Q4 2022 Telesis Bio Inc Earnings Call

March 21, 2023

Good day, and thank you for standing by and welcome to the Q4 2022 kilometers by earnings Conference call. At this time all participants are in listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question.

During this session you will need to press star one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Jim Carol <unk>, Vice President of Investor Relations.

You may begin.

Thank you Justin good afternoon, and thanks for joining us the classic <unk> fourth quarter and year end 2022 earnings call with me on the call today are telesis bio founder and Chief Executive Officer, Todd Nelson, Chief Operating Officer, Eric <unk> and decade, Goodrich Senior Vice President of commercial.

<unk>.

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 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.

And in our filings with the SEC.

This call contains time sensitive information and is accurate only as of the <unk> test in March 21, 2023, finally, any percentage changes, we discuss will be on a year over year basis, unless otherwise noted and with that I will hand, the call over to our CEO .

Can get started.

Thanks, John and 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 in recognition of the current macroeconomic environment delivered on reducing our operating expenses as 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 <unk> customer base and drive the adoption of new by XP kits.

And to do this will be focused on three things first expanding access to the synthetic biology market. We will do this by introducing our select kit lineup bio XP products that will allow customers to use their own DNA as a starting point.

We will be entering a new market for Ngls Library prep, we will launch in Mcs Library prep kit that will run our existing biopsy installed base and later in the year, We will launch a 9600 version for high throughput NGF sample prep.

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 solar.

Telus is vital as the leader in automated multi omics synthetic biology solutions at our heart, we're an instrumentation company offering unique first to market bench top automation platforms that are driving production of DNA mrna and protein to the bench top for our global customer base, our systems enabled decentralization of rapid accurate and reproducible riding it.

Biology.

Our vision at Telus is 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.

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

Now moving on to our fourth quarter and year end results.

I'd like to remind everyone that our detailed financial results for the fourth quarter were also included in today's press release total revenue for the fourth quarter and full year 2022 was $9 5 million and $27 4 million representing growth of 208% and 148% for the respective periods, notably.

Our core <unk> revenue, which consists of instruments and kits grew at 158% and 67% for the fourth quarter and full year respectively.

This strong growth was the direct result of demand for both the biography $32 50, and our recently launched <unk> 9600 systems and increased utilization, resulting from new kits launched during the year.

In the fourth quarter, we sold a total of 19 buyouts fee 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 an excess of 250 instruments.

Overall, we continue to be very pleased with the demand for the $32 50 in the initial uptake within the market of the 9600 the launch of the <unk> hundred 9600 system bring significant revenue potential stemming from higher instrument asps.

Higher biopsy kit utilization rates.

And an ability to expand into new and adjacent markets.

Gross margins came in at 68% for the fourth quarter and 57% for the full year of 2022, reflecting positive mix shift in revenue towards higher priced by Alex fee kits launched during the year for mrna long fragment builds cell free DNA scale up as well as the receipt of Pfizer technical milestones.

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.

Full year operating expenses, including noncash charges totaled $62 million, reflecting prudent efforts in the second quarter to reduce our annual run rate expenses.

This increase in operating expenses was driven by personnel costs and expansion across our business, primarily our commercial organization to support our increased revenues.

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 for the fourth quarter compared to <unk> 43 for the corresponding year and for the full year period.

$8 million compared to $39 million during the prior period.

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.

In summary during 2022, we believe that we assembled the right executive team that can drive revenues increased gross margin and stabilized base operating costs. So that we can become a profitable company in the second half of 2024 and deliver value to our shareholders now.

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

For the full year 2023, we are issuing the following guidance total revenue of greater than $45 million.

Gross margin is expected to be in the mid to high <unk> on a percentage basis.

Operating expenses, including onetime and noncash charges are expected to be approximately $62 million 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 <unk> product launches, including the launch of approximately 11 additional biopsy kits and two <unk> systems for Ngls Library prep and <unk>.

Solar powered system that will for the first time allow customers to achieve same day turnaround results for Christopher Guide RNA.

The combination.

<unk> of our new product launches when layered onto our historical growth should and 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 kits for both mrna and cell free DNA scale up these kits will add value, we will add to the value proposition offered by our de Novo gene synthesis kits and for the first time as mentioned will last sciences to use their own DNA as a starting point and experiment. We believe these <unk>.

Make the stock kits will allow our current and future customers, who use thereby XP systems more frequently thus driving up recurring revenue growth rates.

<unk> should help us unlock the remainder of the <unk> bio Tam of approximately $2 6 billion estimated.

Estimated to be growing at a rate of 27%.

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

In addition to the biography select kit, we anticipate launching in additional biopsy platform focused on Mds Library prep, which gives us access to an additional market opportunity of $1 6 billion growing at 25%.

One final note on product revenue, we anticipate launching the first ever version of the <unk> 9600 that will have a criteria and somatic DNA synthesis technology referred to as solar as reagents platform. The system will be the first to market product for Christopher guys, enabling same day turnaround. This too is a new market for us and represent.

And opportunity of approximately $1 5 billion growing at 25%.

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

Moving on now to gross margins, we have a three point plan for achieving our targets which include number one contribution contributions from a favorable mix of higher margin products like the 90, 9600 and select kits number two in sourcing initiatives related to raw materials and three similar in sourcing initiatives related to the verdict.

Integration of our instrument manufacturing.

To this end during the course of 2023, we anticipate further establishing and although production operation built around a fleet that proprietary oligos synthesis systems.

When at full capacity this operation will produce sufficient aldo volumes to meet our raw material needs, allowing us to effectively replace existing supply from outside vendors.

Additionally, we intend to internalize both to $32, 50% to 9600 instrument production lines throughout the year, which will also improve not only our supply chain and quality on our margins.

Moving onto based cost or Opex.

We anticipate based costs will remain relatively flat during the year as we were able to backfill growth in this category, resulting from several large onetime charges, we experienced in 2022.

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.

Strong revenue growth and expanding gross margins when combined with stabilizing operating costs and an experienced execution oriented management team provide 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 fourth quarter and full year results and we remain encouraged by strong commercial execution and progress on our product pipeline.

We are focused on executing against our near term commercial goals launching new products and to enter into two new markets improving profit margins decreasing costs.

Furthering new and existing partnerships and growing market share we continue to stabilize the 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.

Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced the withdraw. Your question. Please press star. One again, please standby will be compile the Q&A roster and one moment for our first question.

And our first question comes from Brandon <unk> from Jefferies. Your line is now open.

Hey, good afternoon guys.

<unk>.

Hey, maybe just just starting with guidance.

Give us a sense of.

What that Embeds, four new <unk> instrument placements.

Any color on the mix between 30% to 50% to 9600, maybe an update on just kind of help with 9600 order bookings developing any color in terms of new versus existing customers now that we're kind of six months into that rollout.

Yeah. Thanks, Brandon I appreciate the question. So let me start with the latter first on the 9600, we launched that effectively I think the last day of September so in the fourth quarter and I would say, we sold 910 last year and we disclosed that we think the initial uptake is good.

<unk>.

We're happy with the uptake of the 9600, and I think thats 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 and we sold 66 units.

In 2022, and we would expect that to just about double from a unit volume perspective and.

And on the mix I think it's early to tell.

But.

I think that we sold about nine in the fourth quarter. There was some pent up demand so I'd expect that to.

The year will be backend weighted for both the $32 <unk> and the 9600 due to the kit launches. So I'd expect that to maybe not be nine necessarily in the first or second quarter, but ramping up after that.

Okay. Yes. This is my second question, you mentioned kind of a backend loaded year it anymore.

Yes color on how you expect maybe the first half versus the second half in terms of the before year waiting.

Yes, 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 <unk> select kits does need to get out in the market, where 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 will have we'll have a full year of <unk> 9600, the ramping up into the second half.

So I'd expect the unit volumes too.

Much higher.

A higher cadence I guess in the second half of the year and we will get the benefit of the product launches on the biopsy kit line in the first half in the second half so.

I don't know how helpful that is I think from a cadence perspective, we would expect more than half of the revenue for sure to be in the second half of the year.

Gotcha Okay.

And then in terms of your in.

In sourcing.

Some raw material.

Production what percent of all against supply needs do you expect to be making in house by the end of the year.

And what will what an actual debt ongoing shifts to have on gross margins as we look out to 'twenty four.

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 too.

Again control over our supply chain better control, our quality and improved gross margins at the same time so.

We have endeavored to build our own systems, we've invested significantly in that in the last few years. We now have a handful of those systems Eric walk through those are coming online throughout the course of 2023 and they will ramp up production throughout that time period.

Overall, the accretion at gross margin will be mostly felt in 2024, where there should be.

Significant accretion to gross margin as a result of that I'll handle it hand, it over to Eric for some detail.

Yes, I think you've covered most of the time so by the end of this year in Q4, we would expect something approaching a 100% offset of our external supply of all ago. So internally, we will have the capacity that we need to offset the vast majority of our external while ago.

Needs today that we have for Oligos that.

We currently purchase from outside vendors.

So as we look at in 2020 for most of our 2020 for Alagoas supply 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 are.

On a total blended product basis, we'll be expanding pretty significantly.

Multiple 100 basis points in 2024.

Got it and then lastly, just to confirm it.

The Pfizer technical milestones. So I think there is three <unk>.

Well.

How many have you contemplated in the guide.

Just want to confirm each of them are $2 $5 million is.

Is that right and then what's left to recognize in 'twenty four.

So in 'twenty, four or 'twenty three.

That's right I think there's another tranche in 'twenty four yes, okay. So yes, sorry, Brian I understand the question here, yes. So we had an $8 million upfront technology access fee that will continue to be amortized throughout the course of 2023, but that will go away at the end of the research period, which is the fourth quarter roughly.

2023 during 2023, we would anticipate achieving two additional pfizer milestones and Theyre all to the best of my knowledge priced about the same if you will from an accomplishment perspective in the first one that we disclosed was about $2 5 million then there'll be another one that we would anticipate achieving in 2000.

24, so there is 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.

Yes.

And thank you.

And one moment our next question.

Okay.

And our next question comes from her since Ross from Keybanc capital markets. Your line is now open.

Yeah.

Hi, Todd Congrats on the great quarter.

If I could just follow up on the fiber milestone payments.

I think I think I understand generally what that's going to be fair enough by 'twenty three but if you could just provide.

A little bit more detail into 'twenty four 'twenty five on that.

Yes, Harrison I don't know how much 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.

An upfront fee.

That we're amortizing 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 'twenty, four and 'twenty five.

Sure.

I think it's we're anticipating the successful achievement of a milestone in 'twenty four.

And then.

There is the opportunity for us to receive some additional large.

One time milestones related to the exercise of exclusivity are appropriate and then I would say for 'twenty for that fit and then 25 would kick in some commercial milestones and clinical milestones.

I think what we've disclosed so that per exclusive product. It all adds up to about $280 million per product.

Okay.

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 Youre kits.

Certainly starting to gain some traction.

If you could just kind of quantify what you're expecting in terms of revenue.

Growth in 'twenty, three and then maybe directionally, how we should be thinking about kits into 'twenty four and beyond and then same with the services business as well.

Yes, 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.

Now everything that we've done at the company has been built around de Novo gene synthesis in eight or so kits that too 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 Ngls and we expect to launch that 11 kits during the course of.

This year that being 2023.

I believe revenue for kits grew at approximately 64% to 67%.

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 additional revenue from the select kits so.

Overall revenue guide of $45 million.

You can back into a product number that's kind of in the.

You can get there by backing out the Pfizer milestones and royalties.

And then on services that business 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 all of the production off of our proprietary systems to give those systems, then any excess capacity to eaton to enter into the.

Although market and that will happen in 2024.

Got it Okay, and then last one for me just on the.

On the instruments and new systems outlook I think you guys had previously talked about the <unk> printer as well as the PVC platforms.

And possibly delaying them in light of the cost cutting measures.

Could you just kind of refresh.

The timing and outlook.

New systems to be released.

Sure happy to so as far as systems go in 2023, we're looking at a third quarter launch.

<unk> 9600 based.

<unk> built system for Ngls Library prep.

In the fourth quarter, we pivoted, our larger DDC program to Christopher Guide Rnas to get something onto the market, but with limited scope and that would be in the fourth quarter that product will have onboard solar chemistry, so that will enable.

Same day turnaround of CRISPR guidance. So two systems. This year one in the third quarter for Ngls, one for CRISPR guidance based upon DPC technology and solar reagents in the fourth quarter.

Got it and then Todd I'm, so sorry, if I could just sneak one more in on those new systems I mean could we expect that 9600 systems in the third quarter just.

Generally.

I have a similar asps to the regular 9600 that you launched during this last year as well as consumable pull through how should we think of ASP.

Please.

Youre talking about the system that we just called on the launch for.

For Ngls 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 are generally I don't want to misspeak actually Eric.

Harris I may have to get back to you on that but I think they're generally in line with.

With the current price of the 9600 to maintain market continuity.

Got it thanks again.

Thank you.

And thank you.

And one moment our next question.

And our next question comes from Steven Mah from Cowen. Your line is now open.

Great. Thanks, operator congrats.

Congrats on the quarter.

Thanks, Steve.

A lot of ground already covered so just some follow up questions mostly on on gross margin.

I believe you said the gross margins in 2022 were 57% and then the guide for 'twenty three is about around that range.

I'm, just trying to reconcile that because.

Given youre going to be launching kind of 11.

Kit. The 9600 I believe has a better gross margin profile just trying to understand the gross margin guide for 2023 is that just being conservative on your part.

Well I think part of it is just related to the timing of the ramp up for the internal although production, which will predominantly linear but I think from a production perspective, let's say linear with respect to getting the systems up and going.

Non linear 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 I'll go in sourcing initiatives and then I think on the mix.

We said like mid to high Fifty's 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 <unk>.

The sale of the 9600, and yes that has a higher price point, we need to see how the mix between the 90 632 50 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.

<unk> kits throughout the year, but again from a cadence perspective, a lot of them will be in the second half.

Now that is all good.

Good stuff and headed in the right direction from margin perspective, that's also offset slightly at the same time vary by a very rapidly growing.

Gene synthesis business from our de Novo kits, which hasnt generally have lower gross margin. So as the company works to operationalize.

These systems for our own internal auto production to accretive gross margin launches new kits throughout the course of the year where also.

We need to recognize that we've got a very rapidly growing business, it's growing at an excess of 60%, which has a typically lower gross margin for gene fragrances and gene synthesis products.

Okay. That's helpful and then on the on the cadence of these 11 kits you said, it's going to be mostly.

Second half but.

Getting within in the second half should we be thinking it.

Going to be weighted more to Q4 or.

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 second and third quarters, but I'll hand, it over to Eric.

Yes, that's right on 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 last one launches together with the BBC in Q4.

Okay perfect.

Alright, thanks for the questions.

Yep Thanks, Steve.

Thank you.

And I am showing no further questions. This concludes today's conference call. Thank you for participating you may now disconnect.

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Good day, and thank you for standing by and welcome to the Q4 2022 Telesis final earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session you will need to press star one on your telephone you will then hear an automated <unk>.

Advising your hand is raised to withdraw your question. Please press star one again.

Be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Jim Carol <unk>, Vice President of Investor Relations you may begin.

Thank you Dustin and good afternoon, and thanks for joining us the classic <unk> fourth quarter and year end 2022 earnings call with me on the call today are <unk> founder and Chief Executive Officer, Todd Nelson, Chief Operating Officer, Eric Sir and decade, Goodrich Senior Vice President of commercial operations.

Really from those expressed or implied.

These include those referenced in the Safe Harbor statement included in our earnings release.

And in our filings with the SEC.

Conference call contains time sensitive information and is accurate only as of the broadcast on March 21, 2020. Finally any percentage 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 .

We can get started.

Thanks, Tien 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.

Our overall plan. This year is to continue to expand our <unk> customer base and drive the adoption of new buyer XP kits and to do this will be focused on three things first expanding access to the synthetic biology market. We will do this by introducing our select kit lineup by OSB products that will allow customers to use their own DNA as a <unk>.

Turning point.

We will be entering a new market for Ngls Library prep, we will launch in Mcs Library prep kit that will run on our existing <unk> installed base and later in the year. We will launch in 9600 version for high throughput NGF sample prep.

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 and somatic DNA synthesis chemistry referred to as solar.

Telus is vital as the leader in automated multi omics synthetic biology solutions at our heart, we're an instrumentation company offering unique first to market bench top automation platforms that are driving production of DNA mrna and protein to the bench top for our global customer base, our systems enabled decentralisation of rapid accurate and reproducible writing a buyer.

Allergy.

Our vision at Telus is bio has always been to provide researches 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.

Now moving on to our fourth quarter and year end results.

Notably our core <unk> revenue, which consists of instruments and kits grew to 158% and 67% for the fourth quarter and full year respectively.

This strong growth was the direct result of demand for both the <unk> $2 50, and our recently launched by <unk> 9600 systems and increased utilization, resulting from new kits launched during the year.

Overall, we continue to be very pleased with the demand for the $32 50 in the initial uptake within the market of the 9600 the launch of the <unk> 9600 system brings significant revenue potential stemming from higher instrument asps.

Higher biopsy kit utilization rates.

And an ability to expand into new and adjacent markets.

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 by Alex fee kits launched during the year for mrna long fragrant builds cell free DNA scale up as well as the receipt Pfizer technical milestones.

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.

Full year operating expenses, including noncash charges totaled $62 million, reflecting prudent efforts in the second quarter to reduce our annual run rate expenses.

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

$8 million compared to $39 million during the prior period.

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.

I would like to briefly cover our financial guidance for the full year, 2023, which will be backend weighted in the second half of the year due to our 2023 new product launches throughout the year.

For the full year 2023, we are issuing the following guidance total revenue of greater than $45 million.

Gross margin is expected to be in the mid to high <unk> on a percentage basis opt.

Operating expenses, including onetime and noncash charges are expected to be approximately $62 million 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 ISP product launches, including the launch of approximately 11 additional biopsy kits and two <unk> systems for NDS Library prep and <unk>.

The solar powered system that will for the first time allow customers to achieve same day turnaround results for Christopher Guide RNA.

The combination of our new product launches when layered onto our historical growth should and 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 kits for both mrna and 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 and experiment we believe these.

Make the stock kits will allow our current and future customers to use thereby XP systems more frequently.

Giving up recurring revenue growth rate.

These kits should help us unlock the remainder of the <unk> bio Tam of approximately $2 $6 billion is.

Estimated to be growing at a rate of 27%.

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

In addition to the biography select kits, we anticipate launching in additional biopsy platform focused on Mds Library prep, which gives us access to an additional market opportunity of $1 6 billion growing at 25%.

One final note on product revenue, we anticipate launching the first ever version of the <unk> 9600 that will have a criteria and somatic DNA synthesis technology referred to as solar as reagents platform. The system will be the first to market product for Christopher guides, enabling same day turnaround. This too is a new market for us and.

And opportunity of approximately $1 5 billion growing at 25%.

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

Integration of our instrument manufacturing.

To this end during the course of 2023, we anticipate further establishing an all ago production operation built around a fleet that proprietary alagoas emphasis systems.

When at full capacity this operation will produce sufficient although volumes to meet our raw material needs, allowing us to effectively replace existing supply from outside vendors.

Additionally, we intend to internalize well to $32 50 to 9600 instrument production lines throughout the year, which will also improve not only our supply chain and quality better margins.

Hi.

Moving onto based cost or Opex.

We anticipate based costs will remain relatively flat during the year as we were able to backfill growth in this category, resulting from several large onetime charges, we experienced in 2022.

Strong revenue growth and expanding gross margins when combined with stabilizing operating costs and an experienced execution oriented management team provide us with a 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 fourth quarter and full year results and we remain encouraged by strong commercial execution and progress on our product pipeline.

We are focused on executing against our near term commercial goals launching new products and to enter into two new markets 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.

Thank you.

As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced the withdraw. Your question. Please press star. One again, please standby will be compile the Q&A roster and one moment for our first question.

And our first question comes from Brandon <unk> from Jefferies. Your line is now open.

Hey, good afternoon guys.

<unk>.

Maybe just starting with guidance.

You give us a sense of.

What that Embeds, four new <unk> instrument placements any.

Any color on the mix between $32 50 of the 9600, maybe an update on just kind of help it 9600 order bookings is developing any color in terms of new versus existing customers now that we're kind of six months into that rollout.

Yeah. Thanks, Brian I appreciate the question. So let me start with the latter first on the 9600, we launched that effectively I think the last day of September so in the fourth quarter and I would say, we sold 910 last year and we disclosed that.

We think the initial uptake is good.

We're happy with the uptake of the 9600, and I think thats 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 <unk>, where we sold 66 unit.

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 think that we sold about nine in the fourth quarter. There was some pent up demand so I'd expect that to.

The year will be back end weighted for both the $32 <unk> and the 9600 due to the kit launches. So I'd expect that to maybe not be nine necessarily in the first or second quarter, but ramping up after that.

Okay. Yes. This is my second question, you mentioned kind of a backend loaded year it anymore.

I guess some color on how you expect maybe the first half versus the second half in terms of the <unk>.

You are waiting.

Say from a cadence perspective, I don't want to guide on cadence, but I think the rationale here is that we will have we will have a full year of <unk> 9600, the ramping up into the second half.

So I'd expect the unit volumes too.

That much.

Higher cadence I guess in the second half of the year and we will get the benefit of the product launches on the biopsy kit line in the first half in the second half so.

I don't know how helpful that is I think from a cadence perspective, we would expect more than half of their revenue for sure to be in the second half of the year.

Gotcha Okay.

In terms of your in sourcing.

Some raw material.

Production, you'll know what percent of all against apply need do you expect to be making in house by the end of the year.

And.

When an actual debt ongoing shifts have on gross margins as we look out to 'twenty four.

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 too.

Gain control over our supply chain better control, our quality and improved gross margins at the same time. So we have endeavored to build our own systems, we've invested significantly in that in the last few years. We now have a handful of those systems Eric walked through those are coming online throughout the course of 2023 and they will ramp up production through.

At that time period.

Overall, the accretion to gross margin will be mostly felt in 2020 forward there should be significant.

Significant accretion in gross margin as a result of that I'll handle it hand, it over to Eric for some detail.

Needs today that we have for Oligos that.

We currently purchase from outside vendors.

So as we look at 2020 for most of our 2020 for Oligos supply will come from that internal capability.

As Todd said.

The margin impact will be mostly felt in 2024, because we are ramping up through this year and I think we are.

On a total blended product basis, we'll be expanding pretty significantly.

Multiple 100 basis points in 2024.

Got it and then lastly, just to confirm it.

The Pfizer technical milestones. So I think there is three <unk>.

Left.

How many have you contemplated in the guide.

When confirm each of them are $2 5 million is.

Is that right and then what's left to recognize in 'twenty four.

So in 24 or 23.

That's right I think there's another tranche in 'twenty four yes, okay.

Yes, sorry, Brian I understand the question here, yes, so we had an $8 million upfront technology access fee that we will continue to be amortized throughout the course of 2023, but that will go away at the end of the research period, which is the fourth quarter roughly.

2023 during 2023, we'd anticipate achieving two additional pfizer milestones and Theyre all to the best of my knowledge priced about the same if you will from an accomplishment perspective in the first one that we disclosed is about $2 5 million then there'll be another one that we would anticipate achieving in 2000.

<unk> 24, 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 first milestone in the fourth quarter of 2022.

Very good thank you.

Yes.

Thank you.

And one moment our next question.

Okay.

And our next question comes from Harrison Ross from Keybanc Capital markets. Your line is now open.

Hey, Todd Congrats on the great quarter.

If I could just follow up on the five year milestone payments.

I think I think I understand generally what that's going to be fair enough by 'twenty three but if you could just provide.

A little bit more detail into 'twenty four 'twenty five on that.

Yes.

How much we've disclosed I think publicly.

Generally at high at a high level, what those categories are there just again by way of review the Pfizer deal.

An upfront fee.

That we're amortizing 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 'twenty, four and 'twenty five.

Hi.

I think we're anticipating the successful achievement of a milestone in 'twenty four and then.

There is 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 'twenty for that fit and then 25 would kick in some commercial milestones and clinical milestones.

I think what we disclose is.

Per exclusive product at all.

All adds up to about $280 million per 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 Youre kits are certainly starting to gain some traction.

If you could just kind of quantify what you're expecting in terms of revenue.

Our kit growth in 'twenty, three and then maybe directionally, how we should be thinking about gets into 'twenty four and beyond.

And then same with the services business as well.

Yes, 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.

<unk> the two 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 Ngls and we expect to launch that 11 kits. During the course of this year that being 2023.

I believe revenue for kits grew at approximately 64% to 67%.

For the year on year period, we'd expect that category to continue to grow.

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 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 Pfizer milestones and the royalties.

And then on services that business plan for the Eaton business is to grow that business and the Sanger sequencing business. This year and then with excess capacity that we have for all of the production off of our proprietary systems to give those systems, then any excess capacity to eaton to enter into the olive.

So market and that will happen in 2024.

Got it Okay, and then last one for me just on the.

On the instruments and new systems outlook I think you guys had previously talked about the <unk> printer as well as the PVC platforms.

Possibly delaying them in light of the cost cutting measures could you just kind of refresh.

The timing and outlook.

New systems to be released.

Sure happy to so as far as systems go in 2023, we're looking at a third quarter launch.

Our proprietary 9600 based.

Purpose built system for Ngls Library prep.

Third quarter for Ngls, one for Christopher guidance based upon DPC technology and solar reagents in the fourth quarter.

Got it and then Todd I'm, so sorry, if I could just sneak one more in on those new systems I mean could we expect that 9600 systems third quarter two generally.

I have a similar ASP.

The regular 9600 that you launched during this last year as well as consumable pull through I mean, how should we think of ASB.

Yes.

Youre talking about the system that we just called on the launch.

For Ngls 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 are generally I don't want to misspeak actually.

I may have to get back to you on that but I think they are 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 our next question.

And our next question comes from Steven <unk> from Cowen. Your line is now open.

Great. Thanks, operator congrats.

Congrats on the quarter.

Thanks, Steve.

A lot of ground already covered so just some follow up questions mostly on on gross margin.

So I believe you said the gross margins in 2022 were 57% and then the guide for 'twenty three is about around that range.

Just trying to reconcile that because.

Sure.

Given youre going to be launching kind of 11.

Kits.

9600, I believe has a better gross margin profile just trying to understand the gross margin guide for 2020 through that just being conservative on your part.

So more of an emphasis on <unk>.

Margin accretion later in the year.

From the all go in sourcing initiatives and then I think on the mix.

We said like mid to high Fifty's 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 <unk>.

The sale of the 9600, and yes that has a higher price point, we need to see how the mix between the 90 $632 50 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 second half.

Now that is all good.

Good stuff and headed in the right direction from margin perspective, that's also offset slightly at the same time vary by a very rapidly growing.

Gene synthesis business from our de Novo kits, which hasnt generally have lower gross margin. So as the company works to operationalize.

These systems for our own internal Aldo production to accrete, the gross margin launches new kits throughout the course of the year where also.

We need to recognize that we've got a very rapidly growing business, it's growing at an excess of 60%, which has a typically lower gross margin for gene fragrance and gene synthesis products.

Okay. That's helpful and then on the on the cadence of these 11 kits. Yes, you said, it's going to be mostly.

Second half but.

Getting within in the second half should we be thinking it.

Going to be weighted more to Q4 or.

Now 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 second and third quarters, but I'll hand, it over to Eric.

Yes, that's right out 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 last one launches together with the BBC in Q4.

Okay perfect.

Alright, thanks for the questions.

Yep Thanks, Steve.

Thank you.

And I am showing no further questions. This concludes today's conference call. Thank you for participating you may now disconnect.

Everyone.

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