Singular Genomics Systems Inc. Q1 2023 Earnings Call
Greetings welcome to the singular genomics the systems incorporated first quarter 2023 earnings conference call all.
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I'll now turn the conference over to your host Philip Taylor you may begin.
Thank you operator, thank today are <unk>, founder and Chief Executive Officer, Bruce Vanessa and Chief Financial Officer, Dale and meter earlier today Senior genomics released financial results for the three months ended March 31 2020 a.
A copy of the press release is available on the company's website.
Before we begin I would like to inform you that comments and responses to your questions. During today's call reflect management's views as of today may nine 2023, only and will include forward looking statements and opinion statements, including predictions estimates expectations and other information related to our financial and.
Getting results plans and strategies actual results may differ materially from those expressed or implied by these statements as a result of certain risks and uncertainties. These risks and uncertainties are more fully described in our press release issued earlier today and in our filings with the Securities and Exchange Commission, including our most recent form.
<unk> 10-Q, and 10-K filings and the form 8-K filed with today's press release.
Our SEC filings can be found on our website or the SEC website investors are cautioned not to place undue reliance on forward looking statements, we disclaim any obligation to update or revise these forward looking statements.
Please note that this conference call will be available for audio replay on our website at investor that singular genomics dot com in the presentations and events section with that I will turn the call over to CEO Bruce <unk>.
Good afternoon, and welcome to singular genomics first quarter 2023 earnings call.
It was another productive quarter and we look forward to updating you on the progress made across the business.
We will focus our update on the following four key areas.
One commercial execution.
<unk> market opportunity three operational execution and for our innovation pipeline.
Starting with commercial execution I am pleased to report another positive quarter of commercial progress for the company, including New G. Four shipments an increase in the order book and increasing system utilization in the field by.
I am proud of the team's work during a busy Q1, we shipped <unk> systems. During the quarter. This included two academic labs, and our commercial clinical lab.
We are encouraged to see the G four getting traction across different customer segments, which we believe is a testament to the value proposition of the speed power flexibility and accuracy.
Our customer service and support team was actively engaged with system shipments installations and trainings during the quarter contributing to sequential quarter over quarter revenue growth as we recognize revenue on <unk> for instrument placements. In addition to shipping one reagent rental during the quarter.
Customer feedback continues to validate the <unk> value proposition as it relates to use cases in the field. For example, the University of New Mexico noted that quote overall, we are very pleased with the performance of the <unk> four and with the support we have received from singular genomics. Our core facility has many users doing different kinds of projects and the <unk>.
Fits perfectly into that setting we have successfully used the G. Four for bulk RNA seek tenex genomics single cell RNA seek and for epigenetics assays like chip seek and cut and run assays and quote.
In addition, I recently had the opportunity to visit several customers and prospective customers in the Boston area. The feedback on the <unk> was positive and they were impressed with the fast run times flexibility of four flow cells with individual lanes and quality of the system, noting the consistency of data across flow cells and a run.
Early customer utilization and the ramp into consumable pull through is still in its early stages and we expect this to increase over time as customers gain experience with the system and move more of their work onto the G. Four <unk>.
Consistent with the launch of any new and complex technology, we intend to continue implementing enhancements to the system, which are designed to further improve usability and robustness. We expect this to support increasing utilization and consumables and consumable pull through for systems in the field over time.
I want to sincerely. Thank our early customers for their continued partnership and support and our mission to accelerate genomics for the advancement of science and medicine.
Turning to market opportunity.
We remain confident about our Tam or total addressable market and the <unk> product market fit we continue to believe that over half of the roughly $6 billion and just market today is broadly addressable by mid throughput sequencer as such as the <unk> for this portion of the market is predominantly made up of about two thirds research and translational labs.
One third clinical labs running applications, such as targeted panels arent AC and single cell RNA seek the.
<unk> addresses these customers' needs and provides a compelling alternative in a market that is today largely served by a single ngf's provider.
Our sales funnel is strong and growing with triple digit qualified sales opportunities.
The qualified sales opportunity fulfills. These four criteria. One there is a specific need to there is budget available three we are engaged with the decision maker in four there is a near term timeline to purchase.
While the funnel spans a variety of market segments. We are seeing early traction with academic core labs core labs are often managing varying sample volumes and output requirements from a wide range of applications. The combined speed power and flexibility of the G. Four can enable these labs to optimize sequencing runs scaling up or down based on the needs of their <unk>.
<unk> and delivering results in less than a day.
Beyond academic core labs, the speed and flexibility of the systems make them ideal for clinical research and commercial labs.
We recently showcased the <unk> performance capabilities, along with some innovative methods and applications at the American Association for Cancer Research Conference in Orlando.
Here, we presented posters and datasets, demonstrating <unk> ability to deliver data with more speed power and operational efficiency than any other sequencing technologies in the market for applications in cancer research, including rapid somatic and germline various detection.
While the clinical market segment represents a smaller part of the sales funnel today, we expect this to grow over time as we increase our installed base grow the number of customer reference sites and establish the G. Four in the market.
Turning to operational execution, our focus has been on optimizing the supply chain streamline the manufacturing process and continuing to improve the usability and robustness of the G. Four.
We continue to execute on our foundational set of capabilities and infrastructure to support our next phase of growth in the second half of the year and into 2024 and operations, we are taking steps to improve our <unk> production capabilities.
These steps include increasing redundancy and alternative suppliers for certain critical components and working with vendors to refine specifications and improved component testing.
Internally, we are implementing additional QC testing for incoming parts, reducing the time required to build and bring up the <unk> instrument and enhancing field service and support.
We recently received ISO 9001 certification for our dedicated manufacturing facility in San Diego, a milestone accomplishment that represents our commitment to continual improvement in product quality.
Turning to our innovation and product pipeline, we're excited about the pipeline of innovations, including improvements in performance and specs on the G for higher throughput consumable kits and specialty application kits with novel content and workflows for specific applications. We.
We have started shipping <unk> flow cells to early access customers.
The <unk> flow cell will expand our consumable offerings on the G. Four doubling the number of Reed's and throughput for the most wildly run applications.
In addition earlier this year, we announced the launch of our Max reads kits for single cell sequencing.
This kit is designed to allow users to get up to $800 million leads per flow cell or $3 2 billion rides per run.
Max rates provide a novel method to achieve <unk> level pricing for single cell sequencing on a bench top system.
We look forward to offering this kit and early access format later this quarter with a full commercial release in Q3.
With the <unk> and M series single cell kit, both widely available in the second half of 2023, we expect to see an uptick in <unk> system demand as these highly differentiated kits provide significant value to a wide set of customers in our target markets.
We also expect an uptick in reagent pull through given the higher data outputs and corresponding kit prices of both the <unk> III and <unk> kits.
And finally, we continue to progress the PX system with a focused team working on the PX instrument and message development. We are also engaged with several potential tap or technology access partners. We are collaborating with these kols to demonstrate novel applications utilizing the PFS is high throughput Institute sequencing.
Technology to provide spatial information and single cells and in tissue.
At this stage, we are busy in the lab working on the system and look forward to sharing additional updates as we continue to develop.
Before turning the call over to Damian I would like to provide some directional commentary on the 2023 outlook.
We continue to believe our moderated deployment of systems in early 2023 is appropriate to lay the right foundation for sustainable success and prepare for a scaling phase in the second half of the year.
We are seeing a positive start to the year with respect to the commercial engine. Our sales funnel is strong and the number of qualified opportunities is growing we are getting early traction in the academic segment with six of our 84 systems in the field being placed in academic labs, we believe budget cycles. In this customer segment will be more backend loaded during the year, resulting in <unk>.
Purchases in the second half of the year. In addition customer interest in our <unk> III and <unk> kits remains high for many of the opportunities in our funnel.
And believe this will be a significant driver of adoption as they become more broadly available in the coming months.
Now I'll turn the call over to <unk> to go through the details of our first quarter financial results.
Thank you drew I'll start by covering the Q1 2023 financials, then ill provide additional directional remarks on key metrics for the rest of 2023.
Revenue for the first quarter of 2023 totaled $863000 made up predominantly of the revenue recognized on an additional three instrument placements during the quarter.
Operating expenses for the first quarter of 2023 totaled $25 4 million compared to $22 million for the first quarter of 2022.
These totals included noncash stock based compensation expense of $3 $1 million in Q1, 2023, and $3 6 million in Q1 2022.
The year over year increase in total operating expenses was driven primarily by scaling SG&A head count to support our growth for the <unk> launch.
Net loss for the first quarter of 2023 was $23 $6 million or <unk> 33 per share compared to $22 million or <unk> 31 per share in the first quarter of 2022.
Our weighted average share count for the first quarter used to calculate net loss per share was approximately $71 9 million.
And in cash cash equivalents and short term investments, excluding restricted cash totaled $226 $1 million.
Turning to comments on 2023, the <unk> value proposition is being validated through instrument placements and field discussions with our target customer market segments.
Our team is supporting early G. Four placements installing new systems training and supporting customers and working to drive consumable utilization.
As expected pull through is in the early stages and we anticipate learning more about early customer utilization patterns over time.
As mentioned by <unk>, we expect sales to be concentrated in the second half of the year, resulting from budget cycles and commercial releases, the <unk> III and <unk> kits.
Regarding operating expenses, we're steadfast in our focused expense management.
While we do expect 23 investment to modestly increase in areas directly related to the <unk> success, we intend to manage existing resources to provide cash runway into the second half of 2025.
Thank you and back to drew for closing remarks.
Thank you Dylan in closing I'm proud of the progress our team has made during the quarter with our earliest customer placements.
The <unk> value proposition is resonating and commercial interest is growing in our target markets.
We are taking the right steps to build the foundational infrastructure to scale our operations over the course of the year.
We have a strong product portfolio a system improvements.
New kits and an innovation pipeline that positions us well for the future.
Our team remains confident and committed to driving long term value by executing on our product launch.
Prioritizing key activities and investments to ensure continued innovation.
Particularly managing expenses.
And building a business with sound fundamentals and our path to profitability over time.
Now, let's open it up for questions operator.
Certainly.
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One moment, while we poll for questions.
Your first question is coming from Tom Stephens at TD Cowen.
Yes.
Mr. Stephens Your line is live.
I've got a I was on mute thanks so.
Just a quick one just a quick one on placements.
For the quarter was about in line with consensus it looks like you are baking in a much bigger bypass.
Could you talk about maybe some of the manufacturing challenges you continued to see and maybe be more precise with the merits that you continue to work on that.
And then I've got some follow ups on that.
Hey, Tom Thanks for the question this is drew.
I think overall really encouraged where the system is and how the customers are using the system on the manufacturing side with a complex instruments such as the G. Four it's very common that youre going to have learnings and youre going to have a variety of ways that you are improving the robustness and reliability of the system and also incorporating upgrades such as <unk>.
<unk> kids' faster run times in run mode, I would say the core of what we're doing right now is working on vendor management for quality control of incoming complex sub components. We're also doing a lot of work doing quality control testing of those components internally before we put them into the instrument and then there's also a number of learnings.
After putting the first four or five instruments in the field back in November December you learn things in the field. There are small places where you want to make upgrades.
Change things too.
The system or the sub components and this is just very natural and part of the slower and moderated pace in the first half of the year is taking the time to really incorporate those changes those improvements and make the most robust and reliable systems you can so.
It's really just not not one thing its just all of the normal things that go with a complex system with many moving parts and making sure you're assembling them in building them in a predictable way and working through all the challenges that are very typical so it's not one thing we're comfortable where we are in.
It's just it's going to take time to harden our system and get it to the point, where it's kind of a gold standard level.
Manufacturing efficiency like companies that have been doing it for many years with really large budgets.
Yes.
Makes sense, so I guess.
In terms of capacity for production in the back half given you're given a kind of a slightly more aggressive ramp on initial should we should we expect maybe mid teens capacity is kind of where you are at the moment or going into the back half.
Well I think we're very aware of the consensus numbers and I think for the comments, we made for the first half, it's really kind of getting our feet under us moderating the pace of deployments.
And definitely there's a lot of demand out there. So it's just making sure we're ready to really scale in the second half I think our plan is to be.
More in line with being able to have supply and demand kind of in sync one to one and kind of ramping through Q3 really into Q4, and we're aware of the consensus numbers and again part of this is making sure that as you are scaling you have the right field application support technical support you are setting expectations, the right way and it's all about the customers. So yes, we believe capacity.
We'll go up in the second half and it's trending that way and so as demand and I think the important thing is to make sure. We scale appropriately. So we can ensure our customers are happy and they are successfully using sequences.
Alright, and then just one last one if I could so.
So.
Hey, you guys have some top tops almost ready to go I guess could you give any more color kind of what those are.
What kind of projects that will be there'll be embarking on or what kind of checks that we bought in <unk>.
Yes, we'll make a note to provide more color on the next call on this.
We can say is theres three partners that we have we've.
Kind of engaged with all leading academic institutions and kind of kols and their space and we've really picked a variety of applications that help demonstrate the novel capabilities of being able to sequence in cells or in cells and tissue.
<unk> offers.
And we will work with those partners over the next few months to receive samples.
Run assays provide that data to them and then to work with them to really show new capabilities and new things that the PX can offer that other systems can.
Over the course of the year, we'll share more information on that and again I think we're in a place where we have a very lean team working on it. So we really want to set expectations modestly on what we can do we turned away. Many many potential top partners just because we don't have bandwidth right now, but we chose three that we think are awesome partners that will really be good examples of these novel capabilities at the Institute.
Sequencer offers.
Right yes.
Ill hop back in the queue. Thanks, guys.
Your next question is coming from John Sourberry at UBS.
Good evening and thanks for taking the question.
Sounds like you're having some success in the academic markets just any additional color when youre going to those customers.
Youre thinking that Youre, winning and then I guess, how do you think that the potential for the Max.
That is launched how that could fit into those conversations with the academic.
Thanks.
Hey, John This is drew thanks, so much for the question.
I think that the <unk> value proposition, just fits really well for the academic community and if you think about how a lot of the academic core labs or even the investigator labs are doing sequencing.
The ability to have fast turnaround times.
People the ability to take a sample run an experiment and you get data faster Mick.
Mixed with the ability to scale up or down to press go and what I mean by that is the instrument ability to run in sub 24 to 20 hours or even 15 for shorter kits. That's one part, but the part that equally important is that you can load up a single flow cell you don't have to fill up 400 gigs worth of run capacity and <unk>.
Given them that ability to scale down and press go at a cost effective price point is really attractive and by the same token of lab that has higher throughput or has more samples that come in in a given day or week. They can fill up multiple flow cells or go to a higher throughput flow cell and it doesn't really change the cadence in which they're operating their lab. So it's just a really nice fit from a workflow.
A usability standpoint for those labs and I think the other thing that's really nice about the G. Four as individual lanes a lot of core lab sell individual lanes, where they sell individual samples and other sequences don't have individual lanes. So their ability to say you can have a single lane out of a four lane flow cell on an <unk> III and that's only going to cost you 100, or 200 or 300 Bucks.
It's very unique it doesn't exist somewhere else typically people are buying much higher price points and they are forced to buy more data for a given run if they want their own lane. So it's really kind of providing a unique solution that doesn't exist. That's why I think the academic labs are are so interesting.
And I think one other point is that the application set that we're offering in the library prep partnerships that we've developed are all right in the sweet spot of most of what these academic labs are running which is RNA seek single cell sequencing.
And then targeted panels. So it kind of just fits on all fronts and Thats why I think there's so much traction and interest there Mac Street and F. Three is just an extension of what I already talked about it just providing higher throughput and even better economics for for labs that have maybe more volume or more variability in volume and then on the Max rate specifically for single cell again.
There's a lot of single cell Thats done in the academic segment, right now and having that kind of capacity to get 800 million reads in a single flow cell at about $1 per million reads is unique it doesn't really exist and it's a really attractive value proposition a lot of the customers in the funnel are waiting for that Theyre, saying once you have that I want the system.
When will you have it and it's an exciting place to be but also we want to get it out as soon as possible and.
Capture those customers that have interest in that kit.
I appreciate that and I know, it's early days, but now that you have placements up that Phil just any color you can find on learnings from those initial installs any areas you could also touch on like software or just.
How those users are starting to ramp on the G. Four.
Yes, I would say broadly speaking we are encouraged by the diversity of applications.
That's something that's just cool to see kind of different types of applications everything from paired and XOMA.
Targeted panels to single cell.
So RNA seek and different library prep providers.
Working on the system, it's really cool.
Different customers are ramping at different rates. Some people are using the system and we're learning things much quicker when you see usage day in and day out in third party hands.
Talks about that directly and transparently that we're learning things about the systems that need only.
And learn when you have somebody used.
In the system at high frequency in their hands and we're taking all of those learnings supporting the customer and incorporating that into all types of upgrades to the system on the software side, specifically that scenario, where it's pretty common with other systems and kind of the existing.
Major player out there that you will see upgrades in software over time.
That can allow faster run times that our air handling it could be.
Components, so theres always going to be software upgrades that you make over time to improve and enhance the user experience and those are also typical things that we're working on prior to a more frequent cadence early on with an initial launch and when Youre a hardened established product thats many years.
And then I guess last one here I think you mentioned in your prepared remarks drew that there was one reagent rental physicians, who is actually the selling cycle just any color there on on the opportunity and how you think that could potentially expand some of the user base. Thanks.
It's encouraging I mean, I think we've talked about it before that we want to have kind of a menu of options on how people could get a system.
So we support obviously the sale of a piece of equipment, we have a lease option. We have a reagent rental option I think there will be interest in the reagent rental we're starting to see it the traditional way in the majority of our interest has been in the traditional capital purchase, but I think the reagent rentals are really nice way that somebody could get into our system.
Without money out of pocket upfront.
And with kind of a commitment over time to use the system that still has better economics on the consumables than if you were to buy a system and run the current mid throughput kit. So it's kind of like a.
Very attractive if you look at it in view or in context of what's the existing offering on kind of a.
Bench top system.
Got it thanks for taking the questions.
Thank you.
Your next question for today is coming from Michael Rice skin at Bank of America.
Yes.
Great. Thanks for taking the question guys.
First of all this is going to be a quick tack on to the very last little bit you said that I want to make sure I reconcile the numbers correctly I think this quarter. You said you shipped three and also Q accounted revenues for three in <unk> 'twenty. Two you shipped five but you also recognized revenues for three so.
Are the other two that are part of the installed base now are both of those reagent rental with debit delta or were there. Some that were sort of like really late in March that you just didn't see the revenues from.
Yeah, Hey, Mike This is Dylan.
We had shipped five systems at the end of December and in Q4, we had recognized revenue on three so two rolled into Q1, we recognized on those to ship three new ones recognized on one one was a reagent rental and the other one we will expect to recognize here in Q2.
Fantastic.
Exactly the bridge I was looking for so that just making sure <unk> two still equals four.
Alright, and then the.
The real question then is.
Consumables pull through and utilization I know you are.
Given what you just said your five to six months is again these boxes up but anything you can say in terms of like the first customers out there.
Are they reordering and reordering and reordering at a faster rate when it comes to consumables and even you can say in terms of <unk>.
When do you think those initial initial placements are going to hit steady state from a pull through perspective is that four quarters.
Shipment of our install just to give us some idea of how to think about the consumables ramp over time.
Yes, yes, good question.
Kit more broadly the Max read kit, yeah, both those increase the <unk>.
<unk> and essentially the ASP on the consumables, so that's going to be a nice tailwind for us once we get that more broadly issued.
But we really think about this is kind of multi quarter ramp up but.
So that could be anywhere six 912 months to get to kind of a steady state utilization. That's how we think about it internally, but like I said, we are definitely learning and will share more as we see more customers running them out in the field here in the next quarter. Michael just attack already mentioned this county part of I don't know if he misspoke are you meant to say but credit over.
The agents for early customers and as they go through their credits obviously, we're not booking revenue outrageous reflected and realized revenue, but as people run through their reading reagent credits it'll start to show up as revenue as they wrap as well. So we kind of expect that to start to show up more that's right.
Got it mixed up and then last one if I could squeeze one more than.
Just to make sure I think this is kind of app, but I'm I don't know if I called the answer properly. So I would appreciate that.
You talk to a previously about two to four shipments per month definitely back and a loaded.
That's still the right way to think about 2023 overall for the year as a whole even though the back half ramp or two to four is an exit rates of the year.
Number you've talked about the lack of quarter I Wanna make sure. If that's the one that's still on the table.
Yeah, I think in the last call, we kind of redirected to kind of in the lower side of that and moderated pays for the first half and then really scaling and Q3 and Q4 and beyond that I think we pointed to kind of a consensus numbers and they kind of show a more appropriate scale quarter to quarter through the back of the year. So I think that's kind of a good guy pose for how we're thinking about.
Definitely Q3, and really Q4, we see kind of a confluence of factors that lead us to believe those will be really strong quarters for us and we've got some real restructure ramp.
Alright, thanks to us.
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