Q2 2022 Nautilus Biotechnology Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Yeah.
Thank you for standing by and welcome to the notwithstanding technologies second 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 one one on your Touchtone telephone.
Today's program is being recorded and.
Now I'd like to introduce your host for today's program, Alex Conde Investor Relations. Please go ahead.
Thank you earlier today <unk> released financial results for the quarter ended June 32022, if you haven't received this news release or if you'd like to be added to the Companys distribution list. Please send an email to investor relations at Nautilus stockpile.
Joining me today for a lot less of our <unk> co founder and CEO and Annemarie Chief Financial Officer.
Founder and Chief scientist, Parag, Malik who will be available during Q&A.
Before we begin I would like to remind you that management will make statements. During this call. They are forward looking within the meaning of the federal Securities laws.
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.
Sept as required by law modeling disclaims any intention or obligation to update or revise any financial our product pipeline projection or other forward looking statements, whether because of new information future events or otherwise this call.
This call contains time sensitive information and is accurate only as of the lifestyle Outcast August two 2022.
With that I will turn the call over to studio.
Thanks, Alex Good morning, and thank you to everyone for joining us today on this call we'll share our results for the second quarter of 2020 to provide some insight as to how we're tightly managing the business in response to macroeconomic challenges and update you on the revised timing of our commercial launch and revenue expectations.
But first I wanted to thank our teams in the Bay area and Seattle for their continued solid progress against our key scientific and business objectives.
I look forward to the day, where their work is in the hands of researchers who will leverage our platform to explore important biological question, one spot unanswerable and to reveal insights one unknowable.
Do you like with the one year anniversary of Nautilus entering the public markets.
It has been a year of learning progress and rapid adaptation.
Yes in that market sector and the markets in general a year ago has shifted dramatically as macroeconomic and other challenges that swept across the landscape.
It Hasnt changed though is the enthusiasm we hear from researchers about our platform's potential for boundless exploration of the protium, enabling them to advance basic science research to build new diagnostics and of course can make a substantial impact on drug development.
They recognize the inherent limitation of both traditional methods and of emerging affinity based and peptide sequencing methods and they understand how important impact protein analysis and our patent in particular will be to their exploration of the proteome and its role as a critical driver of innovative.
Impactful biological research.
We continue to make solid progress against our scientific goals in Q2 and substantially mature development processes for our consumables in.
In particular, we have been focused on methods to significantly increase production scale quality, while decreasing production cost.
Part of these efforts has additionally been to develop a corpus of assays for characterizing consumable composition and function as part of improving our consumable specification.
As you know these steps are critical for ensuring a successful transition to a manufacturing operation capable of fully supporting our commercialization objectives.
Additionally, we've made excellent progress on our commercial instrument, ensuring that we're not just integrating components, but concurrently developing robust processes for instrument assembly integration and testing.
Since the instrument is effectively the hardware platform. These efforts require close collaboration between our systems integration platform integration software and engineering team.
To accelerate the pace of these efforts and to increase the effectiveness of our cross functional team since our last call. We've expanded our senior leadership team with a specific focus on leaders, who will help us mature and heartened, our development efforts leading into commercialization.
Eric Spence VP of instrument engineering joined US Midway through Q2 and has spent nearly 30 years at gymnastics adjuvant Illumina and asset metrics twice previously working for our SVP of product development, 2% car.
Ken Kun VP of reagent and process development started just yesterday 10 spent 21 years at Illumina and Kodiak prior to joining novelist. He is steeped in product and process development experience and we expect them to be a strong leader given his prior work experience with several members of our senior leadership team.
The addition of Eric and Tan and earlier this year have Sherry Wilcox film Hologic veteran as our VP of Trinity reagent.
Establish at the core of our R&D leadership team.
We're excited that Nautilus with culture mission and product value proposition has attracted some of the best and brightest minds in the space.
They and others believe as we do that when you look across the landscape of our sector cohorts not elicit a unique company on a path to revolutionize biomedical research unlocking the full potential of the party.
In addition to what we consider distinct advantages in terms of our platform's core value proposition with current economic conditions and the fallout being created for less well funded companies, we're seeing high quality more experienced candidates enquiring about opportunities at donlin.
They see what we're doing and want to play a role in helping revolutionize biomedical research.
Trying to take full advantage of this opportunity to increase the strength and experience of our team across the board.
I would now like to turn my attention to several factors that have led us to adjust the commercialization schedule that we're now working towards.
First our internal affinity reagent development pipeline is proceeding well data we shared both on our last call and at conferences over the past several months has demonstrated that our internal teams are able to generate probes that are extremely strong binders across a range of epitopes target.
Notably these studies suggest that one of our product development strategy is likely to be more effective than our other strategies are producing a diverse catalog of high quality affinity reagent probes. Accordingly. These results suggest that focusing most of our efforts on this particular strategy will give us higher confidence.
More efficient path to commercialization.
A slightly slower one.
Second in addition.
We previously thought to augment our internal product development efforts with external partnerships.
Many of those partnerships have not yielded the volume for quality of probes.
From our own internal efforts. So again, we expect to put resources, where they will yield.
We want in the most capital efficient manner.
Finally scaling back our operating expenses has meant making hard decisions about which development activities to prioritize and which to de prioritize.
Based on the delays inherent in these and related factors, we now plan to launch our protium analysis platform instruments and reagents by mid 2024.
We remain singularly focused on driving our scientific and development efforts forward in the most efficient and predictable ways possible.
We are not currently focused on creating short term revenue opportunities by making the choice to focus intently on development. At this time, we believe we are positioning ourselves to ultimately make the maximum possible impact on the marketplace and on biological science.
Based on this updated timeline, we are postponing our previously scheduled analyst and Investor Day, which we had originally planned for this September .
We want our first analyst day to be marked by preventing the type and volume of data that will clearly demonstrate our strong value proposition.
We believe we will be better able to do that at a later date and wheeled advisement a new date has been selected.
When I look back at the year since we became a public company I'm grateful for the progress we've made and energized by the work that still lies ahead.
But as they look to the future and at the short term macroeconomic and investment climate, which weakness.
I am reminded that early stage company, even those with world changing ideas will struggle to succeed in the long run unless they evolve and adapt in the short run.
And it's with that in mind that we have quickly and effectively adapted to the current environment.
We've evolved our management of the business from the move fast and cost mindset. The recent past two a relentless focus on spend.
That focus will enable us to manage our cash in a way that will give us the maximum opportunity to build launch and commercialize what we believe will be a game changing proteomics analysis platform.
Whether it's our decision to focus and internalize much of our development efforts or as Youll hear in just a moment at the ways in which we are managing the overall business in the most cost efficient way possible myself and our entire management team are committed to ensuring that we strike the right balance of extending.
Runway, while investing in future innovation and commercialization capabilities.
With that I'll hand, the call over to Anna.
Thanks Vishal.
Before going into additional details on our future spending plans and cash runway projections.
Start my comments by sharing our financial results for the quarter.
Total operating expenses for the second quarter of 2022 were $15 5 million compared to $10 $7 million in the second quarter of last year.
Overall growth in spending was primarily a result of an increase in head count and related costs.
For ongoing development of our products as well as building, our general and administrative capabilities.
Research and development expenses for the second quarter of 2022, or $8 9 million compared to $6 4 million in the second quarter of last year that increase was primarily driven by growth in personnel costs and increases in services supporting the continued development of our platform.
General and administrative expenses for the second quarter of 2022 were $6 6 million compared to $4 3 million in the second quarter of last year.
That increase was the result of growth in personnel insurance and facilities costs.
Overall net loss for the second quarter of 2022 was $14 7 million compared to $10 $7 million in the second quarter of last year.
While total operating expenses are higher versus the prior year, we saw a sequential decline quarter over quarter with expenses coming in approximately $500000 less than the $16 1 million and operating expenses, we reported in Q1 of this year.
<unk>.
In fact, this is the second consecutive quarter of declining spend with peak spending occurring in Q4 of 2021 at $16 8 million.
At the same time.
Count has grown modestly over the past two quarters.
The reduced overall spending on a per person basis.
High levels of inflation demonstrates our focus on managing costs and championing efficient operations in this challenging macro economic environment.
Previously, we communicated that expenses would increase approximately 75% year over year.
We now expect that increase to be closer to 40% year over year.
Second we reduced our spending forecast by almost $18 million for the year.
While we do expect second half expenses to increase over first half levels. As a result of continued hiring and from scaling our development pipeline. We are confident that these increases will be measured and other tests to our progress towards commercialization.
As Pedro mentioned earlier, we remain focused on deliberately managing every dollar spent and choosing what not to do part of the equation.
Consolidating our efforts in product development creates a higher confidence path, but also more efficient one.
Our prior plan had us ramping our commercial infrastructure well ahead of commercial launch we are now more carefully gaiting that growth against technical and commercial milestones closer to platform launch.
Differing significant commercial investments until closer to launch is one more example of how we're making prudent decisions that ensure good stewardship of our capital.
Given the changes to our timeline and lemonade commercial investments in the near term, we now anticipate meaningful early access engagement and associated revenues to begin at the start of 2024.
Revenue tied to the platform launch is expected to begin in mid 2024.
Our conservative approach to spending has resulted in a significant portion of cash rates still remaining on our balance sheet. We ended the quarter with $335 million in cash cash equivalents and investments eight.
$8 million more than the $327 million net of fees, we raised almost 14 months ago.
We remain well capitalized for continued investment in key personnel and initiatives intended to complete the development of our product build out our commercial team and launch our platform.
Looking ahead, we anticipate our cash runway extending well into 2025.
We believe that puts us in a strong position to focus on our scientific progress and to deliver the type of platform that we believe will enable our customers to achieve new levels of proteomics insight.
With that I'll turn it back to <unk>.
Thanks, Anna let me reiterate an important point from analyst report, our Q2 Opex with sequentially lower than both Q1 of this year and Q4 of last year.
Well that trend won't continue going forward our ability to quickly brought it back spending reflects the type of strategic actions, we have taken and will continue to take to adjust to the current environment.
As someone who is the CEO of a public company that successfully navigated similar circumstances in the recession of 2008 2009, I know from experience what it will take to not only manage through times like these but to emerge from them stronger than before.
We will tightly manage every dollar of spend ensuring that we achieve the right balance of investment and financial conservatism that extends our cash.
Well into 2025, Mike.
My team and I are committed to executing this plan relentlessly and for however, long it takes.
To paraphrase an old saying its strongest companies go through the hottest buyer and I'm confident that Nautilus will emerge from this time as one of the most transformational leaders in our space.
With that I'll turn the call back to the operator.
Sure.
Certainly.
Once again, ladies and gentlemen, if you have a question at this time. Please press star one on your telephone one moment for our first question.
And our first question comes from the line of Max Masucci from Cowen Your question. Please.
Hi, This is Stephanie on for Mark Thanks for taking my question.
Please also note that some of your efforts with external partners has not yielded the same volume of probes.
Our internal team.
Could you provide some more specifics around the consolidation of this effort.
<unk> decided to terminate the agreement with all your regions.
Okay.
Thank you Anthony it's definitely thanks for the question so with respect to our affinity reagent development kind of as background just to kind of.
Get everyone caught back up on the strategy that we initiated last year, we have multiple of sandy reagent pipelines internally that include different types of binders like <unk> as an antibody and we find external partnerships in an effort to accelerate our innovation development pipeline and we find more.
Total different external partnerships focused on different types of bankers with different types of strategies and what we said on the call was that in.
Internally, one particular strategy has certainly significantly outperform the others with respect to being able to produce.
Binders that have a significant diversity in terms of the epitopes, they reach which is necessary for our approach and is capable of producing products that have very strong affinity with our external partnerships there have been.
Some there have been some successes.
But largely we did not get the volume or quality approach that we expected from many of the strategies that we have externally going on and with that when we struck these deals last year, we knew that some of the strategies, we're going to work well and some werent.
Frankly, we've underperformed, even those expectations, but with that in mind, we struck all of these deals with the ability to adjust and terminate these contracts to help us.
Those investment dollars and redirect them back internally and in some cases.
Return them back to dollars that we're not going to spend.
Got it thanks for that.
Additional approvals Hutch.
So as I mentioned with the push out of the commercial investments.
More typically touch on the major cost saving initiatives or decisions that allow for the expansion of the cash runway.
2025, you mentioned that you were prioritizing.
Sure.
Prioritizing others.
Just provide some more color on that.
Stephanie I'm happy to do that.
As you might expect we're very happy with the progress we've made in bringing down spending both in the first half where we saw two consecutive quarters of declines as well as when we brought down our forecast for the year from 75% year over year growth in opex down to 40% year over year growth.
Really a result of of two aspects to managing cost spending first off.
It's important to control new investments and so managing growth.
Priority of ours, and we've done that through managing the pace of hiring as well as limiting new structural spend.
Then in terms of.
Managing growth, but also bringing things down it really comes down to finding efficiencies in our operations.
Improving yields and reallocating resources within the business. So that we're working with what we have as opposed to adding new investments every single time. So those are the types of activities that we're taking on to manage our spending and that will continue.
Yeah.
Forever.
But that's what's really driving our <unk>.
Breakdown of the forecast as well as.
One of the main things we're doing looking forward is that we're gaining and invest new investments based off of scientific milestones not just ensure that we're not spending ahead of where the business is that and that's what really allowed us to excel.
Extend our cash runway well into 2025.
One last thing I would add there Stephanie is that.
I mentioned this a little bit in my prepared remarks, but one of the things that we've spent significant effort on in the first half of the year was really working through higher reagent process development and manufacturing capabilities working on improving those processes scaling them focusing on yields and quality. So that we can bring the cost.
The reagents, which is a significant item for us down and that is something that has gone well this year and now with the addition of <unk>, we expect that that work to continue as we move through the second half.
Got it understood. Thanks, so much for the color appreciate taking the questions.
Yes.
Thank you one moment for our next question.
And our next question comes from the line of Tejas Savant from Morgan Stanley . Your question. Please.
Yes.
Hey, guys.
Good morning.
So Joe one for you I mean at a high level, given the macro and market conditions being what they are what are your thoughts on consolidation in the space. We saw one of your targeted proteomics peers do a small tuck in recently do you see any sort of potential opportunities.
In the private market for you guys as you think about your journey.
Yes, I think that from a broad perspective, what's going on out there and what you saw.
You are alluding to the Palo metrics logic deal I think what you're seeing out there is kind of what we expect we expect to see more sort of small to small.
M&A out there as companies, particularly those with product technologies that are aged and arent necessarily prepared to the future I think we'll see more of those types of M&A.
M&A deals to help bolster their portfolio from our perspective.
We continue to be active in the <unk>.
In the markets, we do see the entire deal flow.
If theres, a small IP by or something that's added to our portfolio to improve the size of our mode. We would consider it but we we have no need or desire to do anything.
Anything even moderate in size and we're really very very much focused intently on development of our platform and we feel comfortable with where we are from a from an IP and technology perspective.
Got it that's helpful.
And then on your point around sort of external partnerships not not yielding the same volume of probes.
Weighted.
I mean is that is that something thats, just because you guys have sort of an inside knowledge of your platform and the way. It works that you guys have an advantage there.
Was it sort of something else that led to sort of that disparity in performance.
Yes, I think that.
It's a good question the thing that is.
A little different about what we're doing is first and foremost our targets are not atypical affinity reagent target timber or 12 hours are shorts.
Epitopes that arent linear epitopes and in terms of how you develop.
Probes against that type of target there are differences and we have been at it internally with various affinity reaching development pipelines for five years now and so there is just a lot of knowledge that we have and a lot of processes that we've built up over a long period of time I think our hope last year was that by hiring.
Various experts in there.
Areas that we would be able to have them ramp up quickly and figure out what would needed to be done with respect to these unique type of targets, but I think that we haven't seen that happen as quickly in some cases with partners, where we have a deep relationship we've been sharing information with them to help them improve their efforts more quickly.
In some other cases as I've mentioned in.
In response to Stephanie's question.
Redirecting that spend back to our own internal efforts and scaling those efforts up even more.
Got it.
And then one quick science one for you I mean at ACR you guys highlighted that short epitope <unk> Kumar binders that have I think also that in the Picomolar Ranger, which.
Which is great to get a strong signal, but I just wanted to ask you whether this higher affinity comes with a trade off of.
It's being more challenging to reboot this ample at all or not really.
I'm happy to talk that was one.
Yes, it's a great. It's a great question.
Sure.
No.
There.
Having a strong binder.
Flexibility around the concentrations that you use also it doesn't have any implications on the susceptibility to.
To remove conditions and.
We have because the entire system is closed and the proteins themselves are a fixed very firmly to the surface. We have a lot of flexibility over how we wash.
And can be quite aggressive there.
Got it that's helpful. Thanks, guys.
Thanks, Jeff.
Thank you.
As a reminder, if you have a question at this time. Please press star one one on your telephone one moment for our next question.
And our next question comes from the line of Dave Delahunt from Goldman Sachs. Your question. Please.
Hey, guys.
Any additional details you can provide on levers you were able to pull to extend cash runway if needed.
Any anecdotal examples of how you're controlling investments and operated more efficiently.
Hi, Dave, Yes, I am happy to speak to that.
As we said, we've got our cash runway well into 2025, and I would say that we have.
We've pressure tested those that forecast and understand.
Where we have sensitivities and I would say that of course, we always have additional levers that we can pull to manage our cash runway.
Those protections are not overly dependent on revenue as the cash contribution from that revenue as it is.
<unk> is a super meaningful in the early days, just given that cash coming from revenue also is offset by scaling our commercial investment so.
I think we feel really comfortable with those cash transactions and our focus is really around managing new spending so that we don't need to pull additional levers going forward, but of course, we always have the ability to quickly adapt and make changes to the extent that we feel we need to.
Got it and any thoughts on how the current financing environment will affect biopharma demand for new research methods.
Yes.
I think that from what we're seeing out there development budgets in therapeutics and diagnostics and in a wide range.
Commercial customers that we would sell to are quite robust and well the equity markets, both public and private have significant turmoil, we're still seeing robust demand demand from the customers that we talk to and I think that if you look at the.
If you look at the earnings print so far this season minus those that had significant COVID-19 exposure I think we're seeing quite good demand I think the other part of that of course is.
<unk> is really the forecast with respect to NIH and that's harder to predict particularly when you look at the time from our commercial timelines, but I think we're still very confident that that.
That funding will also be quite robust when you look out over the next three to five years and so we're.
We're very excited about the type of market that we're going to be entering into in a couple of years.
Great. Thanks, guys.
Thank you. This does conclude the question and answer session as well as today's program. Thank you ladies and gentlemen for your participation you may now disconnect. Good day.
Yes.
The conference will begin shortly.
As Johan during Q&A, you can dial one one.
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