Q1 2022 Somalogic Inc Earnings Call

May 12, 2022

Good day, ladies and gentlemen, and thank you for standing by welcome to the <unk> first quarter 2022 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 then one on your telephone.

Pat if you require any further assistance. Please press star then zero.

At this time I would like to turn the conference over to MS. Marissa Bice Ma'am. Please begin.

Thank you today <unk> released financial results for the quarter ended March 31 2022.

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

We began I would like to remind you that management will make forward looking statements. During this call within the meaning of federal Securities laws, which are made pursuant to the safe Harbor provision of the private Securities Litigation Reform Act of $19 95.

Statements contained in this call that relate to expectations or predictions of future events results or performance are forward looking statements.

All forward looking statements, including without limitation those relating to our market opportunity gross margin in future financial performance protein content and database growth customer base diagnostic pipeline expectations for hiring and growth in our organization are based upon current estimates and various assumptions.

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

Accordingly, you should not place undue reliance on these statements.

A list and description of the risks and uncertainties associated with our business. Please refer to the risk factors section of our Form 10-Q filed with the Securities and Exchange Commission.

Excuse me Form 10-K filed with the Securities and Exchange Commission in March 2022.

This conference call contains time sensitive information and is accurate only as of the live broadcast today May 12 2022.

<unk> disclaims any intention or obligation, except as required by law to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.

And with that I will turn the call over to <unk> Chief Executive Officer.

Good afternoon, and welcome everyone to our 2022 first quarter earnings call.

I'd like to start off by expressing my sincere gratitude for all who are contributing to our success here at some logic.

As we work everyday to relieve human suffering and prolong meaningful life by harnessing and apply.

Power of the human proteome.

We're extremely pleased with the progress we've made in the first quarter of this year as we have advanced several meaningful scientific and customer facing initiatives.

We drove record first quarter revenue for the company of $23 million.

Reflecting 21, 8% year over year growth as we continue to serve a growing list of customers.

Loss basic research in Biopharma.

This is a year of focused execution at similar logic to drive growth across all aspects of our business and we have great momentum.

This first quarter kicks off what will be another truly transformational year for our company as we leverage our capital position to systematically put the building blocks in place to continue to differentiate ourselves and substantially grow our ability to generate both human and financial value.

As a reminder, we have a healthy balance sheet with over $645 million in cash cash equivalents and short term investments.

This is especially important in the current market environment, allowing our team to stay focused as we continue growing and scaling our core operations and investing in areas of our business that should result in high returns.

To be absolutely clear Soma logic approach.

That form and business model are different.

Our platform includes our unique proprietary proteomics technology, we market as Soma skin.

Our database and our bespoke bioinformatics capabilities.

Our foundational technology Soma scan leveraged leverages proprietary flexible synthetic nucleic acid reagents to currently identify measure approximately 7000 proteins, which is two times, but any other platform can measured commercial scale.

A world's largest commercial proteomics database contains more than $2 5 billion protein measurements and over $15 billion clinical data points.

And our bioinformatics platform includes bespoke tools and capabilities built over a decade.

This platform powers, our life sciences tools business and our ability to develop applications from data only our platform can produce <unk>.

<unk> first in class high Plex, proteomics Soma signal diagnostic tests.

A large spectrum of use cases.

In all respects, we have traveled further and faster down the evolutionary path for proteomics than any other enterprise.

The largest protein measurement identification offering and the most sophisticated and impactful diagnostics products and pipelines.

These distinct advantages capabilities and proprietary tools offer us a substantial first mover advantage.

And a large number of near and longer term opportunities, which we expect to significantly contribute diversifying and growing our sources of topline revenue.

And to substantially expand our share of the rapidly growing proteomics total addressable market.

Estimated to grow as much as 10 times over the next several years.

Our team's efforts to realize the full potential of our technology and platform has led to several exciting developments in the first quarter of 2022.

To start the year, we announced a co exclusive partnership with Illumina, effectively combining genomics and proteomics to empower and enable the future of multi Omics research.

Partnership combines the power and scale of alumina as global commercial infrastructure and installed base with our proteomics platform to develop a co exclusive co branded next generation sequencing based deployed per units 10 product.

While this partnership accelerates our next generation sequencing based capabilities over time, we will develop a variety of protein measurement solutions on several different platforms.

<unk> next generation sequencing, but also arrays and emerging chip based approaches to best meet the needs of all customers collaborators, regardless of their technology cost or throughput needs and preferences.

Later in the quarter and supported by our ongoing efforts to build our database and harnessed the power of the protium to create and validate impactful diagnostics, we announced partnerships with two large biobanks.

In February as a part of the multi ethnic study of Affleck sclerosis or Mesa.

A study sponsored by the National Heart lung and Blood Institute at the National Institutes of Health, we would create a 105 million protein measurements from 15000 samples spanning 15 years of clinical interactions representing the largest proteomics study of an ethnically diverse population.

An important contribution as we work to help solve the problem of global health and equity.

More recently, we announced our engagement with the European prospective investigation for cancer and nutrition or epic biobank.

The cooperative project between the Imperial College, London, The International Agency preferred search on cancer and the World Health organization.

We've begun to analyze what will be a total of $210 million protein measurements from 30000 samples from this biobank.

This will be the world's largest oncologic proteomics study today.

We will use this to both develop a suite of planned cancer prediction tests.

Tests that identify your biologic or risk of developing cancer before it actually occurs as well as share the data back with the consortia for its own scientific use.

These investments are emblematic of <unk> commitment to leveraging protein information the tower, new products solutions and services for our customers.

Such as impactful diagnostic applications.

This is something we remain firmly committed to and are repeated track record of investment followed by innovative successful development clearly validates that.

In mid April we published a landmark study in the Journal Science, and translational medicine, describing the development and validation of our unprecedented clinical residual cardiovascular risk test.

Using the <unk> platform our team created a 27 protein clinical tests derived from more than 30 clinical annotated human samples.

This product accurately predict the full year likelihood of significant clinical events, such as myocardial infarction or heart attack and.

In patients at risk for cardiovascular disease.

Is it actually outperforms current clinical approaches and was reliably sensitive to longitudinal changes and risks for multiple mechanisms, including lifestyle changes in various classes of drug this is paradigm changing.

The ability to accurately predict these events and sensitivity to change each key requirements for a surrogate endpoint for clinical trials use.

As the editorial comments from science translational medicine, the company of the paper suggested.

No single known cardiovascular biomarker concurrently predict heart disease in this manner.

The Soma signal test is now available for clinical use under a laboratory developed test designation or LDP.

It is in the hands of our proteomics for precision medicine partners around the country.

Stay tuned for preliminary findings from this initiative later this year.

Looking ahead, we continue to invest in our technology to further expand our life sciences tools business.

We offer many of over 7000 proteins to our core summer scan products with the intention to reach 10000 available protein identification and measurement <unk> reagents by the end of 2022.

As a reminder, we are the inventors of this technology and the world's most sophisticated developers of these <unk> tools.

We have created thousands of these proprietary modified reagents and are constantly creating more of them.

Current pace of approximately 500, new after construct each quarter to go onto the <unk> menu.

Beyond growing the number of proteins, we can measure and identify with <unk>. Our team continues to find other innovative ways to better serve our life sciences customers and collaborators.

We have long known that differences in collection handling and storage of samples prior to Soma scan assay or any other way of measuring it into funding proteins can affect customer results.

As part of our commitment to ongoing innovation and leveraging our machine learning capabilities. We will soon launch a new product to accompany Soma scan results that identifies pre analytical variation in proteomics samples and therefore will improve the accuracy and reliability of customer insights.

As we've discussed as a complement to our core assay services. We've also developed kitted deployed side of service products, which are currently in early access with select customers.

We intend to move to open access later this year, which in addition to our deal with Illumina continues to effectively expand the modalities by which our customers may access our extensive menu.

Over the past 10 years, we have invested approximately $70 million.

To develop our diagnostic test development capabilities and this has allowed us to create an internally validate within 20 Soma signaled tests.

Many of these tests are currently in the hands of clinicians around the country in the world for their use and evaluation and there are many more to come.

We're growing our pipeline and expect to end of the year and this year with as many as 10 additional impactful protein pattern recognition tests as a result of our internal development program.

Our current database has the potential to produce approximately 80 to 100 of these tests over time.

In an effort to reach the market sooner, however, and build a substantial note for our clinical products, we intend to accelerate our clinical diagnostics business by both licensing in new test development agreements for.

For licensing agreements, we will leverage the many existing diagnostic assets, we have already developed and for development customers. We will work to either leverage our database or samples and data they provide to us to develop new products of interest.

While our current tests or LDP CLIA approved we will bring some of these tests through regulatory processes for broader dissemination.

With the world's most extensive background in identifying and measuring proteins as well as analyzing and interpreting the data acquired from doing so we are scientific leaders in the proteomics space.

We have powered the publication of more than 500 proteomics research manuscripts to date and this is accelerating.

With more than 40 published in the last quarter alone.

Many of these such as our recent publication in science and transition Medicine, Our landmark studies in human proteomics, rather than just method citations I could not be more proud of these contributions because these are contributions that will extend well beyond our own efforts.

And finally, we continue to successfully grow our commercial team to reach new customers and support the adoption of existing customers.

As a reminder, we ended the year with roughly 60 commercial team members with the intention of more than doubling the script size by year end 2022.

We've supported over 400 customers on our platform and continue to grow and diversify our revenue base.

In conclusion, we are clearly making measurable progress.

Our organizational goals and effectively balancing near term growth drivers with longer term significant opportunities to continue to differentiate our business on a number of levels.

I'd now like to turn the call over to Sean to review, our recent financial performance and our 2022 outlook Shawn.

Thanks Roy.

We are pleased to report that revenue for the first quarter of 2022 was $23 million.

A 21, 8% increase from $18 9 million in the same period of the prior year.

We continue to see very strong new customer growth and diversification driving our core.

The bottom line is our commercial team is growing and executing as expected as we continue to expand and diversify our customer base across pharma biotech and academia, which also continues to decrease our reliance on any one customer and positioning us to grow with our innovative partners as they also scale.

No one can measure as many proteins are somewhat logic or create as many applications that result from that measurement and we are poised to win share.

Gross margin for the first quarter of 2022 was 49, 3% compared to 66, 9% in the first quarter of the prior year and 54, 5% in the fourth quarter of 2021.

As a reminder, our core service business as a mid 50% plus gross margin business at this time.

Asps remained strong and our year over year gross margin decline was primarily due to the timing of cost accounting adjustments this quarter and the impact of a modest capacity ramp up and support of the epic and Mesa samples, which start coming in Q2.

Outside of potential investments in partnerships, such as population based studies, which can affect Cogs.

Expect our gross margins will normalize over the course of the year with the opportunity to recover margin. This year as we leverage much larger sample volumes in future quarters.

Total operating expenses for the first quarter of 2022 were $56 3 million, a 107% increased from $27 2 million in the first quarter of 2021.

R&D expenses for the first quarter of 2022 were $13 8 million compared to $8 $1 million in the first quarter of 2021.

Sales general and administrative expenses for the first quarter of 2022 were $38 million.

<unk> to $12 $8 million in the first quarter of 2021.

This increase in expenses is in line with our expectations as we continued to build out some logic and our technology to support our endeavor to become the most comprehensive <unk> company in the market.

Adjusted EBITDA for the first quarter of 2022 was a loss of $32 5 million.

Compared to an adjusted EBITDA.

The loss of $7 6 million in the first quarter of 2021 again aligned with the investment and spend guidance. We previously indicated.

Please see our press release on file with the SEC. This afternoon for a reconciliation between GAAP net loss and non-GAAP adjusted EBITDA.

Bulk of the reconciliation being the noncash valuation adjustments related to warrants and earn out liabilities on our balance sheet.

We ended the quarter with $647 $8 million of cash cash equivalents and short term investments.

As Roy mentioned, our cash position gives us a unique and substantial capacity and flexibility to execute our strategy.

Comments that we want to leave you with regarding cash flow or that we are executing non fulfilling some illogic thesis to become the most comprehensive proteome company in the world.

We will continue to execute this strategy and accompanying investments responsibly and thoughtfully with our aim to have enough runway to achieving positive free cash flow.

Regarding potential M&A activity, our bar is high in assessing the quality of any asset we consider both in terms of strategic and financial contribution.

Turning to our 2022 outlook.

We are reaffirming our formal 2022 guidance of $105 million to $110 million in revenue representing growth of 29% to 35% over 2021 revenue of $81 6 million.

At this point I would like to turn the call back to Roy for closing comments.

Thanks, Sean.

Over the course of the year ahead, we intend to continue sharing our progress regarding our revenue growth and supporting initiatives, including expansion and diversification of our customer base.

Ongoing additions to our commercial team.

Completion of the development of the reagents needed for our 10 Plex product development of new Soma signal tests, the clinical diagnostics licensing or co development deals.

Some logic, our decades of experience and track record of continual innovation places on the leading edge of the rapidly evolving proteomics industry.

While we pride ourselves in leading protein content and technical specifications, we know that the future of this field is not only the measurement and identification of proteins, but the use of the information that's derived from doing so the power applications that impact human lives in a variety of ways.

From a better understanding of animal model in human biology.

With the development of new therapeutics, and diagnostics to better predict manage and prevent disease.

This evolution for measurement and identification of things to using the insights gained from doing so to create increasingly powerful applications, it's happened before and genomics.

However, based on the real time insights it provides the breadth and depth of applications that produce human value derived from the proteome and time will greatly exceed those of the genome.

Our growing clinical proteomics database.

Bioinformatics capabilities and our synthetic nucleic acid reagents offer life sciences tools and diagnostics development trajectory for us through these things.

Our exceeding any traditional approach including antibodies.

We're providing more than just measurements that some logic.

We're building solutions.

And we're really just beginning to do so.

I want to thank you all for joining us today and I'll now turn it over to the operator for our Q&A time operator.

Ladies and gentlemen, once again, if you have a question or comment at this time. Please press Star then one on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue simply press the pound key.

Again to ask a question. Please press Star then one on your telephone keypad.

Our first question or comment comes from the line of Brandon <unk> from Jefferies. Your line is open.

Hey, Thanks, good afternoon.

Well, you kind of mentioned that the commercial.

<unk> build out.

Progressing as expected and just give us an update on the head count there at the end of the first quarter and how youre thinking about the productivity ramp of the expanded team.

Yes.

Ed.

Sure.

Right on pace to achieve the growth in our commercial team as we've described in other words.

Yes to more than double the contingent of those that we have on the team at the end of 2021 and the great news is that.

If people really want to work at Soma logic.

We've managed to grow this team in the company in general we actually doubled the size of the company in 2021 during the period of the great resignation. So we're right on track.

To achieve that doubling of the size of that commercial team and first quarter results are commensurate with that in regards to hiring and retention.

As far as the training.

Time in the ramp up for these individuals.

It varies depending on where the individuals come from and we've been very fortunate over the last year to hire a number of individuals.

Correct Lee from jobs in proteomics or similar John .

<unk> in genomics.

And as we grow the team, we may or may not be able to attract as many people from those because that pool may get depleted eventually but.

We.

We certainly are.

Experiencing a great deal of success in the recruitment and training and.

The time to productivity.

On the order of weeks.

Two a few months at most for these individuals and we don't expect that to change during the course of the year.

Okay. Thanks, I think you mentioned.

Launching a new product to identify pre analytical variations and samples.

Should we think about that as a revenue driver.

How does that get a little bit to that.

Service work and our product work in or should we think about it the way to just improve customer confidence in kind of the quality.

Standardized standardized samples.

Well I'll make a couple of general comments and I'll ask Steve to talk perhaps Dr. Steve Williams Who's on the call with US our Chief Medical officer to talk a little bit about the importance of this product to our customers and collaborators certainly this will generate revenue for us over time in general most data products.

That that are used in conjunction with genomics proteomics tools I don't tend to be the primary drivers of revenue.

To create a great deal of stickiness with your customers on your platform in other words these.

These accouterments that either give you insights about samples or in the future insights about pathways or drug targets related to your sample.

And to be the types of products that encourage people to both come onto and stay on the platform.

Steve would you.

Comment a bit on the utility of this tool for our customers and collaborators.

Yes, it's just fundamentally really important in fact, when I joined <unk>.

12 years ago. The first experiment that we would have had done was in lung cancer and it turned out that the biggest effect in the south because we had just the difference between New York University, and the University of Pittsburgh, and Randy Owen arises because that is a living tissue and when you leave it out on the bench.

Sales start to leak there.

I mean, just had enough protein segments get activated complement gets activated so if you have a precise measurement tool for measuring those proteins youll see the impact of those.

Issued the preamp the tissues.

And what we've done since then.

Individual models for each of the ways that might've been abused.

I'd like to think of these preeminent variability models.

Effectively as a criminal record to reach South pole.

If you know the criminal record when it comes because of course, it doesn't really matter what you tell your collection.

Okay.

Well it.

Did too, but if you know what the record is then you can manage the effect when you annualize Youll sound pulse you can eliminate the risk pools.

Choose to proteins, which are immune to those effects you can look at how different centers, if you're running a multi center clinical trial, you can look at which centers are the best and which of the west and you can adjust for those factors in the results. So I think these are really important they add a lot of statistical power and an ability to resolve.

Yeah.

Thank you Stephen I would add Brandon.

This is the first in our planned number of many data products that we have in development.

Place alongside <unk> scan to give again to give our customers and collaborators more information about their sample both in terms of sample quality, but also as I mentioned earlier things like.

Biologic pathways are activated drug targets may be present, and so forth.

So we are dedicated to creating these data products to support our customers and collaborators alongside our superior measurement capabilities.

Okay. That's helpful and then one.

One for Sean just on the gross margin in the quarter, you're able to quantify the effect of.

<unk>.

Populations samples that will run in the quarter as well as elaborate a little more on the cost accounting adjustments.

John Please go ahead, yes so.

Didn't actually really process, the Mesa and epic.

Samples this quarter. It was just more around like we're trying to provide a seamless experience right for both our partners and our customers and it's not always 100% predictable of how some of the customer samples are going to come in so we did have some modest ramp up.

Again in the Grand scheme of our Cogs is not a big number but on our revenue it does affect our margins in just one quarter.

And those are coming in through Q2, so as I had said I actually would anticipate that we could potentially see leverage on those increased volumes in the quarters to make up some of what we saw in Q1, it absolutely isn't being affected by anything in our core structure or the asp's that we're seeing in our customer base.

Regarding the cost accounting adjustments Brandon.

Our business is growing right. That's the reality is is that we're turning over faster in terms of inventory and not to get too technical but thats, just requiring us to recognize something.

Some variance expenses such as the ramp up for that it makes it an epic studies faster than we had to in previous periods and so it just sort of hit us in Q1 in a way that we didn't fully anticipate kind of those are a little bit difficult to predict but again I expect that will normalize throughout the year with a little bit unique and the adjustments we had to take this quarter.

Got you. Thank you.

Thank you. Our next question or comment comes from the line of Dan Brennan from Cowen. Your line is open.

Great. Thank you thanks for taking the questions maybe the first one.

Obviously theres a lot of dislocations, if you will in that global market with supply chain inflation.

We're working with Covid in the first quarter in interest rates because a lot of noise at the end just wondering can you speak to.

How you guys manage that like any any impact that you saw him due in the first quarter.

In light of that revenue ramp kind of assumed in the full year guide any any thoughts on how kind of pacing could play out throughout the year.

Sure.

The first comment I would make is that we.

We certainly were not surprised by the supply chain disruptions around the world over the last year.

A year and a half and.

Thankfully our operations.

Peter ship and managers.

Did a great job of planning for this and so there are some items, where we had concerns about inventory and so forth we.

We got ahead of it the one area that I would say that the supply chain issue has potentially impacted us over the last few quarters.

Just been the unpredictability of when samples are going to come into the door for our service business.

We're not experiencing necessarily operating challenges internally from this disruption some of our customers are.

And we can have.

During any one quarter.

A large number of samples that are supposed to come in that don't come in that.

Toward the end of that quarter, they come into the beginning of the next quarter because.

Biopharma company or that investigator did not have the right to style samples into because the supply chain issue. So we have seen some unpredictability.

Sample delivery.

And that May continue during the course of the year, we feel quite confident that that is something that will happen between quarters, and we will not have an impact on our overall top line revenue by the end of the year that it will even out.

And any related comments.

Just as you think about <unk> I know you're guiding for the full year, which is great and given the volatility may be difficult, but that will come back.

Kind of point out, particularly in light of the guide 2985 versus <unk>.

Hey, the comps play out I think you do.

Call it like low 20% in the first quarter.

John would you like to take that one.

I'm not sure I'd be honest I Couldnt hear the very end of your question Dan.

So youre talking about the guide in the comps.

Yes, sorry about that.

It was yes. It was really it was really just on.

Full year, you guys feel great about just anything to point out whether it be Q2, where the back half just given the revenue acceleration.

The supply chain. This is anything you guys want to point out about the same.

No I mean, I think Roy summed up the supply chain situation by and again I would reiterate that while we certainly like everyone else in the world right now you see little pockets of issues here and there we've been able to overcome those constraints and again.

Not really even an issue like Roy said, it's just that there has been a little bit more unpredictability, sometimes about when samples are going to come in from our partner and customer site.

Yes.

I think what I, the only thing I would add.

Two this is it a little bit more founding non expectations going forward is that.

I might even wanted just like takeaway here that going back to the end of 2020, we had like around 10, right right and the people and the commercial team and we put up we scaled that team starts going into 2021, and we put up just over $80 million and we're going to continue to scale it to be over $100 million company. This year. So I think.

That bodes well for future quarters.

In a way that.

Again, I'm not suggesting there is upside to our guide our guidance our guide, but these are things that could be potential growth accelerants that we arent considering because I think that as you do see a lot of our sales team members, which were added in the latter half of 'twenty, one really start hitting the stride of efficiency, you're going to see that effect I think most impactful in Q3.

In Q4, so again I think that all plays out into where our guidance coming in but I think youre going to really start seeing that impact hit.

As we get into the latter part of Q2 Q3 Q4, Yes. Two quick comments from me then on this point.

Good.

Just to put a little bit of emphasis on something that Sean mentioned.

I do think it's an important.

Consideration for.

Analysts and investors to remember that.

We generated the revenue we generated last year with about a third of the sales force that are closest comps.

Extent so.

The confidence that we have and our ability to ramp our business as we grow our commercial team is based on.

On some good information there and the second is that.

In regards to this unpredictability, we certainly the pipeline is very healthy and the anticipated sample delivery is really sort of spread out across the year. We don't have any huge anticipated deal for example in the last quarter that if it gets delayed by a couple of months will have a big impact on our <unk>.

<unk>.

The anticipated delivery of samples is somewhat evenly distributed through the year.

But again, there could always be a quarter to quarter tweaks based on supply chain issues of our customers.

Got it and then maybe just one on diagnostics.

I know this year with bringing in the licensing executive and spent some time in the prepared remarks.

In terms of the 27 protein test and the ability to continue to find more targets. How do we think about what's the early I know, it's very early days on this licensing side, but how do we think about notwithstanding here 12 months from now looking back what type of <unk>.

<unk> or traction should we be.

Let's see on the diagnostics, where they are.

On your own kind of tests or more importantly on some of the licensing efforts.

Patrick.

Well the good news is without any business developments over the last year, we've had a number of opportunities come across the transom.

To us for both licensing and co development. So there are a number of those active conversations right now.

And again this is without us actually doing serious business development on the side of a diagnostics, which again I think is really good time, we certainly are building out those business development capabilities.

Capabilities in that segment of our business as we've said repeatedly the bulk of our investments right now are going into our life Sciences tools.

Business, because thats, a real business and a significant near term growth opportunity for us but.

I do believe that during the course of this year that.

Some number of those conversations will turn into contracts.

Consummated deals and we'll look forward to talking about those during the course of the year.

Thank you.

Next question or comment comes from the line of mixing from Canaccord. Your line is open.

Great. Thanks, guys for the questions I guess two to start about the quarter, mainly on the top line could you just quantify the the sample push out I guess that you kind of referenced ROI as it relates to the supply chain and the last question and the second question on this I just wanted to ask how many new customers did you add you said strong new customer growth was.

A driver of results, but you didn't mention the specific number.

Yes.

We haven't.

We haven't tabulated or.

<unk> discussed openly the number of new customers or the number of samples that have moved out of this quarter into the next quarter.

Our our certainly our number of new customers has grown this quarter.

Commensurate with our.

With our previous year.

And.

The number of samples that have moved into next quarter, we just havent discussed that but.

<unk>.

It's something again as I mentioned earlier thats going to thats likely going to occur over the course of the year and variable amounts.

Okay. That's fair thanks for that and I just want to revisit the on the soft gross margin is it something thats been pretty common this quarter among your peers for I mean for different.

Different reasons obviously.

Explanation of the epic and the Mesa ramp and kind of the accounting timing makes sense to me, but like why Werent those dynamics expected when you reported the fourth quarter results in late March.

Im not trying to be difficult I want to understand if there's another like population proteomics deal if I Miss what happened again, and again I hate to be kind of my apps, but can you just characterize the cadence of the gradual improvement in gross margin going forward.

Like can they returned to the third quarter fourth quarter kind of Mississippi's level Sean.

I'll make a couple of general comments, and then I'll turn it over to Sean.

The overarching comment here is that.

We've clearly communicated to the market that population based studies are important to us.

They are important to the future of proteomics. They are important to those bio banks around the world that they have access to.

This data.

Don't know often times.

Until a contract is consummated or until a discussion.

Leads to a contract about the timing of these deals, but we will continue to invest in these and there may be others.

During the course of the year for sure. Because this is something that we think is very important not only to our own business.

And helps of creating a measurement standard using our reagents, but also for those Bob banks around the world and there Theyre enviable goals that we would like to.

To support.

Sean any comments about.

Other comments about the margin, yes, so regarding the predictability of it I would go back mainly to the point that I mean.

I mean Mesa and epic sample volumes pretty significant for us and so the predictability of windows that come in a little uncertain and so I think it's a unique and tenant youre seeing in Q1.

At that.

The effect that it had again, it's certainly not indicative of any permanent structural issues.

And our cost structure or again on Asps.

And again I think that Youll see that come back. So this is not specifically an issue in Q1 and investments in our population study per se.

And again as Roy said as we know about those we certainly will signal them.

The core business is like I've always said that.

At the end of the year.

Q1 of last year was a little bit unusual and its margin our core service business is not a 67% business right. Now is in that 50, plus type business right now and it still is so I do anticipate youll see margins normalize if we do see any large deals come in but again the way, they're structured sometimes they might hit R&D or sometimes they might hit.

Cogs.

It is not possible to always predict that until we've gotten into negotiations and we signed the contract.

I would add.

This is an important consideration as well.

You mentioned that others.

<unk>.

There have been discussions about other companies in our sector are related sectors with the with margins over the last few weeks.

The great news about some logic is that we have only just begun to.

Actuate.

A large number of levers that we have to improve our margins over time.

As we've discussed we have been working for well over a year on cost out on the assay.

We've made progress on that project from.

From the standpoint of R&D in deciding which approaches are more likely to work than others.

We are working on our engineering project to box up the front end of the assay.

We are also.

And our deal with Illumina in the future obviously those revenues come.

Without.

Without the stress on the margins come from royalties.

And we also.

Once the diagnostics business.

It comes online increasingly.

The.

The margins for those diagnostic tests.

Should be considerably better as well. So we are just beginning to pull the levers for.

Improved margins across all of our products and services.

There is a fair bit of runway in front of us there.

Great. Thanks, guys.

Ill just ask one more so the execution has been great over 20% growth year over year I'm. Just curious would you characterize this growth is increasing market share or deeper penetration as this market kind of expand just curious what you think the specific growth drivers are.

For context.

It's really both it's really both.

<unk>.

We really see two big opportunities in front of us for revenue growth in the life Sciences tool side.

One is obviously same store sales with existing customers.

We are only just beginning to.

Inc, or have discussions about longer term larger sample deals from some of those customers that came on line in 2021.

This business, it's really rare for a new customer to come online in <unk>.

Ask you to run 10000 samples there is usually a pilot so theres significant there is a significant opportunity in same store sales for us over the next couple of years, just because of the new customer growth that we've had and of course you.

You can have that without new customer growth. So these are both real opportunities for us we have not even.

Mostly tapped out.

Same store sales, even with some of our larger longer term customers. There are significant opportunities that will be bearing down on and then as I mentioned earlier, we are experiencing new customer growth.

At a pace at which we had suggested last year would continue into this year.

Perfect. Thanks, guys I appreciate the time.

Thanks, Kyle Thank you.

Our next question or comment comes from the line of Dan Arias from Stifel. Your line is open.

Afternoon, guys. Thanks for the questions really on the CBD risk assay that you highlighted and that got published recently how are you thinking about a path towards pharma usage. There is a surrogate biomarker within within trial work and then what's the thought around timing for something like that and then what you'd need to do with the FDA.

Yes.

Well, we're really excited about this publication.

Obviously wasn't shocking to us.

This diagnostic tests had this capability, we've got a number on our docket that can do similar things and other publications coming out relatively soon.

And it is exciting as well that a test like this.

It really has.

Multiple use cases.

So.

Obviously, as a former physician and someone who.

<unk> has spent his career and professional life.

Working toward.

That can make healthcare better more equitable more efficient and more effective a tool like this to be able to telecommunication.

I think the context.

Physician patient encounter.

Ah patient.

It has risk that might not otherwise be quantifiable or identifiable as is very exciting.

Yes.

We know that as much as many as 15% of.

Acute events and cardiovascular disease occur in individuals with no known traditional risk factors. So that's the first level. This is a clinical diagnostic that will have great benefit over time.

However on the way there.

Potentially.

Has a number of uses in clinical trials.

And in population health management so.

From the population health management standpoint.

If you are a Medicare advantage plan it would be great to know in your population.

Need to bring in this year to have a more involved look at their cardiovascular risk.

Because we've identified a risk that again might not otherwise be identified until an event happens.

And we are some of those conversations I mentioned earlier.

With potential customers not only in licensing and co development, but also.

In actual use of this test and Adobe LCD.

Fashion some of those discussions are along those exact lines for population Health management and then lastly, the question about clinical trials.

Number of places where tests like this can be used we know that as many as 30% of patients that enter clinical trials should.

It should not have entered that trial, either because they don't have the disease in question or the severity of their condition won't allow that.

That trial to determine whether or not a drug is been effective so test like this could could obviously be important for inclusion and exclusion and stratification for clinical trials at the outset and then again.

Currently the way if you are evaluating.

Cardiovascular risk reducing drug.

The way that you know if the drug has worked in a clinical trial is to wait for events to happen to actually have to wait for heart attacks and strokes to occur to know if the drug is effective and even those drugs, where the primary goal is not to reduce cardiovascular risk.

An anti opportunity of an anti lipid drug they still look at those endpoints as well because obviously that would be a great selling point for a new therapeutic.

It.

Would also.

Real way reduced overall risk are reducing your lipids or your blood pressure measurement. So.

Tons of use cases for a test like this as far as the.

FDA requirements to use a test like this in clinical trials.

Various depending on how youre using it so.

A test like this can be used as an <unk> test.

If.

If youre looking back at data, but if youre looking prospectively at data.

There are there are FDA requirements, potentially depending on which phase of trial your.

They are working on and we are engaged with the FDA currently.

All of these questions. Dr. Williams is on the call Dr. Steve Williams runs our.

Not only our clinical.

Test development program, but also heads up quality and regulatory Steve could you provide some additional comments about the regulatory path for tests like this.

Yes, I think you specifically asked about uses within drug development and this always designs.

We actually discussed at a public workshop with the FDA sponsored by the F&I H.

And then we ran this program.

Prognostic performance.

<unk> to change and the universality of the test in the publication, we designed it that way to exactly match the FDA framework for biomarker qualification.

<unk> also presented those results at the clinic.

At the cardiovascular clinical trial assortment for a minute session attended by the FDA and we're presenting the Mccain workshop to.

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