least the next few years with continuous improvement and performance features.

Next I'd like to update you on our water repelling C program the.

The first market segment, we're exploring is coated straws that improve the mouthfeel and key performance characteristics over paper.

We recently demonstrated the successful conversion of our coated paper into an end product manufactured on the actual production line are a potential customer base.

These included the typical straws used in the fast food industry as well as strong as that are used in plastic wrap on juice boxes.

And our research group, we're exploring a family of other uses for our water <unk> technology in packaging applications as well as in new market segments.

Finally, I'd like to talk about our progress in automation.

Recently excited about the commercial potential of our automation technology.

<unk> built and operated in a large scale system for years internally, we have a unique and informed view of the challenges that need to be solved to fully automate maintain scale and reconfigure such a system.

As a reminder, our design is based on building blocks, we call Rex a reconfigurable automation carts. These modules how is units of automation and contains third party equipment, such as robot bids plate readers PCR machines and many other devices. These cards literally plug together to form a raceway that moves plates.

From station to station in a controlled by our cloud native automation control software called Acs for which we've recently filed a patent.

Acs schedules workflows, which can be interleaved collect scientific and process data on instrument performance utilization and monitors progress all remotely.

Collection of racks can scale to any size, depending upon throughput and application and can be reconfigured in a matter of hours.

We've seen very strong interest from potential customers that run the gamut from startups to very large pharmaceutical and chemical companies.

Our pipeline of approximately 30 prospects has given us confidence that our products can address real market needs that are not unique to zymogen.

To give you a sense of the value of this pipeline a typical 10 rack system would cost somewhere between 1 million and $2 $5 million, depending upon the instrument mix with approximately $400000 in annual software and support costs.

I would add that this prospect list was generated solely by word of mouth as we've done no promotion nor have we hired any sales team.

To conclude I wanted to take a minute to illustrate the technical productivity of our teams one measure of that is the quality and quantity of intellectual property.

Patents that we create and ultimately get issued we have approximately 98 issued or allowed patents and roughly 261 active or pending applications across a 110 families.

While the depth and breadth of this portfolio is impressive perhaps more important our foundational patents, including one we hold titled High throughput genomic engineering platform.

It establishes a broad territorial fence around our platform.

To sum up I am pleased with the execution of our team since the start of this year and look forward to updating you on our progress with that I'll turn it over to Anna to update you on our financials.

Thanks, Keith I will now take you through our preliminary results for the first quarter of 2022.

Total revenue was $4 8 million.

Primarily from R&D service agreements and collaboration revenue.

This compares to $3 7 million in the same quarter of 2021.

<unk> revenue was driven by a new R&D service contract obtained through our acquisition of <unk> in May 2021.

As well as to the timing of delivery both on other R&D service agreement.

In addition, total revenues for the first quarter of 2022 includes $1 7 million of one time revenue with the recognition of previously deferred revenue related to the termination of a legacy R&D service agreement as we rotate to focus on our product pipeline.

Total operating expenses, including cost of service revenue for the first quarter of 2022 was $68 4 million.

A decrease of 22% compared to $87 1 million in the first quarter of 2021.

First quarter operating expenses decreased by 8% compared to $74 3 million in the fourth quarter of 2021.

Cost of service revenues for the first quarter 2022 were $12 5 million.

Decrease of 41% compared to $21 1 million.

In the same period of the prior year.

The decrease from the same period in the prior year was primarily driven by lower head count as a result of our reductions in force.

Cost of service revenue increased 20% compared to the fourth quarter of 2021, primarily as a result of annual salary increases that became effective in Q1, 2022 and additional stock compensation costs.

R&D expenses for the first quarter of 2022 with $28 7 million.

Decrease of 28% compared to $39 8 million in.

In the same period of the prior year and a decrease of 4% compared to the fourth quarter of 2021.

The decrease from the same period in the prior year was primarily driven by the slowdown in spending on canceled programs and lower head count as a result of our reductions in force.

Sales and marketing expenses for the first quarter of 2022 with $3 6 million.

Decrease of 47% compared to $6 9 million.

In the same period of the prior year and a decrease of 26% compared to the fourth quarter of 2021.

The decrease from prior year was primarily driven by reduced spending on public relations and brand marketing activities and lower headcount as a result of our reductions in force.

General and administrative expenses for the first quarter of 2022.

$23 $7 million.

23% compared to $19 3 million in the first quarter of 2021 and up 7% from $22 1 million in the fourth quarter of 2021.

The increase versus the prior year was primarily driven by an increase in stock compensation costs related to our employee retention efforts.

Net loss in the first quarter of 2022 with $72 1 million.

Compared to $84 6 million in the first quarter of 2021, and $78 1 million in the fourth quarter of 2021.

We ended the quarter with $337 million in cash and cash equivalents and $11 5 million.

In restricted cash.

Looking ahead in 2022, we continue to expect product revenue to be immaterial this year and continuing to prioritize closely managing expenses.

We expect total operating expenses, including cost of service revenue in our second quarter of 2022 to be in the range of 75% to $79 million due to deferred spend from the first quarter of 2022.

Thereafter, we continue to expect our total operating expenses run rate to be in the range of $70 million to $75 million.

This includes $14 million to $19 million of stock based compensation depreciation and amortization expenses.

As a result of cost savings related to our restructuring efforts. We believe that we have sufficient cash to fund operations to mid 2023.

However, the quarterly cash flow will be uneven due to capital expenditures on leasehold improvements to the third quarter of 2022.

And the repayment of a perceptive depth in the second quarter of 2022.

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

Thank you Ina.

To close I'd like to reiterate how excited I am about the progress that we've made.

We're intensely focused on our strategy of pursuing continuous launches of breakthrough products, we have an enormous tam and our powerful technology platform to create novel products I Hope, it's clear how we're managing the business to create multiple successful products and that we have an engine feeding that pipeline with new opportunities.

Our burden to demonstrate that we can execute technically and commercially against our plans.

Market is hungry for a new generation of technology that will transform the way materials are manufactured we're confident the zymogen will be a significant contributor to that future. We look forward to updating you on our progress with that we'll now open it up for questions operator.

Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby we compile the Q&A roster. Once again that is star one and we please ask that you limit yourself to one question and one follow up again, we ask that you limit yourself to one question.

And one follow up.

And our first question comes from Mac Sykes from Goldman Sachs. Your line is now open.

Alright, Thanks, taking my questions Hi, Jay Hanger.

Maybe just.

On the first question just J for you on automation.

You've talked a bit about it in the past I think you've given some detail and some of your public commentary about.

The size of the customers and prospects would love to hear in terms of types of customers specific end markets, where does it really resonating.

On the geographic basis I am assuming much of this is in the U S. But maybe talk a little bit more about where you see the funnel for automation in terms of end markets geographies et cetera.

Yes. So it is fair to say that most of it is U S. But we've had a surprising number of inquiries from from customers outside the U S and so.

I'd say a handful out of the 30 prospects. We're working on are outside the U S.

The scale of the systems.

Yes.

Cover quite a range all the way from prototype systems of a few racks up to potentially ones that have <unk> in them. So some very large potential installations.

And they range from government sites to biopharmaceutical laboratories.

Quite a number of startups in the list that are well funded and are looking to install automation for the first time. So it covers a pretty wide range.

Most exciting.

We plan to do an installation in their site, but then to essentially replicate that in their customer sites. So those are.

Customers that would be super exciting for us obviously, because the parents create childhood applications or child installations.

Got it thanks for that and then.

And maybe just on your commentary on Opex that.

70 $75 million run rate.

On a quarterly basis in terms of your flex within that.

It seems like Youre prioritizing R&D, just given the stage of the company, whereas some of the flex I'm sure some of us on sales and marketing, but on the G&A side. How flexible are you within that sort of $70 million to $75 million run rate, if you need to be.

Yes, I mean, we are prioritizing R&D, that's exactly right.

We have some flexibility.

In that run rate, especially as you think about optional choices on sales and marketing.

But in terms of <unk>.

Restructuring, we're largely done at this point, yes, and recall that that that run rate. You cited includes noncash correct.

As we said, 15% to $19 million, so the cash run rate substantially less of that.

Understood Alright, thanks very much.

And thank you.

Okay.

And our next question comes from Jon <unk> from UBS. Your line is now open.

Okay.

Hi, Hello. This is essentially cornering for John So my first question is regarding the.

Can you talk about.

I understand correctly, you mentioned that it was validate all customer process.

Any potential of converting that to revenue.

And if not what are the barriers there.

So you cut out right at the critical word in your first sentence. So so can you repeat that again for us.

Oh, sorry about that.

Especially for the straw application can you hear me all right.

Yes, okay.

Strong applications. So if I understand your statement previously you said.

The straw application under the water in policy was validated in a customer process.

I was just wondering if theres any potential of converting back to revenue.

Yes, Theres certainly it certainly is and that's the reason we're working on it.

Theres a handful of large scale straw manufacturers in the world and so we're in discussions with multiple strong manufacturers and this is one off.

One of those particularly large one and we ran as I mentioned in the script. Both the kinds of straws that are used in typical fast food applications, whether it's starbucks or Mcdonald's and.

And we also ran straws that are used in in juice boxes. So the plastic package draws that are that are heavy you bend in them.

And so that was the very first run production instruments, and we wanted to evaluate along with that.

Potential customer the quality of the product that came off their machines.

Fine tuning, we might need to do to optimize the product and then of course, we are going into a testing cycle to see how they actually perform now that we've made them and are on their machines as well as looking at additional ways to drive down costs.

Technical improvements or tweaks that we can make that drive down the cost of manufacturing those so it's certainly our intent to turn that into a revenue opportunity.

Okay. Thanks, that's very helpful any timelines specific on that front.

Generating revenue wise.

Yes.

We're not predicting any specific timelines.

I have said before publicly.

Had our challenges last year.

Predicting where were going to go so we're going to announce things once we've done them as opposed to predicting when we're going to do them.

Okay. Thank you sorry, if I can just squeezing one quick one.

In General the company has mentioned.

Having product revenue in 2023 is that still the right timeframe to think about in general. Thank you.

Yes. It is our guidance has been consistent there that we think product revenues immaterial. This year 2022, but that we will begin their product revenue and 23.

Thank you very much that's all I had.

Thanks.

And thank you.

And our next question comes from Steven Mah from Cowen Your.

Your line is now open.

Great. Thank you operator, and thanks for taking the questions.

Jay.

I only have two questions can you update us on how the CEO search is going and timing on that and then also on the partnership updates I think you said on the last call you were on track to sign a potential drug discovery partnership in 2022 I'm. Just wondering if that's still the case and if you can give us any color on any.

Additional.

Pharma pharma partnership pipeline. Thanks.

Sure Stephen So on the CEO search we are very active now in the market. So I've already performed.

Handful of interviews have probably three or four more of those.

That I will do in the next 30 days that are in the process of being scheduled.

From that path.

A lot of candidates will probably down select to two or three.

To make sure that we have a chance to meet them in person the early ones have been largely over video.

And bring them out to emeryville to meet the team and will down select from there. So my hope remains that we have somebody in place by mid to late summer.

With respect to partnerships.

Our goal was to sign a partnership in 2022, we still are holding to that goal.

Specific to report at this time other than discussions.

We're progressing across multiple partners and we certainly do hope to have won this year.

Okay, great. Thank you.

Okay.

Thank you.

And our next question comes from Matt Larew from William Blair.

Your line is now open.

Hey, good afternoon Jay.

Couple of conferences earlier. This year you provided some updates on <unk> I think.

To maybe add some ongoing tests with <unk> printing Oems are not the one that's still been in.

Talk to us from a ton mile. So just curious if you could provide an update.

If there are any on that.

Yes, I would say we've continued to make progress on both fronts.

As a reminder is the polymer that we were initially deploying in the hi Leanne.

Application and we've repurposed that for three D printing.

We've gone through a number of evaluations there that continue to look promising we have some additional data coming fairly soon there are some upcoming trade shows.

We will have actual customers.

That we have worked with <unk>.

Talking about the <unk> polymer.

But we don't have anything specific to report yet in that market. We do remain optimistic about our technology and about the size and growth of that market. All of the testing data that were performing continue to demonstrate improved performance characteristics of that polymer.

Nothing specific to report on <unk>, one which is the Sumitomo partnership.

Although their discussions with the ultimate customers of that material continue and continue to go well, but no specific news to report there.

Okay and then.

I think maybe the last category on enzymes.

I think you mentioned that you had been in some advanced discussions.

But also we're going to be retained manufacturing and as you've got the sample any material out to any distribution partners. Just curious if I can feedback even from contract manufacturing in our offering.

On the distribution side.

Last one for me.

Yes, we're not quite at the point, yet where we're sampling at scale, but we are.

To start doing that here over the next few months.

Again partnership discussions continue, but but nothing thats far enough along for US to report at this point.

Okay fair enough. Thanks, Jay.

Thanks.

Thank you.

And if you ask a question that is star one again, if you would like to ask a question that is star one and our next question comes from Rachel Baton deal from J P. Morgan.

Hey, thanks for taking the questions.

So first off on the automation offering so last quarter. You had mentioned that you had two contracts for system design. So I was just wondering if you can give us an update on how those two initial design contracts have been progressing and if those customers are continuing towards our fall automation.

Contract and then also have you signed any additional system design contract in the last quarter.

Yes, we've completed one of those system design contracts and that is.

For a government.

Facility and so we have spec that we continue to be very optimistic about that one.

Recent conference last week state publicly that we believe that that will that that deal is contingent on additional government funding coming.

And we're waiting to see if and when that happens and that will be the event that we think would unlock an opportunity for us with that potential customer the.

Second one.

<unk> is in negotiate contract negotiation, so that is underway, but again nothing specific to report on that one.

We don't have any additional design contracts and not all of our customers will go through that phase so only some of them will.

<unk> will be will require that.

We are in many cases scoping out system. So some of these large.

Potential deals are ones, where we can scope out, but we actually haven't done detailed system design, where we would actually be compensated, but we're just doing high level architectural recommendations and thats, where we are with with a handful of customers.

Great. Thank you and then as a follow up just on the economics of this automation contracts. So I think I heard you mentioned $400000 a year in annual software revenue that could come from some of these automation offerings. So is that on average or will it really be the same on just depending on the size of the contract and how many rocks at that customer.

Hi.

Yes, it definitely varies.

As an average number and so if you had a small smaller installation.

<unk> back in a larger one would scale up.

Obviously.

But thats just kind of a place to put a pencil down in terms of what an average might be for a <unk> system.

Great. That's it for me thank you.

Thanks Rachel.

And thank you and I am showing no further questions.

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

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Good day and thank you for standing by welcome to the <unk> first quarter 2022 financial results call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone please be.

Advised that this call is being recorded.

We require any further assistance. Please press star zero I would now like to hand, the conference over to your host today.

Mandeville from Investor Relations you may begin.

Okay.

Thank you.

Earlier today Zymogen released preliminary financial results for the quarter ended March 31 2022.

If you haven't received this news release or if you'd like to be added to the Companys distribution list. Please E mail to Investor Zymogen Dot com.

Joining me today from Zymogen are Jay Flatley, acting Chief Executive Officer, and MSI Chief Financial Officer.

Before we begin I would like to remind you that management will make statements. During this call that are forward looking statements in the meaning of federal securities laws.

These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated.

Additional information regarding these risks and uncertainties appears in the section entitled forward looking statements in the press release simultaneously today.

For a more complete with Mr. Chen Please see the risk factors section of the company's latest 10-K and other filings with Canadian.

And exchange Commission, including one filed the Form 10-Q for the first quarter of 2022.

Except as required by law zachman disclaims any intention or obligation to update or revise any financial product pipeline projection.

Other forward looking statements are there 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 12 2022.

In addition, please note that the first quarter financial results discussed today are preliminary estimated and are subject to the completion is finalization zymogen financial and accounting closing.

With that I'd like to turn the call over to Jay.

Thanks, Carrie and good afternoon, everyone.

Today I'll provide a brief update on progress against a few of our key programs and then <unk> will also share a more detailed review of our financials, including our preliminary first quarter 2022 results and our forecasted cash runway let.

Let me begin by reiterating Zymogenous mission to partner with nature to make better product a better way for a better world.

We committed to in August of last year to rapidly transform how zymogen was organized managed and operated that included restructuring and right sizing our teams instituting a robust product development process trimming refocusing and balancing our product pipeline, creating a three year strategic plan and extending our cash runway.

I've been very pleased with our team's performance to get the new zymogen operating system fully implemented.

This infrastructure provides a foundation for great execution to deliver products in our three businesses of advanced materials drug discovery and automation.

As a reminder, our strategy is distinctly committed to bringing products to the market designing and producing molecules microbes and materials for diverse end markets.

Those markets include four in advanced materials, namely agriculture water repellent see advanced polymers and enzymes.

Doug Discovery, where we leverage our <unk> genomic database to uncover molecular matter that inhibit targets of interest focused initially in oncology and on partnerships with biopharmaceutical companies.

And we began to offer our proprietary automation technology outside of Zymogen in January of this year.

Since year end, we've had three programs advance the phase and we promoted two research programs into our product development pipeline, both of which are in one of the four market segments that we've been targeting.

Our nitrogen fixation program is delivering engineered microbes to a partner that replaces a requirement to use nitrogen fertilizer to.

The production of this fertilizer consumes 1% to 2% of the world's energy with field run off that creates algae blooms and dead zones and waterways around the globe.

We believe that microbes can ultimately need olive corn nitrogen needs and can be expanded to include additional cereal cereal crops, such as wheat, and sorghum as well as other nutrients.

This is a process of iterative improvement.

Our Gen. One microbes validated the predictive power of our lab assays.

Based on that we're quite optimistic about the gen. Two microbes being planted now and we're already hard at work on Gen. Three for 2023 trials.

Our best Gen. Three microbes are early in development, but the best variant is already showing over a 50% improvement against the commercial benchmark under defined lab conditions and this is after only a few months of work.

An excellent example of how powerful the iterative learning cycle is.

Can be implemented using our technology platform.

We expect this annual development and test cycle to continue over at least the next few years with continuous improvement and performance features.

Next I'd like to update you on our water repelling C program the.

The first market segment, we're exploring is coated straws that improve the mouthfeel and key performance characteristics over paper.

We recently demonstrated the successful conversion of our coated paper into an end product manufactured on the actual production line are a potential customer base.

These included the typical straws used in the fast food industry as well as straws that are used in plastic wrap on juice boxes.

And our research group, we're exploring a family of other uses for our water repellent see technology in packaging applications as well as in new market segments.

Finally, I'd like to talk about our progress in automation.

<unk> excited about the commercial potential of our automation technology.

<unk> built and operated a large scale system for years internally, we have a unique and informed view of the challenges that need to be solved to fully automate maintain scale and reconfigure such a system.

As a reminder, our design is based on building blocks, we call Rex a reconfigurable automation carts. These modules how is units of automation and contains third party equipments, such as robot bids plate readers PCR machines and many other devices. These.

These cards literally plug together to form a raceway that moves plates from station to station in a controlled by our cloud native automation control software called Acs for which we've recently filed a patent.

Acs schedules workflows, which can be interleaved collect scientific and process data on instrument performance utilization and monitors progress all remotely.

Collection of racks can scale to any size, depending upon throughput and application and can be reconfigured in a matter of hours.

<unk> seen very strong interest from potential customers that run the gamut from startups to very large pharmaceutical and chemical companies.

Our pipeline of approximately 30 prospects has given us confidence that our products can address real market needs that are not unique to zymogen.

I would add that this prospect list was generated solely by word of mouth as we've done no promotion nor have we hired any sales team.

To conclude I wanted to take a minute to illustrate the technical productivity of our teams one measure of that is the quality and quantity of intellectual property.

Patents that we create and ultimately get issued we have approximately 98 issued or allowed patents and roughly 261 active or pending applications across a 110 families.

The depth and breadth of this portfolio is impressive perhaps more important our foundational patents, including one we hold titled High throughput genomic engineering platform.

It establishes a broad territorial fence around our platform.

To sum up I am pleased with the execution of our team since the start of this year and look forward to updating you on our progress with that I'll turn it over to Ina to update you on our financials.

Thank you I will now take you through our preliminary results for the first quarter of 2022.

Total revenue was $4 8 million.

Primarily from R&D service agreements and collaboration revenue.

This compares to $3 7 million in the same quarter of 2021 <unk>.

The increase in revenue was driven by a new R&D service contract obtained through our acquisition of floater Therapeutics in May 2021 as.

As well as to the timing of delivery both on other R&D service agreements.

Total operating expenses, including cost of service revenue for the first quarter of 2022 was $68 4 million.

A decrease of 22% compared to $87 1 million in the first quarter of 2021.

First quarter operating expenses decreased by 8% compared to $74 3 million in the fourth quarter of 2021.

Cost of service revenues for the first quarter 2022 were $12 5 million a day.

Kris a 41% compared to $21 1 million.

In the same period of the prior year.

The decrease from the same period in the prior year was primarily driven by lower head count as a result of our reductions in force.

Service revenue increased 2%.

Third to the fourth quarter of 2021, primarily as a result of annual salary increases that became effective in Q1, 2022 and additional stock compensation cost.

R&D expenses for the first quarter of 2022 with $28 7 million.

A decrease of 28% compared to $39 8 million in the same period of the prior year and a decrease of 4% compared to the fourth quarter of 2021.

Decrease from the same period in the prior year was primarily driven by the slowdown in spending on canceled programs and lower head count as a result of our reductions in force.

Sales and marketing expenses for the first quarter of 2022 with $3 6 million.

A decrease of 47% compared to $6 9 million in the same period of the prior year and a decrease of 26% compared to the fourth quarter of 2021.

The decrease from prior year was primarily driven by reduced spending on public relations and brand marketing activities and lower head count as a result of our reductions in force.

General and administrative expenses for the first quarter of 2022 with.

$23 $7 million up 23% compared to $19 3 million in the first quarter of 2021 and up 7% from $22 1 million in the fourth quarter of 2021.

The increase versus the prior year was primarily driven by an increase in stock compensation costs related to our employee retention efforts.

Net loss in the first quarter of 2022 with $72 1 million compared.

Compared to $84 6 million in the first quarter of 2021.

$78 1 million in the fourth quarter of 2021.

We ended the quarter with $337 million.

And cash and cash equivalents and $11 5 million.