Q2 2022 Codex DNA Inc Earnings Call
Okay.
Good day and thank you for standing by welcome to the Q2 'twenty to 'twenty two codecs G&A incorporated 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 you will need to press star one one on yourself Alan Joyce.
You will then hear an automated message advising your hand is race.
Please be advised that today's conference is being recorded.
Okay.
I would now like to hand, the conference over to your Speaker today, Todd Nelson Chief Executive Officer. Please go ahead.
Thank you Kyle and good afternoon, and thanks for joining us for codecs DNA second quarter 2022 earnings call. My name is Todd Nelson and I'm. The CEO here codecs DNA with me on the call today are Chief operating officer, Eric <unk>, and our VP of Finance Brent Hunter.
Assuming the responsibilities of our previous CFO Jennifer.
Our second quarter press release is available now on the investors section of our website, if you'd like to be added to the Companys distribution list. Please send an email to IR at Codexis com.
Before we begin I would like to inform you that certain statements. We make during the call will be forward looking these statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied such factors include those referenced in the safe Harbor statement included in our earnings release and in our filings with the SEC.
This conference call contains time sensitive information and is accurate only as of life broadcast.
On August nine 2022.
Finally, any percentage changes, we discussed will be on a year over year basis, unless otherwise noted and with that let's get started with a codec CNA. Our mission is to apply breakthrough automation solutions to global healthcare and technology markets, our customers and collaborators include Premier academic research institutions rapidly growing biotech companies and.
Nearly all of the top 25 Biopharma companies.
Our systems are utilized by academic and industry Sciences worldwide and a variety of discovery activities ranging from discovering novel infectious disease vaccines to developing precision immunotherapy for cancer and antibody therapeutics to the creation of engineered meat substitute and sustainable cellular agricultural products.
Our automation solutions allow scientists to synthesize and assemble DNA and mrna with pushing the button, allowing us to address large unmet needs within our targeted markets and our customers to bring critical products to the market and an unprecedented amount of time.
We believe that our strong financial momentum will support the long term mission of the company and with that I will turn to the discussion of our recently reported financial results and corporate updates.
To start I'd like to highlight our 2022 achievements and commercial results.
We've experienced a strong first half of the year across our product portfolio. Our business continues to grow and we see increasing demand for our products.
During today's call I will discuss our recent commercial success and our path to profitability, specifically around our thoughts on future revenue gross margins and operating expenditures.
With the cash position of approximately $62 million at the end of the second quarter and our combined efforts to reduce spend access to non dilutive debt financing of up to an additional $25 million and.
And the potential for $30 million in milestones from our Pfizer partnership we are laying a strong foundation for potential path to profitability by year end 2024.
Before we dive into the details here are a few highlights from the second quarter and for the first six months of 2022.
In the second quarter of 2022 regrets global revenue by nearly 100% compared to the prior year period.
Excluding contributions from Eaton Bioscience acquired in Q4 of last year overall growth was 44% and for the six months period, ending June 32022, total growth was 118% and growth.
<unk> was 61%.
We sold 16 biopsy $32 50 systems during the second quarter, bringing the number of sold during the first six months of 2022 to 34.
Instrument revenue was up 21% and 43% respectively for the second quarter and six months period ending June 32022.
<unk> system volumes were up 23% during the second quarter and 31% from six months period.
This was a record setting first half for the company and reflect the strong continued demand for our automated platforms for DNA fragment assembly and mrna synthesis.
We also experienced a record quarter for biopsy kit sales, which have continued along a strong growth path posting 66% growth over the prior period and 50% for the first six months of the year compared to the same period in 2021.
During the second quarter, we reported solid growth of 392% and services revenue.
Combined Eden and codex DNA by our foundry services group and growth at 558% for the six months period, driven mostly by contributions from Eaton.
Fewer COVID-19 related gene synthesis requests impacted the organic growth that being excluding even for the second quarter and first six month period, which was down 42% and 3%.
Representing a decrease of 149000 and $15000 respectively.
Collaborations royalties and other revenue grew at 113% for the second fiscal quarter of 144% for the first six months of the year respectively.
Growth in this category stems from the continued growth in royalties from our licensing partners, such as New England, Biolab, Thermo Fisher and others for Gibson Assembly products and the amortization of an $8 million upfront payment we received from Pfizer.
Gross margin improved significantly during the second quarter from 33, 4% in Q1 of.
Of 21 to <unk>, 48% in Q2 of 'twenty two for.
For the first half of.
2022 gross margin improved from 43, 5% in 2021 to 48, 6% in 2022.
Margin expansion for the second quarter as compared to the same period, a year ago was largely driven by a positive mix shift to higher margin products, including mrna in a lower cost of raw materials, including oligonucleotides or oligos.
And finally, we have substantially completed the development work on the <unk> hundred 9600 system and are preparing for a fourth quarter launch importantly, we have already secured several presale purchase orders, which if fully executed will be sufficient to cover our internal forecast for 9600 sales for the rest of <unk>.
2022.
Our vision has never felt more achievable, we've made significant progress developing new innovative applications for existing by XP systems that drive sales on market products as well as developing paradigm shifting future technologies.
These innovations have the potential to fundamentally transform our industry and at the same time physician codecs DNA to serve significantly larger and broader addressable markets.
Inherent in this vision is our path toward improving our gross and operating margins, becoming a profitable company and delivering value to our stakeholders.
In an effort to accelerate our path to profitability our management team and board are taking prudent steps to undergo targeted expense reductions in the near term, which will extend our current cash runway and will be reflected in our updated 2022 financial guidance.
Shifting gears now to our commercial results, we executed in all areas of our go to market strategy this quarter.
We experienced a strong quarter of growth within our biopsy franchising systems and kits as mentioned, we sold 16 biopsy $32 50 systems this quarter.
And when combined with the 18 units from the first quarter. We are on a record pace for sales going into the second half of the year.
Similarly biopsy kit sales were strong during the quarter compared to the prior year period, we experienced record revenue growth at $838000 in sales during the first quarter for biopsy kits, representing 66% growth over the prior period and 50% growth for the six months first six months of 2022.
As compared to the same period in 2021, North America contributed the vast majority of kit growth in revenue, reflecting an investment that we made in the second half of last year into the North American region, including adding additional field based reps field application scientists and field service engineers.
In addition, we establish an inside sales initiatives that has contributed significantly to the growth in this category during the first half of the year.
While core DNA kits for fragrance synthesis inclining continue to account for the majority of revenue mix. We're pleased to see that products introduced during the past 18 to 24 months are now contributing approximately 30% of the overall kit revenue.
Within services, the Eaton business driven by strong demand for sequencing services performed solidly in the quarter and contributed approximately $1 5 million revenue, which was ahead of our internal forecast.
As a reminder, we've allocated a significant amount of eaton's resources and manufacturing capacity in the near term toward our own internal raw material supply to invest in all of our production and R&D efforts to support the Pfizer collaboration.
Starting in the fourth quarter of 2022, we believe that Eaton can begin scaling up production. If all goes for internal use in manufacturing.
Which should reduce our raw material cost within several product lines, providing significant accretion to gross margins as we ramp up production throughout 2023.
I'm also pleased to report that we're off to a strong start in our collaboration with Pfizer.
We've announced significant technical development progress related to our proprietary second generation DNA synthesis chemistry referred to as solar and we have several key milestones. The team is working on to achieve and we are on track to do so.
Yes.
As we discussed previously our team continues to cultivate relationships with potential partners and we intend to establish additional agreements with both new and existing collaborators over time.
Now I'd like to touch on recent progress within our R&D programs and provide some organizational updates.
Our next generation instrument of ISP 9600 is designed to have approximately three times the capacity at the current <unk> hundred $32 50 system, making it an ideal solution for higher throughput customer segments within biotech and pharma.
We're pleased to report <unk> 9600 system is on track for a full commercial launch in the fourth quarter of 2022.
Moving on now to our solar ABS program.
As a reminder, solar etfs as our highly differentiated and proprietary and thematic DNA synthesis platform. The construct DNA ranging in size from short Oligos a portfolio genes, which can also be used to enable production of both RNA and protein we.
We expect our approach to building DNA using slowly EDF will allow scientists to construct higher quality products faster at redemption.
During the second quarter, we advanced our solar development program are now able to consistently and reliably generate high fidelity DNA August of 20% to 100 base pairs at the bench top.
Importantly, using the biopsy system, we've demonstrated fully automated gene mrna and protein synthesis, starting from solar generated oligos.
Based on this success, we are accelerating our time to market for our first PVC instrument.
This version of the system will be the first of several in the buyouts fee PVC line of bench top instruments that will focus on same day turnaround.
For DNA RNA and protein synthesis.
We anticipate launching the system with solid Eds Library specific Christopher Guide Rnas, enabling same day turnaround production for up to 24 guidance, Jerry a fully automated run in the fourth quarter of 2023.
As I hand, the call over to Brian to review our financials in more detail I want to mentioned that has an existing member of our senior leadership team.
<unk> deep knowledge of our business markets and culture, and it's been a valued partner within our finance organization forward to introducing product to many of you soon and with that I will pass the call over to <unk>.
Thank you Todd that kind introduction and good afternoon, everyone. It's been a pleasure to meet some of you in my first few months as the head of finance with products DNA and I look forward to getting to know many more of you in the coming months.
Detailed financial results for the second quarter were included in today's press release.
My remarks today I'm going to walk through our income statement touch on a few key financial metrics and finish with our updated financial guidance for 2022.
Codex DNA is well capitalized with cash and short term investments of $61 9 million as of June 32022.
Revenue was $5 7 million in the second quarter, 2022, which was a 98% increase in total revenue from $2 9 million for the same periods in the prior year.
This strong growth was driven by a record quarter for biopsy kit revenue totaling approximately $840000 up 66% year over year and solid contribution from Eaton sequencing services, and although production revenue, which totaled $1 5 million.
Royalties and other revenue also grew due to revenue related to the Pfizer collaboration agreement.
Organic growth for the core business net of contributions was 44% for the first six month period the growth was 61%.
Gross margin for the second quarter was 48% compared to 33, 4% for the same period in the prior year.
The increase of 14, 6% or 1460 basis points.
Primarily driven by the continued amortization of the Pfizer milestone payment the contribution of Gibson Assembly licensing revenue and improved product margins, resulting from price increases and increasing contributions from higher margin products such as mrna for.
For the first six months of 2022 gross margins were 48, 6% compared to 43, 5% for the prior year period.
Yes.
Operating expenses were $17 2 million for the second quarter compared to $8 5 million for the same period in the prior year.
This increase was driven by head count expansion, primarily in our commercial R&D and G&A organization the <unk>.
Increased personnel expense related to the sales and marketing efforts increased product development efforts and hiring of new leadership with professional support staff.
Operating expenses for the first six months of 2022 totaled $32 8 million compared to $16 1 million for the same period in the prior year.
Net loss was $14 8 million or <unk> 50 per share and $28 million or <unk> 95 per share for the second quarter and first six months of 2022, respectively.
This compares to a net loss of $9 $2 million or $1 <unk> per share and $16 6 million or $2 39 per share in the same period in the prior year respectively.
Now I'd like to briefly cover our updated financial guidance for 2022.
Due to our strong first half of 2022, we are raising full year revenue guidance accordingly.
As a reminder, we initially guided to revenue of 19 million to $21 million in 2022 based.
Based on our second quarter results, we are increasing our revenue guidance to 22 million to $24 million.
I will now provide some additional context regarding our updated guidance for the year.
We anticipate being able to sell approximately the same number of <unk> $32 50 during the second half of the year as it relates to the <unk> 9600, we are still on track for a fourth quarter commercial launch of <unk> 9600, we'll have a higher price point compared to the <unk> 32, 50 with an approximate list price of 300000.
And we expect to place mid to high single digit instruments in 2022.
In addition, we anticipate <unk> revenues driven by a larger installed base and higher utilization rates within our top customers will be approximately $1 3 billion in the second half of the year.
Continuing down the P&L, we forecast 2022 gross margins to be in the 48%, 52% range, which represents a significant increase when compared to 2021 gross margin of 34, 8%.
This accretion is being driven by favorable raw material costs for Oligos, and importantly high margin revenue related to our collaboration and loyalty program and a combination of favorable product mix within the <unk> franchise stemming from a favorable mix shift within kit and the contribution of higher margin for the.
Launched the bio XP 9600.
As Tom previously mentioned, we are also reducing operating expenses, which we view as prudent in this uncertain macroeconomic environment. We expect our 2022 operating expenses to be in the range of $62 million to $65 million and with that I will now turn the call back over to Todd.
Thanks, Brent before opening the call for questions. Let me conclude by spending a few minutes discussing our path to 2020 for profitability.
We are executing against the plan that will allow us to potentially achieve profitability. During 2024. So let me take a few minutes now to walk you through the high level landscape of this plan.
On revenue growth I would remind investors that we have grown the business at a four year compound annual growth rate, 48% that we have a robust series of new product launches that when juxtaposed against the growth of our biopsy franchise to generate significant revenue growth over the next couple of years as an example, the anticipated fourth quarter launched the 9600 <unk> and brings with it.
<unk> revenue potential stemming from higher instrument asps higher.
<unk> utilization rates and an ability to extend into adjacent market.
In addition, we will be launching a first in a series of biopsy BDC bench top instruments that will allow for the same day turnaround of CRISPR guys and all of those for gene synthesis on a single integrated device taken together, while uncertainty remains regarding our ability to achieve future revenue targets. We remain comfortable that if we're able to achieve certain collaboration milestone.
Our anticipated revenue for the 2024 period should be sufficient when combined with our current and future cost cutting efforts to move us into profitability.
Our gross margins will continue to expand as a result of favorable product mix contributed from recently launched higher margin products, such as mrna and favorable raw material purchasing for all of those we.
We remain on track to launch internal oligo synthesis capabilities that will allow us to offset a portion of our raw materials purchases.
All told we believe margins in the next 18 to 24 months should trend upwards to between the high <unk> to low to mid sixties.
Currently.
We have a cash position of $62 million.
And up to $25 million and additional debt capacity that we've secured and we have the potential to earn through achievement of technical and licensing milestones and additional $30 million from our partners and collaborators.
As such from where we sit today provided we execute to the above plan. We believe the company may have access to sufficient capital to bridge operations into 2024.
In conclusion, let me say that we're pleased with our overall second quarter and first six months results and we remain encouraged by continued strong commercial execution and the progress within our R&D pipeline.
We are focused on executing against our near term commercial goals launching new products, furthering new and existing partnership growing market share improving profit margins and investing for future success. We continue to invest in talent technology and processes to drive long term sustainable growth and a path to.
Our profitability.
And with that I'll ask the operator to open the call for questions. Thank you.
Sure.
As a reminder to ask a question you will need to press star one one hollinger stockpiling once again that is star one one on your telephone please.
Please standby, while we compile the Q&A roster.
Your first question comes from the line of <unk> <unk> from Jefferies. Your line is now open.
Hey, Thanks, good afternoon.
Tom I appreciate all the details and added disclosure this quarter.
The installs in the guide 24.
Pathway, it's all very helpful. So I appreciate that.
Maybe just starting with the upward revenue guidance for the year certainly encouraging to see.
Could you speak to the level of confidence and just hitting that targeted range based on your comments it sounded like it was substantially due to outperformance in the first half of the year I just want to make sure. That's the case and what areas of the business are outperforming relative to your initial expectations.
During the year.
Yes, Thanks, Brandon for the question and also for your comments earlier, so I think in general what we're seeing is just good continued solid.
Adoption of the <unk> hundred $32 50.
And.
As we've discussed before I think that definitely stems from the investments that we made in the commercial operations in the second half of <unk>.
'twenty one so that group is up now our channel is expanding.
And I think just the quality of the visibility into our funnel has improved markedly.
The second thing I would say is that we had better than anticipated inter.
Interest in the 9600 system I don't mean that to sound like we didn't expect it to go well, but we pre sold.
A lot of those systems and I think that was very positive for us because the systems haven't even been built yet and we've secured as I've mentioned sufficient purchase orders.
To cover our internal forecast, so that's performing better.
I think the Eaton services business is performing better than anticipated and on the downside I would say the Bayou country services group internally due to fewer COVID-19 sequence request is a little bit off but it was only off by about $149000 for six months period 15000 for the quarter. So things that are working commercial channel customer service.
New portal up and going better customer experience continued good and solid adoption.
Above our forecast.
In the first half for $32 50 systems.
Very good early.
<unk> on the launch for the 9600.
And very good things working in services and then just the only rough patch as there always is one it is just the decrease in COVID-19 related synthesis.
Service request.
Got you.
<unk> hundred March the preorder purchases on those mostly from new or existing customers.
So I would say that.
Most of them are from I don't have the exact numbers. So I can't give you the exact and I can follow up with you on that I would say most are from existing customers, so greater than 40% to 60% and then I would say, 40%, 50% or from from new customers.
Okay.
Are there any opex guidance, yes go ahead.
I was just going to say I think it's important that a lot of times customers will have a $32 50 or $2 $32 50.
But when you move into a production environment, which is what the 9600 with purpose built for it's a much better instruments. So sometimes their customers at $32 50 is that that get the value proposition. They loved the systems and they want something that fits more suits. If you will more of a production environment.
Environment, and sometimes the value proposition to sell itself into other.
Other companies as we get going because of the speed with which you can bill gene fragments.
Okay. That's helpful and then in terms of the Opex guidance. So the new range 62 to 65 would actually imply that the second happened down in terms of dollars from Q2 levels, So maybe Brent where in the P&L.
Are you coming in below plan have you paused hiring.
Any more color you just going to share with us in terms of the line items in the P&L for the back half.
Hey, Brennan, let me take the first part and then hand it over to grant So I'd say, we've made targeted reductions.
Not across the company I think we've really preserved commercial.
We plan on making some reductions in opex to be more right size the business to what we.
We think the opportunity is going forward I think Brent can walk you through some of the targets that most of that probably came out of longer term programs that were off into the 'twenty four 'twenty six timeline, where I think we've preserved the ability to reinvest in those programs going forward, but it probably slowed down the investment and that's had a significant impact.
On the Opex.
Yes, I would just add that.
Mainly due to the contractor space.
Preserving our commercial operations.
You bet.
For the second half.
Okay, Great I'll hop back in queue. Thanks.
Thank you.
As there are no further questions at this time and thank you to everyone for participating. This concludes today's conference call you may now disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Sure.
[music].
Yeah.
Yes.
[music].
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
[music].
[music].
[music].