Q3 2022 Singular Genomics Systems Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the singular genomics.
Third quarter 2022 earnings conference call.
All participants have been placed on listen only mode.
So it will be open for questions and comments following the presentation. If you wish to enter the Q&A queue. Please press star one on your phone at any time.
It is now my pleasure to turn the floor over to your host Philip Taylor Investor Relations for singular genomics.
Sir the floor is yours.
Thank you operator, presenting today are singular genomics founder and Chief Executive Officer, Bruce <unk>, and Chief Financial Officer, David meter earlier today single Genomics released financial results for the three months ended September 32022, a copy of the press release is available on the company's website.
Before we begin I would like to inform you that comments and responses to your questions. During today's call reflect management's views as of today November seven 2022, only and will include forward looking statements and opinion statements, including predictions estimates plans and expectations and other information related to our financial and operating results.
Plans and strategies actual results may differ materially from those expressed or implied by these statements as a result of certain risks and uncertainties. These risks and uncertainties are more fully described in our press release issued earlier today and in our filings with the Securities and Exchange Commission, including our most recent Form 10-K.
<unk> 10-Q, the form 8-K filed with today's press release, the SEC filings can be found on our website or the SEC's website.
You are cautioned not to place undue reliance on forward looking statements, we disclaim any obligation to update or revise these forward looking statements.
Please note that this conference call will be available for audio replay on our website at singular genomics dot com on the events page of the news and events section on our investors page with that I'll turn the call over to CEO Bruce <unk>.
Good afternoon, and welcome Distinguished Genomics third quarter 2022 earnings call.
It was a very productive quarter and we look forward to updating you on the progress we've made across the business.
We will focus on three topics.
One operations progress in supply chain and manufacturing scale up.
Factors driving our continued conviction in the <unk> commercial success.
And three our product roadmap.
First on the operations side as projected we are on track to ship in Q4 in the fourth quarter of this year and continued gradual scale up through 2023, we've made strong progress on supply chain and manufacturing scale up which has been a key area of our focus to provide more color. The challenges. We've highlighted on previous earnings calls related largely to enhance both third party subs.
Being reliable and medium specification and related system integration.
We made significant progress identifying and resolving these issues. We've also strengthened the quality control processes and sub systems and parts supply to assembly.
We have made significant progress. This remains an area of critical focus and continued work to be done and that should be expected any product of this nature. We're pleased now have better line of sight to streamline the manufacturing of the Q4.
We aim to build a reliable high quality instruments, the licensor of our customers we.
We will continue to learn more about the Q4 in terms of robustness and reliability at the scale and deploy production unit internally into the deal.
Expect to continue to make improvement based on these learnings both in terms of robustness and performance Kpis, we are dedicated to delivering the highest level of performance and reliability available.
The second update focus on the factors driving our continued conviction on the <unk> for commercial success.
This past quarter sector activity and announcements will give more information on competitive roadmaps and reaffirms the U S opportunity and room to succeed given key areas of differentiation in an increasingly transparent as the landscape.
We are increasingly excited about the opportunity in front of us within the desktop sequencing category and we are bullish on the opportunity to create a strong business in large and growing market and Applebee's segment, we remain optimistic about our Tam or total addressable market product market fit major market and commercial execution I will share our thoughts on it.
Each of these.
Starting with Tam from a top down perspective of the roughly $6 billion and yet the market today, we believe that over half of its market broadly addressable by mid throughput being concerns such as the G. For this portion of the market is predominantly made up of about two thirds research and translational lab and one third clinical labs largely running applications.
Such as targeted panel arent AC and single cell RNA gene the gene for addressing these customers' needs and provides a compelling alternative from both the performance and value perspective, and a market bid today largely served by single Ags provider drilling down a further opportunity as it relates to the <unk> market fit.
When did you before providing even more differentiated solution for approximately one third of the overall market.
For the only desktop sequencer that has differentiated across the GPI combination of power speed and flexibility without compromising accuracy of workflow. The G. Four offers superior performance and specs and metrics that matter most to customers across our Tam.
And data output rate runtime flow cells labeling flexibility and number of repo run. This performance is ideally suited for all labs across academic translational or clinical market. They would like to minimize the turnaround time avoid unnecessary.
As an example, batching or improve their ability to scale experiments sizes up or down and cost effective economics.
This has resonated cost target customers application types. The translation of these performance to casual benefit will drive customer buying decision is becoming clearer as we engage in customers. This year.
Turning to commercial execution, and how we intend to weather these markets, our chief commercial officer, Dan Ross the onboard for four months now and is underway with building a world class commercial team engaging with customers evolving our sales processes and implementing the right set of tools.
We have found that the gel process required high touch engagement with our initial customers our team engages to gain a deep understanding of specific used cases application workloads and sample volumes. This allows our commercial team to translate the G. Four performance back into tangible real world benefits for customers such as how they conduct and schedule there.
Experiments.
Their labs turnaround time in sourcing versus outsourcing all or some people think or reducing their costs on a sample basis.
This level of deep engagement understanding had been resonating with prospective customers as evidenced by the quantity and quality of opportunities and leads in the funnel and by direct feedback received for the ages of the purchasing decision.
Lastly, turning to the product roadmap update we are enthusiastic about the progress being made by our R&D team we have.
Aggressive development of <unk>, which will further add our dual offering on the <unk> for.
Feedback from customers and Kols on our Max read more M series flow cell kit continues to be strong.
Yes, <unk> capable offer a unique solution to provide ultra short read 180 kit that provide novus peak level retail at more attractive pricing. We have made the MTA is a priority in our product roadmap based on customer feedback.
Obviously G forces that Tom.
All priority.
But we wanted to provide a brief update on the PFS.
We are expanding our market research efforts around multi element and the needs of research and translational labs.
Throughput number of samples and sample plaques are all terms used to describe the same need a higher throughput lower cost solutions metro cell and tissue. Additionally.
Concurrent multifamily readout in the area of opportunity for.
Current solutions are limited in their ability to look at the RNA and protein concurrently in the same sample at the same time and we expect the PFS will be able to deliver that.
<unk> also won facial context of information at high resolution, most notably for F&B samples with NPS is uniquely suited to provide a high throughput and high resolution. We are using this information to prioritize internal R&D efforts and are excited to begin our technology access program in Q4, where we will begin partnering with industry leading researchers.
To bring samples in house and work together to generate novel information and applications in the PX platform.
We plan to expand collaborations with additional potential customers in early access program, which we plan to initiate in late 2023.
With that I'll turn the call over to Dale and to go into the details of our third quarter financial results.
Thank you drew I'll start by covering the Q3 2022 financials, then I'll provide directional remarks, and key metrics for Q4 and overall cash runway.
Operating expenses for the third quarter of 2022 totaled $24 7 million compared.
Compared to $17 5 million for the third quarter of 2021.
These totals included noncash stock based compensation expense $3 4 million in Q3, 2022, and $2 $9 million in Q3 2021, the year over year increase in total operating expenses was driven primarily by scaling headcount and infrastructure to support our growth, including the <unk> launch product.
<unk> and R&D roadmap.
Net loss for the third quarter of 2022 was $23 8 billion.
<unk> <unk> per share compared to $17 $6 million or 25 cents per share in the third quarter of 2021.
Our weighted average share count for the quarter used to calculate net loss per share was approximately $71 2 million.
Ending cash cash equivalents and short term investments, excluding restricted cash totaled $263 8 million.
Our team is focused on closing out the year on a strong note and shipping additional G. Four systems at a measured pace consistent with our ability to manufacture install and support the customer acceptance process. In addition, we continue to closely manage our pace of hiring and investments, we expect investments related to our product priorities in Q.
Four to increase modestly across commercial manufacturing operations and R&D.
However, we remain very mindful of the macro environment, and our focus and priorities and investments to enable cash runway into the first half of 2025.
Thank you and back to drew for closing remarks.
Thank you Dale.
In closing I want to reiterate the themes of today's update including first our number one priority with operational progress in resolving supply chain and related manufacturing issues and progressing towards Q4 shipments in the fourth quarter at plan with steady scale up ahead through 2023 seconds.
Second our continued conviction in the G. Four strong differentiation and its unique value proposition to drive commercial execution in a multibillion dollar and jet market and third a focus prioritize product roadmaps delivered Q4 enhancements as well as future innovation, all supported with a strong balance sheet.
To open up to questions operator.
Thank you ladies and gentlemen, the floor is now open for questions have any questions or comments. Please press star one on your phone at this time, we ask that while posing your question you. Please keep your handset of listening on speaker phone to provide optimum sound quality.
Please hold while we poll for questions.
And the first question is coming from Mac Sykes from Goldman Sachs. Matt Your line is live.
Thanks for taking my questions. Good afternoon guys.
Just maybe drew first on the supply chain comments made at the outset of the call.
It sounds like you've made some progress there.
Kind of putting things in place to make sure that disruptions are minimal as you think about sort of a measured pace.
<unk> shipments.
What kind of measures can you put in place as we go through 'twenty three to ensure that supply chain constraints wont be an issue or is it something that you feel like you've taken care of at this point.
Hey, Matt.
Thanks for the question.
It's a good question.
There are certain things, we're doing right now internally.
To make sure that we're testing components sub components subsystems, especially the complicated ones before they're put into our system.
That's one part I think from a supply chain management perspective. They are also steps we can take to have the vendor do additional QA QC before they ship us the parts I think our big focus is trying to make sure once we integrated subsystem and bring a system up we know the parts are going to work the way they are intended.
That being said beyond where we are right now we're going to learn things about the system performance in the field as we get more reps on the systems and as frankly customers take them and start to use them in real world ways, they're going to they're going to find new ways to break the system. So it will be continual learning.
The other thing I will say is in general we do expect to have continued improvements.
And robustness and reliability over time as we understand the.
The nature of the instruments and again the way they start to.
Break or need help after you see high volume usage over over many many run. So again I. Just think you have to take a step back and in the context of a new product coming to market. That's fairly complex. They are going to be learnings and we're doing everything we can internally mostly on the sub systems.
QA side at this point, but also sufficient testing before they leave and then once they are out in the field that will be closely monitoring working with the customer understanding kind of how they behave at scale and at after repeated use and then taking those learnings and incorporating them. So kind of a long winded way of saying there are concrete steps, we're taking internally and we will continue to.
To adapt and evolve as we learn how the system performance scale.
Okay got it thanks for that color and then just on the PX recognizing that Gee for launch execution as your number one priority as you think about the <unk> into 'twenty, three and look at sort of the Opex profile that you have in wanting to maintain a certain level of conservatism. There do you feel like you have the resources in place.
From an opex and balance sheet standpoint to be able to progress with the PX.
Within our budget that you have or will it require some shifting of priorities as you move through 'twenty three.
Yes, we're going through our kind of financial planning right now for next year and those are the questions that essentially we are asking ourselves I think we really want to maintain operational flexibility.
In terms of how we think about runway runway extension and right now it really is all hands on deck on the <unk> four and trying to look at the organization and a lot of ways being as lean as possible to make sure. We deliver on that first product. We do have an insulated separate team on the PX.
We intend to continue investing in the PX and part of what we're trying to figure out is how we can find either non dilutive ways or ways to essentially attract partnership to advance the PX.
The short answer to your question is we do have resources to continue developing the PX, but frankly, the interest and excitement from the market is one where we would love to be able to throw more resources at it but in a constrained macro environment. Like we are right now I think we just need to be very.
First principles in terms of spending on the first product and making sure that we get it to market before we get out over our skis on additional spend so.
Kind of a balanced.
I would say viewpoint.
Making sure we invest to push it forward, but certainly.
Being very conscious of runway extension and flexibility from a balance sheet perspective.
Got it and just one last question just on.
Of the shipments Youre, making Q4 any concentration within one of those particular customer groups that you've highlighted in the past that's been resonating.
It's still pretty balanced.
The Q4, and Q1 shipments will likely be a pretty even split between kind of your academic and your small.
Liam size private companies.
Clinical or industrial.
Orders, we've taken there as well, but thats probably.
More of a.
Once we have robustness reliability track record Thats, probably a profile of customer that that adopt more once you have that base level of credibility.
Kind of how we're thinking about the early funnel and early placements.
Great. Thank you.
Thank you. The next question is coming from Tom Stephens from Cowen Tom Your line is live.
Hi, Thanks for taking the question just a brief one on the kind of evolving competitive environment in the kind of.
Mid throughput space spin.
Specifically with regards to MSCI and coming presence in the U S. I guess, what have you had from customers when they've picked you ever without coming system and.
Yes, Yes, I guess I guess why would they said to you guys, which is giving you confidence for the growth for the <unk> in general going forward.
Yes, Thanks, Tom.
We still see predominantly in customer engagements that the buying decision.
Is between next seek or an <unk> or an existing illumina system.
Or potentially buy in the <unk> four.
That's typically who were selling against.
Candidly, we haven't really been in a buying decision at this point that I'm aware of.
Where there was a.
Customer that was realistically looking at an MDI versus G. Four so I couldnt really speak to that specifically.
Great. Thanks for that and then just one more on the color of G for QA QC.
Now youre seeing some kind of supply chain kings, even though on the semi side and potentially on the custom side too.
What kind of management changes have you made select QA QC team, which you think insulates that going forward. Thanks.
Yes, we Havent made management personnel changes I think more of it's been just making sure that we're focusing on testing sub systems and we're working with the vendor to make sure they test and have kind of quality control before they.
Or at least parts to us there's another part to it as well it's not just getting the subsystems of the part that's also.
Building, the machine and bringing the machine up and bring up basically means.
Working through all the small, but nuance things to get a sequencer working robustly in properly and that does take time with early.
Instruments, there is always variability in small things you learn as you start to bring up multiple units eventually dozens of units and a lot of it is making sure that you have predictability.
And consistency on bring up in that you are able to transfer bring up from an R&D to a development to manufacturing.
Kind of par.
Part of your business in a product that's a big part of being able to scale up as transferring into your manufacturing.
And those are all things that take take time, so I just want to make sure that.
The comment you made it's not just the supply chain the related downstream integration time that you need to get these systems robust and reliable and transfer to manufacturing we've made great strides on that as well so.
Yes, I think Thats no personnel changed at this point just really.
Understanding the system bring up QA QC.
And a real focus on transfer to manufacturing.
Good stuff thanks.
Thank you. The next question is coming from jobs Harrow beer.
<unk> UBS John Your line is live.
Hi, Thanks for taking the question just you said you're on track to ship units in <unk> does that mean, you plan on generating revenues next quarter, and if any commentary or way to quantify what the backlog currently looks like and I think you've previously you mentioned shipping or the capacity to ship one or two instruments per month in <unk> is that still on.
Correct.
Yes, Hi, John this is Dylan.
Not disclosing our backlog.
<unk> at this point I don't think we have plans to do that and I think what.
The commentary that we gave previously around manufacturing capacity and our ability to.
Deploy about one or two systems per month here in Q4 kind of gradually scaling up into 2023, as we know more about the ramp.
That's.
That still holds from a revenue recognition standpoint.
There's a customer.
Customer acceptance process tied to some of these initial units.
Which is pretty typical for an early product launch like this.
We are engaged with the customers trying to work through the installation and that acceptance process.
The game is to get that done in about 30 days kind of post shipment, but each situation is a little bit different but that's our target. So you can kind of expect that each system that goes out here in Q4, we'll have that acceptance process tied to it as well from a Rev Rec standpoint.
Got it and then I guess.
On the sales cycle and the conversations you are having it sounds like it's mostly with existing Illumina customers has have those conversations changed at all.
Sleep announcement, a couple of months ago and potential for ex leap on the next season 2024.
Hey, John This is drew.
I Wouldnt say there has been really a change.
Most of the customers that we're speaking with.
Are typically in the mid throughput so there they're running next seeks or theyre running the low end of the <unk> increasingly we're talking with customers that are sending out a lot of their sequencing. So some of them might have a lower throughput instrument doing internal sequencing and they are sending out certain types of sequencing, our higher throughput and that's turning out to be an area, where I think there is a re.
Opportunity to catch customers with the flexibility and the ability to scale, both up and down with the G. Four so we've had a lot of traction with those types of customers.
Again back to your original question on X sleep Havent really heard much.
Through my office in terms of <unk>, specifically I think there was a little bit of.
A wait and see if aluminum is going to do anything on mid throughput it looks like that's not happening for quite some time.
And I don't think there is clarity on what subset of features that were released for the new <unk> line will be available as a retrofit versus having to wait for a new desktop sequencer, which looks like it's probably out in 'twenty five at some point. So I think if anything it was probably clearing.
Is that for us and a little bit in that.
Our target segment again is not Super high throughput genome factories are high throughput labs. So.
And a lot of ways I think it's actually the opportunity is very real and with all the cards kind of flipped on the table now with all the different <unk>.
<unk> got new entrants in terms of systems coming to market, we feel like it.
Very highly differentiated and fits really well within the customer feedback that we're getting.
Got it and then I guess just one last clarification just on the shipments in <unk> question earlier, just given that we're about a third of the way through a little over a third of the way through the quarter have you shipped any instruments, yet so far.
<unk> anticipated later in the quarter.
We have.
We have shipped we're probably not going to go into much more detail yet since it's all recently unfolding, but we have shipped instruments and we should ship more instruments over the next couple of months.
Look forward to updating you.
At the next earnings call on how those shipments are going the installation that placement customer feedback. So it's a really exciting time for us.
Yes, we're.
We're excited.
Got it thanks for taking the questions.
Thanks, Sean.
Thank you once again, ladies and gentlemen, the floor remains open for questions. If you have any questions. Please press star one on your phone at this time.
And the next question is coming from Michael Raskin from Bank of America, Michael Your line is live.
Hi, This is <unk> on for Mike. Thank you for the question. So to start off maybe have you seen any change in customer conversations since the second quarter.
We've seen the competitive landscape develop here I was wondering if you have some insight on how customers are evaluating all of these options.
Yes, again I think.
There is there is not.
Not really much of a change for the customers that are in our target markets and again as we think about target markets. There's a few ways, we can dice it but essentially the conversations that I think had the most.
Customer mind share were really around the Super high end and what Illumina is going to do on the new <unk>.
Potentially other high end entrants I would say within our general market segment, which is largely.
High throughput mid sequencer as our bench top sequencer is largely academics core labs and in small and medium sized businesses.
Most of those profiles of customers Werent, one that we're going to be buying a super high throughput instruments. So far.
For us I don't think theres much that's changed since Q2.
I think the big thing frankly is.
Gotta be credibility and track record and I think once we have the G. Four out there and there is a few dozen in the market and people know, it's reliable and it works and they can get their data I think all of a sudden the value proposition of the speed the flexibility and the cost is really going to.
Reflect the true value in the G. Four so I think it's still early I know everyone's trying to figure out who they place where in the market, but I think until everyone has really been out there and had time to get systems used in credibility established it's hard to figure out how its value proposition resonate.
<unk> that there is still that reliability trustworthiness.
That needs to be checked off.
That makes sense another one on budgets and funding have you seen much change for customer spending ability do that macro environment in the quarter at all.
For the academics.
No I couldnt speak of any change I think likely because their budgets in place.
And the nature of the funding is different.
Kind of small and medium scale businesses.
A lot of them they still have to invest in their own R&D.
A lot of times, they're thinking about how do I save money on sequencing and one of the value propositions that I think has become more.
Kind of clear to US is it people that are sending out to a core lab with an upcharge on sequencing as a service.
So for the small and medium sized companies I don't think we've seen much of a buying change other than just really making sure their bottom line cost conscious on whatever they buy and making sure that it makes sense financially.
One area, where potentially it's a little bit different is the largest scale super high throughput, we're not super high throughput, but the high use mid level.
Market, so either clinical or industrial people that are next week chops I think there.
If youre thinking about an upgrade cycle or trading in our fleet of old next weeks I think right now there is probably a little bit more scrutiny on upfront capital outlay, even if there is long term savings.
For those types of customers.
You'd have to think through how you make sure that there is an attractive ROI near term not just a long tail of how they make their money back but for the most part those larger scale customers and the kind of.
Clear type customers are probably more of our customer profile that we're going after.
Q3, Q4 next year once we have kind of established credibility and some of the lower hanging fruit in terms of earlier adopters.
That makes sense and one more quick one here just following up on the last quarter on the manufacturing supply chain are you seeing any pressures on either instruments or consumables and how should we kind of think about it going into the back half or the.
Back quarter of this year and early 'twenty three.
I think we have seen across the board increases in cost not extreme but theres been modest increases of costs across the board.
So it's something we're definitely cautious and conscious of.
The challenges that we had cited previously were more specifically related to the <unk> instrument.
We haven't really spoke of experienced any any challenges on the consumables, yet, but I think cost and margin profile is absolutely something we're thinking about although I would say, it's a second order focus right now first orders robustness reliability performance getting the systems up and running and then very quickly that we will start shifting to <unk>.
Margin profile and building materials and those types of things so.
Yes, I think definitely some upward pressure on price, but but nothing extreme.
Got it thank you.
Thank you there are no other questions in queue at this time, ladies and gentlemen. This does conclude today's conference you may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.