Q4 2022 Telesis Bio Inc Earnings Call

March 21, 2023

Speaker 1: You.

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Speaker 2: Good day, and thank you for standing by, and welcome to the Q4 2022 Telesys Bio Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone.

Speaker 2: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jen Carroll, Telus' Vice President of Best Relations. You may begin.

Speaker 3: Thank you, Dustin. Good afternoon and thanks for joining us for Telesis BIO's 4th quarter and year-end 2022 earnings call. With me on the call today are Telesis BIO's founder and chief executive officer Todd Nelson, chief operating officer Eric Ester and Deci Goodrich.

Speaker 3: Senior Vice President of Commercial Operations. Our fourth quarter and full year 2022 financial results press release is now available on the investors section of our website. Before we begin, I would like to inform you that certain statements we make during the call will be forward-looking statements that involve known and unknown risks.

Speaker 3: and uncertainties that may cause ask for results to differ materially from those expressed or implied. Such factors include those referenced in the State Harbor Statement included in our earnings notes and in our filings with the FCC. This conference call contains time-sensitive information and is accurate only as of the live broadcast on March 21, 2020.

Speaker 4: First, I would like to thank our entire Talisys Bio team for the tremendous efforts resulting in a stellar 2022, where we exceeded revenue expectations, delivered meaningful expansion of gross margin, and the entire team for the tremendous efforts resulting in a stellar 2022, where we exceeded revenue expectations, delivered meaningful expansion of gross margin.

Speaker 4: Our overall plan this year is to continue to expand our BioXp customer base and drive the adoption of new BioXp kits. And to do this, we'll be focused on three things. First, expanding access to the synthetic biology market. We will do this by introducing our select kit.

Speaker 4: line of BioXp products that will allow customers to use their own DNA as a starting point. Second, we'll be entering a new market for NGS Library Prep. We will launch an NGS Library Prep Kit that will run our existing BioXp install base, and later in the year, we will launch a 9600 version for high throughput NGS sample prep.

Speaker 4: And third, we will expand in the fourth quarter our genome engineering workflow applications through the launch of CRISPR guide RNAs based upon our proprietary enzymatic DNA synthesis chemistry referred to as SOLA.

Speaker 4: Telesys Bio is the leader in automated multi-omic and synthetic biology solutions. At our heart, we are an instrumentation company offering unique, first-to-market benchtop automation platforms that are driving production of DNA, mRNA, and protein to the benchtop for a global customer base. Our systems enable decentralization of rapid, accurate, and reproducible writing of biology.

Speaker 4: Our vision at Telesys Bio has always been to provide researchers with tools to build biology in their own laboratory without any constraints. The ability to create novel synthetic biology-enabled solutions allows us to address large, unmet needs in our targeted markets.

Speaker 4: Scientists around the world are using our comprehensive solutions to accelerate the design-build-test paradigm for novel, high-value products for biologics and vaccine discovery, genome editing, and cell and gene therapies, just to name a few.

Speaker 4: Now moving on to our fourth quarter near-end results.

Speaker 4: Notably, our core BioXp revenue, which consists of instruments and kits, grew at 158% and 67% for the fourth quarter and full year respectively.

Speaker 4: This strong growth was the direct result of demand for both the BioXP3250 and our recently launched BioXP9600 systems and increased utilization resulting from new kits launched during the year.

Speaker 4: In the fourth quarter, we sold a total of 19 BioXp units, representing a 138% increase over Q4 of 2021. And similarly, for the year, we sold 66 additional instruments, representing 32% growth, which brings the total installed base to in excess of 250 instruments. Overall, we continue to be very pleased with the demand for the 3250.

Speaker 4: Gross margins came in at 68% for the fourth quarter and 57% for the full year 2022, reflecting positive mix shift in revenue towards higher-priced BioXd kits launched during the year for mRNA long fragment builds, cell-free DNA scale-up, as well as the receipt.

Speaker 4: Pfizer technical milestone payment resulting from the successful achievement of our first of four milestones. Operating expenses were $14.3 million for the fourth quarter of 2022 compared to $13 million for the same period in the prior year.

Speaker 4: For the full year, operating expenses, including non-cash charges, totaled 62 million dollars, reflecting prudent efforts in the second quarter to reduce our annual run rate expenses. This increase in operating expenses is driven by personnel costs and expansion across our business, primarily our commercial organization, to support our increased revenues.

Speaker 4: Net loss was 8.1 million for the fourth quarter 2022 compared to 12.5 million in the same period the prior year. The net loss per share 27 cents for the fourth quarter. Compared to 43 cents for the corresponding year, and for the full year period.

Speaker 4: 8 million compared to 39 million during the prior period.

Speaker 4: Cash and cash equivalents were $43.8 million as of December 31, 2022, noting also that the company has approximately $20 million worth of debt outstanding as of the end of the year.

Speaker 4: In summary, during 2022, we believe that we assembled the right executive team that can drive revenues, increase gross margin and stabilize base operating costs. So that we can become a profitable company in the 2nd, half of 2024 and deliver value to our shareholders.

Speaker 4: Now I'd like to briefly cover our financial guidance for the full year 2023, which will be back end weighted in the second half of the year due to our 2023 new product launches throughout the year.

Speaker 4: For the full year 2023, we're issuing the following guidance. Total revenue is greater than 45M.

Speaker 4: Gross margin is expected to be in the mid to high 50s on a percentage basis. Operating expenses, including one-time and non-cash charges, are expected to be approximately $62 to $64 million.

Speaker 4: Now let's walk through the things that will help us achieve this plan. First of all, on revenue growth, we have a robust series of BioXp product launches, including the launch of approximately 11 additional BioXp kits and two new BioXp systems for NGS library prep and solar powered systems.

Speaker 4: that will for the first time allow customers to achieve same-day turnaround results for CRISPR guide RNA.

Speaker 4: The combination of our new product launches, when layered onto our historical growth, should, in our view, generate significant continued revenue growth in the next couple of years.

Speaker 4: And now some details on our commercial strategy. We anticipate launching several select kits for both mRNA and cell-free DNA scale-up. These kits will add value proposition offered by our de novo gene synthesis kits, and for the first time, as mentioned, will allow scientists to use their own DNA as a starting point in experiments.

Speaker 4: We believe these make-the-stock kits will allow our current and future customers to use their BioXp systems more frequently, thus driving up recurring revenue growth rates. These kits should help us unlock the remainder of the SINbio TAM of approximately $2.6 billion, which is estimated to be growing at a rate of 27%.

Speaker 4: And by opening up our systems for customers to use their own DNA as a starting point, we're providing scientists with further flexibility.

Speaker 4: In addition to the BioXp Select Kit, we anticipate launching an additional BioXp platform focused on NGS Library Prep, which gives us access to an additional market opportunity of $1.6 billion growing at 25%.

Speaker 4: One final note on product revenue, we anticipate launching the first ever version of the BioXp9600 that will have a proprietary enzymatic DNA synthesis technology referred to as SOLA as a reagent platform. The system will be the first to market product for CRISPR guides enabling same day turnaround. This too is a new market for us.

Speaker 4: and represents an opportunity of approximately 1.5 billion dollars growing at 25 percent. Collaboration revenue, we anticipate continuing success with our partner Pfizer and we anticipate we will successfully achieve two additional milestones during the year.

Speaker 4: Moving on now to gross margins, we have a three-point plan for achieving our targets, which include, number one, contributions from a favorable mix of higher margin products like the 9600 and Select kits, number two, insourcing initiatives related to raw materials, and three, similar insourcing initiatives related to the vertical integration of our

Speaker 4: To this end, during the course of 2023, we anticipate further establishing an oligo production operation built around a fleet of proprietary oligosynthesis systems. When at full capacity, this operation will produce sufficient oligo volumes to meet our raw material needs, allowing us to effectively place existing supply from outside vendors.

Speaker 4: Additionally, we intend to internalize both the 3250 and 9600 instrument production lines throughout the year, which will also improve not only our supply chain and quality, Turner margins you you you.

Speaker 4: Moving on to base costs or OPEX.

Speaker 4: The Anticipate-Based Costs will remain relatively flat during the year as we are able to backfill growth in this category resulting from several large one-time charges we experienced in 2022.

Speaker 4: As a reminder, as we continue to execute against our strategic plan, we continue to see a path to achieving profitability during 2024, but anticipate that we will seek access to additional capital during 2023 to further solidify our cash position.

Speaker 4: Strong revenue growth and expanding gross margins when combined with stabilizing operating costs and an experienced execution oriented management team provided with potential past profitability within a 12 to 18 month window based on timing at year end of 2022.

Speaker 4: We are extremely pleased with the fourth quarter and full year results and will remain encouraged by strong commercial execution and progress in our product

Speaker 4: We are focused on executing against our near-term commercial goals, launching new products into two new markets, improving profit margins, and decreasing costs.

Speaker 4: furthering new and existing partnerships and growing market share. We continue to stabilize operating expenses and make strategic and measured investments to drive long term sustainable growth and a path toward profitability. And with that, I will thank you for joining our call and ask the operator to open the call for questions. Thank you.

Speaker 2: And thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. And one moment for our first question.

Speaker 2: And our first question comes from Brandon Gulliard from Jeffries. Your line is now open. Yes.

Speaker 5: Good afternoon, Todd and team.

Speaker 5: Maybe just starting with guidance, Todd, can you give us a sense of what that embeds for new Bio-XP instrument placements? Any color on the mix between the 3250 and the 9600? Maybe an update on just how the 9600 order book is developing. Any color?

Speaker 5: in terms of new versus existing customers now that we're kind of six months into that rollout.

Speaker 4: Yeah, thanks, Brandon. Appreciate the question. So let me start with the latter 1st on the 9600. we launched that effectively. I think the last day of September , so in the 4th quarter, and I would say we sold 9 or 10 last year and we disclosed that we think the initial uptake is good. We're we're. You know, we're happy with the uptake of the 9600.

Speaker 4: I think that's ramping up consistent with our expectations for this year. So getting to the first part of your question on what are we looking at for unit volumes, I would say that we sold 66 units in 2022 and we would expect that to just about double from a unit volume perspective.

Speaker 4: And on the mix, I think it's early to tell, but I think that we sold about 9 in the 4th quarter. There was some pent up demand. So I'd expect that to, you know, the year will be back in weighted for both the 3250s and the 9600 due to the kit launches. So I'd expect that to maybe not be 9 necessary.

Speaker 4: I mean, I think we had a solid 4th quarter and I think during the 1st half of the year we're launching a number of BIO XP select kits. Those need to get out in the market. We're getting the 9600 out there. We're getting utilization up. So I'd say from a cadence perspective, I don't want to die on cadence, but I think the rationale here is that we'll have a full year of 9600, but ramping up into the 2nd half.

Speaker 4: So, I'd expect the unit volumes to have a much higher cadence, I guess, in the second half of the year, and we'll get the benefit of the product launches on the BioXp kit line in the first half and the second half. So. I don't know how helpful that is. I think from a cadence perspective, we'd expect more than half of the revenue for sure to be.

Speaker 5: the year. And what will what impact will that ongoing shift have on gross margins as we look at 2024.

Speaker 4: So I'll get started on this. We're fortunate to have Eric here, so I'll hand it over to him after I give you some high-level color. This is just the continued execution against something that was really important for the company, and that was to gain control over our supply chain, better control our quality, and improve gross margins at the same time.

Speaker 4: We've endeavored to build our own systems. We've invested significantly in that in the last few years. We now have a handful of systems Eric can walk through. Those are coming online throughout the course of 2023, and they will ramp up production throughout that time period. Overall, the accretion of gross margin will be mostly felt in 2024 where there should be significant accretion of gross margin.

Speaker 4: we'll have the capacity that we need to to offset the vast majority of our external oligo of the needs today that we have for oligos that

Speaker 4: be currently purchased from outside vendors. And so as we look in 2024, most of our 2024 oligosupply will come from that internal capability. And as Todd said, the margin impact will be mostly felt in 2024 because we are ramping up through this year. And I think we're, you know, on a total blended product basis, we'll be expanding pretty significantly.

Speaker 6: Multiple 100 basis points in 2024.

Speaker 5: And then lastly, just to confirm in terms of the Pfizer technical milestones, so I think there's three left. How many of you contemplated in the guide, just want to confirm each of them are two and a half million, is that right? And then what's left to recognize in 24 from that?

Speaker 4: Yeah, so in 24 or 23. That's right. I think there's another tranche in 24. Yeah, okay. So yeah, sorry, Brandon. I understand the question now. Yeah. So we have an 8M dollar upfront technology access fee that will continue to be amortized throughout the course of 2023, but that'll go away at the end of the research period.

Speaker 4: which is the fourth quarter roughly of 2023. During 2023, we anticipate achieving two additional Pfizer milestones, and they're all, to the best of my knowledge, priced about the same, if you will, from an accomplishment perspective, and the first one that we disclosed is about 2.5 million.

Speaker 4: Then there'll be another 1 that we anticipate achieving in 2024. so it's typically a milestone and then a little bit of time to do the work and then another milestone. So just noting that we accomplished. The 1st milestone in the 4th quarter of 2022.

Speaker 2: Very good. Thank you. Yep. And thank you. And one moment for our next question.

Speaker 2: Thank you. Yep. And thank you. And one moment for our next question.

Speaker 2: And our next question comes from Harrison Shrage from KeyBank Capital Markets. Your line is now open. Tell us what your solution is.

Speaker 7: Hi Todd, congrats on the great quarter. If I could just follow up on the Pfizer milestone payments.

Speaker 7: I think I understand generally what that's going to be here in July 23, but if you could just provide

Speaker 4: A little bit more detail into 24 and 25 on that. Yeah, Harrison, I don't know how much so we've disclosed, I think publicly generally at high at a high level what those categories are. So just again, by way of review the Pfizer deal.

Speaker 4: had an upfront fee that we're advertising, and I just mentioned that there are four milestones that need to be achieved during the research period. And then there are some pretty significant milestones in 2024 related to potentially exclusivity or non exclusivity. And then after that, there are commercial milestones.

Speaker 4: milestone in 24 and then there's the opportunity for us to receive some additional large one-time milestones related to the exercise of exclusivity if appropriate and then I would say for 24 that's it and then 25 would kick in some commercial milestones and clinical milestones. I think what we also is that per exclusive product

Speaker 4: it all adds up to about $280 million per product. Got it. Okay, that's helpful. And then again on the guide,

Speaker 7: I think we understand the systems outlook here pretty well, but.

Speaker 7: It seems like your kits are certainly starting to gain some traction. So if you could just kind of quantify what you're expecting in terms of kit revenues or kit growth in 23 and then maybe directionally how we should be thinking about kits into 24 and beyond. And then same with these services as well. Yeah, so let me handle the products.

Speaker 4: select kits which will allow customers to use their own DNA as a starting point, including NGS, and we expect to launch about 11 kits during the course of this year, that being 2023. I believe revenue for kits grew at approximately 64 to 67 percent for, you know, the year-on-year period. We'd expect that category to continue to grow.

Speaker 4: being the de novo gene synthesis category at about that same rate or higher and would layer on top of that the additional revenue from the select kits. So, you know, overall revenue guide of 45M, I think you can back into a product number that's kind of in the.

Speaker 4: you can get there by backing out the the Pfizer milestones and the royalties. And then on services, that business, the plan for the Eaton business is to grow that business and the Sanger sequencing business this year, and then with the excess capacity that we have for oligo production off of our proprietary

Speaker 4: to give those systems then any excess capacity to eat and to enter into the oligo market. And that'll happen in 2024.

Speaker 7: Got it. Okay. And then last one for me just on the instruments and new systems outlook. I think you guys have previously talked about the BioXp Oligo printer as well as the DVC platforms and possibly delaying them in light of the cost-cutting measures.

Speaker 4: purpose-built system for NGS library prep. In the fourth quarter, we pivoted our larger DVC program to CRISPR guide RNAs to get something onto the market but with a limited scope, and that would be in the fourth quarter. That product will have on board solar chemistry, so

Speaker 4: same big turnaround of CRISPR guides. So, two systems this year, one in the third quarter for NGS, one for CRISPR guides based upon DBC technology and solar reagents in the fourth quarter.

Speaker 7: And then, God, I'm so sorry, if I could just sneak one more in on those new systems, I mean, would we expect that 9600 system in the third quarter to generally...

Speaker 7: I have a similar ASP to the regular 9600 that you launched during this last year as well as consumable pull through. I mean how should we think of ASP's and bolters on these?

Speaker 4: You're talking about the system that we just called on the launch for NGS. I think we're working through price discovery there and the business model around that. So we've got placeholders in there that I think are generally, I don't want to misspeak actually. Harrison, I may have to get back to you on that, but I think they're generally in line with the current price of the 9600 to maintain market continuity.

Speaker 8: Got it. Thanks again. Thank you.

Speaker 2: Thank you. And thank you.

Speaker 2: And one moment for our next question. And our next question comes from Steven Ma from Cowan. Your line is now open.

Speaker 7: Great thanks operator. Congrats on the quarter. Thanks Dave. Well yeah a lot of ground already covered. So just some follow-up questions mostly on gross margin.

Speaker 2: So I believe you said the gross margins in 2022 were 57% and then the guide for 23 is about around that range.

Speaker 9: just trying to reconcile that because

Speaker 9: Given you're going to be launching kind of 11 kits, the 9600 I believe has a better gross margin profile. Just trying to understand the gross margin guy for 2023. Just being conservative on your part.

Speaker 4: Well, I think part of it's just related to the timing of the ramp up for the internal oligo production, which will predominantly – it's linear, but I think from a production perspective, let's say it's linear with respect to getting the systems up and going, but nonlinear with respect to capacity and uptime and things like that.

Speaker 4: I wouldn't say it's necessarily inconsistent. We're ramping up the. Uh, the sale of the 9600 and yes, that has a higher price point. We need to see how the mix between the 9600 and the 3,250, you know, works out. Our anticipation is that because it has higher margins. Any contribution from that will be. The creative to where we're at.

Speaker 4: And then on the kids, you know, 11 kids throughout the year, but again, from a cadence perspective, a lot of them will be in the 2nd, half. Now, that is all good stuff and headed in the right direction from margin perspective. That's also offset slightly at the same time by a very rapidly growing.

Speaker 4: gene synthesis business from our de novo kits, which has generally a lower gross margin. So as the company works to operationalize the systems for our own internal oligo production to accrete to gross margin launches new kits throughout the course of the year. We're also, we need to recognize that we've got a very rapidly growing business. It's growing at in excess of 60%.

Speaker 4: which has a typically lower gross margin for gene fragments and gene synthesis products.

Speaker 9: Okay, that's helpful. And then on the cadence of these 11 kits, yeah, you said it's going to be mostly second half, but getting within the second half, should we be thinking it's going to be weighted more to Q4 or...

Speaker 4: You know, I'll hand it over to Eric. I think the peanut butter is pretty well spread between the year. I get the sense there's a lot going on in the second and third quarters, but I'll hand it over to Eric.

Speaker 6: Yeah, that's right of the 11, let's see, we have a couple that are launching in Q1, the majority launch in late Q2 and Q3, and then one of those kits, the last one launches together with the DVC in Q4.

Speaker 6: Let's see, we have a couple that are launching in Q1, the majority launch in late Q2 and Q3, and then one of those kits, the last one launches together with the DVC in Q4. Okay, perfect.

Speaker 9: All right, thanks for the questions.

Speaker 10: Thanks, David.

Speaker 2: And thank you. And I'm showing no further questions. This concludes today's conference call. Thank you for participating.

Speaker 2: And I'm showing no further questions. This concludes today's conference call. Thank you for participating. You may now disconnect. Thank you, everyone.

Speaker 1: You.

Speaker 1: I.

Speaker 1: I have.

Speaker 1: Thanks for watching!

Speaker 1: The.

Speaker 2: To ask a question during the session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jen Carroll, Telesys vice president.

Speaker 3: Chief Operating Officer Eric Esser, and Deci Goodrich, Senior Vice President of Commercial Operations. Our 4th quarter and full year 2022 financial results press release is now available on the investors section of our website. Before we begin, I would like to inform you that certain statements we make during the call will be forward looking statements that involve known and unknown risks and uncertainties that may cause.

Speaker 3: And the changes we discussed will be on a year over year basis, unless otherwise noted. And with that, I will hand the call over to our CEO and we can get started.

Speaker 4: Thanks, Jen. Welcome everyone. Thank you for joining today's call. First, I would like to thank our entire Telesis Bio team for their tremendous efforts resulting in a stellar 2022 where we exceeded revenue expectations, delivered meaningful expansion of gross margin, and the

Speaker 4: And in recognition of the current macroeconomic environment, delivered on reducing our operating expenses is a measure to extend our cash reserves. We have done this at the same time as funding our growth initiatives and executing commercially. Our overall plan this year is to continue to expand our BioXp customer base and drive the adoption of new BioXp kits.

Speaker 4: And to do this, we'll be focused on three things. First, expanding access to the synthetic biology market. We will do this by introducing our Select Kit line of BioXp products that will allow customers to use their own DNA as a starting point.

Speaker 4: Second, we'll be entering a new market for NGS Library Prep. We will launch an NGS Library Prep Kit that will run our existing BIOXP install base, and later in the year we will launch a 9600 version for high throughput NGS sample Preps.

Speaker 4: Now moving on to our fourth quarter near end results.

Speaker 4: I'd like to remind everyone that our detailed financial results for the 4th quarter were also included in today's press release. Total revenue for the 4th quarter and full year 2022 was 9.5M and 27.4M representing growth of 208% and 148% for the respective periods. Notably, our core BioXp revenue, which consists of instruments and kits, grew at 158% and has been at a higher level than the previous year.

Speaker 4: units representing 138 percent increase over Q4 of 2021. And similarly, for the year, we sold 66 additional instruments representing 32 percent growth, which brings the total installed base to in excess of 250 instruments. Overall, we continue to be very pleased with the demand for the 3250 and the initial up rate.

Speaker 4: Gross margins came in at 68% for the fourth quarter and 57% for the full year 2022, reflecting positive mix shift in revenue towards higher priced BioXp kits launched during the year for mRNA long fragment builds, cell-free DNA scale up, as well as the receipt.

Speaker 4: For the full year, operating expenses including non-cash charges totaled 62 million dollars, reflecting prudent efforts in the second quarter to reduce our annual run rate expenses.

Speaker 4: This increase in operating expenses is driven by personnel costs and expansion across our business, primarily our commercial organization, support our increased revenues.

Speaker 4: Net loss was 8.1 million for the fourth quarter 2022 compared to 12.5 million in the same period the prior year. The net loss per share 27 cents for the fourth quarter compared to 43 cents for the corresponding year and for the full year period.

Speaker 4: 8 million compared to 39Million during the prior period.

Speaker 4: Cash and cash equivalents were 43.8 million as of December 31st, 2022, noting also that the company has approximately 20 million dollars worth of debt outstanding as of the end of the year. In summary, during 2022, we believe that we assembled the right executive team that can drive revenues, increase gross margin and stabilize base operating costs.

Speaker 4: so that we can become a profitable company in the second half of 2024 and deliver value to our shareholders.

Speaker 4: Now, I'd like to briefly cover our financial guidance for the full year 2023, which will be back end weighted in the second half of the year due to our 2023 new product launches throughout the year.

Speaker 4: For the full year 2023, we're issuing the following guidance. Total revenue is greater than 45 million. Gross margin Is expected to be in the mid to high 50s on a percentage basis.

Speaker 4: Operating expenses, including one-time and non-cash charges, are expected to be approximately 62 to 64 million. Now, let's walk through the things that will help us achieve this plan. First of all, on revenue growth, we have a robust series of BioXp product launches, including the launch of approximately 11 additional BioXp kits and two new BioXp systems for NGS Library Prep and the solar-powered system.

Speaker 4: that will for the first time allow customers to achieve same-day turnaround results for CRISPR guide RNA. The combination of our new product launches when layered into onto our historical growth should, in our view, generate significant continued revenue growth in the next couple of years. And now some details on our commercial strategy. We anticipate launching several select kits for both mRNA and CRISPR.

Speaker 4: cell-free DNA scale-up. These kits will add value, will add to the value proposition offered by our de novo gene synthesis kits, and for the first time, as mentioned, will allow scientists to use their own DNA as a starting point in experiments. We believe these make-the-stock kits will allow our current and future customers to use their BioXB systems more frequently, thus driving up recurring revenue growth rates.

Speaker 4: These kits should help us unlock the remainder of the synbiotam of approximately 2.6 billion dollars, which is estimated to be growing at a rate of 27%. And by opening up our systems for customers to use their own DNA as a starting point, we're providing scientists with further flexibility.

Speaker 4: Collaboration revenue, we anticipate continuing success with our partner, Pfizer, and we anticipate we will successfully achieve two additional milestones during the year.

Speaker 4: Moving on now to gross margins, we have a three-point plan for achieving our targets which include number one, contributions from a favorable mix of higher margin products like the 9600 and select kits. Number two, insourcing initiatives related to raw materials and three, similar insourcing initiatives.

Speaker 4: related to the vertical integration of our instrument manufacturing. To this end, during the course of 2023, we anticipate further establishing an oligo production operation built around a fleet of proprietary oligosynthesis systems. When at full capacity, this operation will produce sufficient oligo volumes to meet our raw material needs, allowing us to effectively place existing supply from outside vendors.

Speaker 4: Moving on to base costs or OPEX. Anticipate base costs will remain relatively flat during the year as we're able to backfill growth in this category resulting from several large one-time charges we experienced in 2022.

Speaker 4: and an experience execution-oriented management team provides us with the potential path to profitability within a 12 to 18 month window based on timing at year-end of 2022. We are extremely pleased with the 4th quarter and full year results and we remain encouraged by strong commercial execution and progress in our product pipeline. We are focused on executing against our near-term commercial goals, launching new products into two new markets.

Speaker 4: improving profit margins, decreasing costs, furthering new and existing partnerships, and growing market share. We continue to stabilize operating expenses and make strategic and measured investments to drive long term sustainable growth and a path toward profitability. And with that, I will thank you for joining our call and ask the operator to open the call for questions. Thank you. And thank you. As a reminder to ask a question, please press star 1, 1 on your telephone and wait for your

Speaker 5: Hey, maybe just starting with guidance, Todd, give us a sense of what that embeds for new Bio-XP instrument placements. Any color on the mix between the 3250 and the 9600 and maybe an update on just kind of how the 9600 order book is developing. Any color in terms of new versus existing customers now that we're kind of six months into that rollout.

Speaker 4: you know, we're happy with the uptake of the 9600 and I think that's ramping up consistent with our expectations for this year. So getting to the first part of your question on what are we looking at for unit volumes, I would say that we sold approximately 66 units in, or we sold 66 units.

Speaker 4: In 2022, and we would expect that to just about double from a unit volume perspective. And on the mix, I think it's early to tell, but I, you know, I think that we sold about 9 in the 4th quarter. There was some pent up demand. So I'd expect that to, you know. The year will be back and waited for.

Speaker 4: both the 3250s and the 9600s due to the kit launches. So I'd expect that to maybe not be 9 necessarily in the 1st or 2nd quarter, but ramping up after that.

Speaker 4: Okay, yeah, this is my second question. You mentioned kind of a back-end loaded year. Is there any more, I guess, color on how to expect maybe the first half versus the second half in terms of the full year waiting? Yeah, I mean, I think we had a solid fourth quarter, and I think during the first half of the year we're launching a number of BioXp Select.

Speaker 4: get those need to get out in the market, we're getting the 9600 out there, we're getting utilization up. So I'd say from a cadence perspective, I don't want to guide on cadence, but I think the rationale here is that we'll have a full year of 9600, but ramping up into the second half. So, I'd expect the unit volumes to have a much higher cadence, I guess, in the second half of the year.

Speaker 4: and we'll get the benefit of the product launches on the BioXp kit line in the first half and the second half. So, I don't know how helpful that is. I think from a cadence perspective, we'd expect more than half of the revenue for sure to be in the second half of the year. Gotcha. Okay. Um, and in terms of your insourcing.

Speaker 5: some raw material production. What percent of oligos supply need to expect to be making it house by the end of the year? And what impact will that ongoing shift have on gross margins as we look at the 24?

Speaker 4: So, I'll get started on this. We're fortunate to have Eric here, so I'll hand it over to him after I give you some high-level color. This is just the continued execution against something that was really important for the company, and that was to gain control over our supply chain, better control over our quality and improve gross margins at the same time. So, we've endeavored to build our own systems. We've invested significantly in that. In the last few years, we now have a handful of...

Speaker 6: most of it, Todd. So by the end of this year in Q4,

we would expect something approaching 100% offset of our external supply of oligos. So internally we'll have the capacity that we need to to offset the vast majority of our external oligo of the needs today that we have for oligos that we currently purchase from outside vendors and so as we look in 2024 most of our 2024 oligos.

2024.

And then lastly, just to confirm in terms of the Pfizer technical milestones, so I think there's three left. How many of you contemplated in the guide, just want to confirm each of them are two and a half million, is that right? And then what's left to recognize in 24?

Yeah, so in 24 or 23? That's right, I think there's another tranche in 24. Yeah, okay, so yeah, sorry, Brandon. I understand the question now. Yeah, so we had an 8M dollar upfront technology access fee that will continue to be amortized throughout the course of 2023, but that'll go away at the end of the year.

accomplishment perspective and the first one that we disclose is about 2.5 million. Then there'll be another one that we'd anticipate achieving in 2024. So there's typically a milestone and then a little bit of time to do the work and then another milestone. So just noting that we accomplished

the first milestone in the fourth quarter of 2022. Very good. Thank you. Yep. And thank you. And one moment for our next question.

And our next question comes from Harrison Sraj from KeyBank Capital Markets. Your line is now open.

Hi Todd, congrats on the great quarter. If I could just follow up on the FISER milestone payments. I think I understand generally what that's going to be here in FY23, but if you could just provide a little bit more detail into 24 and 25 on that.

Yeah, Harrison, I don't know how much so we've disclosed, I think publicly generally at high at a high level what those categories are. So just again, by way of review the Pfizer deal. Had an upfront fee.

that we're advertising and I just mentioned that there are four milestones that need to be achieved during the research period and then there are some pretty significant milestones in 2024 related to potentially exclusivity or non exclusivity and then after that there are commercial milestones.

as well as clinical milestones and royalties on sales. So the cadence of revenue from 24 and 25, you know, I think we're anticipating the successful achievement of a milestone in 24 and then there's the opportunity for us to receive some additional large one-time

milestones related to the exercise of exclusivity, if appropriate, and then I would say for 24 that's it and then 25 would kick in some commercial milestones and clinical milestones.

I think what we also is that per exclusive product, it all adds up to about 280Million dollars per product.

Got it. Okay. That's helpful. And then again on the guide.

I think we understand the systems outlook here pretty well, but it seems like your kits are certainly starting to gain some traction. So if you could just kind of quantify what you're expecting in terms of kit revenue or kit growth in 23 and then maybe directionally how we should be thinking about kits into 24 and beyond. did you look at the older Argentines from air painting? for that book flight said if a did that you did that.

And then same with these services as well.

Yeah, so let me let me handle the products first in the order that you've asked on the biopsy kit side. And just by way of review, we've got. Right now, everything that we've done at the company has been built around de novo gene synthesis and. 8 or so kids that do that we're now adding.

beginning in the first quarter of this year to that, the select kits which will allow customers to use their own DNA as a starting point including NGS and we expect to launch about 11 kits during the course of this year, that being 2023.

I believe revenue for kids grew at approximately 64 to 67 percent for the year-on-year period. We'd expect that category to continue to grow, being the de novo gene synthesis category at about that same rate or higher, and would layer on top of that the...

the additional revenue from the select KIFs. So, you know, overall revenue guide of 45 million, I think you can back into a product number that's kind of in the.

You can get there by backing out the the Pfizer milestones and the royalties. And then on services, that business, the plan for the Eaton business is to grow that business and the Sanger sequencing business this year. And then with the excess capacity that we have for oligo production off of our proprietary systems

to give those systems then any excess capacity to eat and to enter into the oligo market. And that'll happen in 2024. Got it. Okay. And then last one for me, just on the instruments and new systems outlook, I think you guys have previously talked about the BioXp oligo printer as well as the TBC platforms.

and possibly delaying them in light of the cost-cutting measures. Could you just kind of refresh the timing and outlook of new systems to be released?

Sure, happy to. So as far as systems go in 2023, we're looking at a 3rd quarter launch of a proprietary 9600 based.

purpose-built system for NGS library prep. In the fourth quarter, we pivoted our larger DVC program to CRISPR guide RNAs to get something onto the market but with a limited scope, and that would be in the fourth quarter. That product will have on board Sola chemistry, so that will enable same-day turnaround of CRISPR guides. So two systems this year, one in the third quarter for NGS.

one for CRISPR guides based upon DVC technology and solar reagents in the fourth quarter. Got it. And then, God, I'm so sorry, if I could just sneak one more in. On those new systems, I mean, would we expect that 9600 system in the third quarter to generally have a similar ASP to the regular 9600 that you launched during this last year as well as

speak actually. Harrison, I may have to get back to you on that, but I think they're generally in line with the current price of the 9600 to maintain market continuity.

Got it. Thanks again. Thank you. And thank you.

And one moment by our next question. And our next question comes from Steven Ma from Cowan. Your line is now open. Great. Thanks, operator. Congrats on the quarter.

Thanks Dave. Well, yeah, a lot of ground already covered. So just some follow up questions, mostly on gross margin. So I believe you said the gross margins in 2022 were 57% and then the guide for 23 is about around that range.

Just trying to reconcile that, given you're going to be launching kind of 11 kits, the 9600 I believe has a better gross margin profile. Just trying to understand the gross margin guy for 2023. Is it just being conservative on your part?

Well, I think part of it's just related to the timing of the ramp up for the internal oligo production, which will predominantly – it's linear, but I think from a production perspective – let's say it's linear with respect to getting the systems up and going, but nonlinear with respect to capacity and uptime and things like that. So more of an emphasis on – –

Gross margin accretion later in the year from the auto insourcing initiatives. And then I think on the mix. You know, we said, like, mid to high 50s and. I think that is generally a good place for us to be right now. I wouldn't say it's necessarily inconsistent. We're ramping up the.

The sale of the 9600 and yes, that has a higher price point. We need to see how the mix between the 9600 and the 3250 works out. Our anticipation is that because it has higher margins. Any contribution from that will be accretive to where we're at and then on the kits, 11 kits throughout the year, but again, from a cadence perspective, a lot of them will be in the 2nd half. Now, that is all good stuff and headed in the right direction from margin perspective. That's also offset slightly.

for gene fragments and gene synthesis products.

Okay, that's helpful. And then on the cadence of these 11 kits, you said it's going to be mostly second half, but getting within the second half, should we be thinking it's going to be weighted more to Q4? Yes. Yes, sir.

You know, I'll hand it over to Eric. I think I think the peanut butter is. Pretty well spread between the year. I get the sense there's a lot going on in the 2nd and 3rd quarters, but I'll hand it over to Eric. Yeah, that's right of the 11. let's see we have a couple that are launching in Q1 the majority launch in late Q2 and Q3 and then 1 of those kits. The last 1 launches together with the DVC in Q4.

I'll hand it over to Eric. I think it's I think the peanut butter is pretty well spread between the year I get the sense there's a lot going on in the second and third quarters, but I'll hand it over to Eric. Yeah, that's right I'm the 11 Let's see We have a couple that are launching in q1 the majority launch in late q2 and q3 And then one of those kits the last one launches together with the DVC in q4 Okay, perfect

All right, thanks for your questions. Yep, thanks Steve. And thank you. And I am showing no further questions. This concludes today's conference call. Thank you for participating. You may now disconnect. Thank you everyone.

Q4 2022 Telesis Bio Inc Earnings Call

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