Q3 2024 SOPHiA GENETICS SA Earnings Call
Life Return to Cosphorics over at the Kalman's Dagger to see a genetic head of the trapegian investigation. Please go ahead.
Speaker Change: Thank you and good morning everyone. Welcome to the Sophia genetics third quarter, 2024 earnings conference call. Joining me today to discuss the results are Dr. Yergi Camblong, our co-founder and chief executive officer, Ross Muken, our company president, and George Cardo's our chief financial officer.
Speaker Change: I'd like to remind you that management will make statements during this call that are forward looking statements within the meanings of federal securities laws. These statements involve material risks and uncertainties that could cause for actual results or events to materially differ from those anticipated. And you should not place undue reliance on forward looking statements.
Speaker Change: Additional information regarding these risks on certain these factors that could cause results to differ, appears in the press release issued by South Asianetics today, and in the Documents and Report Srial by South Asianetics from time to time with the Securities and Exchange Commission.
Speaker Change: During this call, we will present both IFRS and non-IFRS financial measures. The reconciliation of IFRS and non-IFRS measures is included in today's earnings, especially which is available on our website. With that, I'll now turn the call over to Yurgi.
Yurgi: Thanks again and good morning everyone.
Yurgi: I will start today by giving a brief update on our Q3 performance, which played out largely as expected. A skinny car volume reacts to the rate and strong cosmological results in a significant 39% year-end year improvement to cash birth.
I will then I like the Tigros driver of the next several partners in MSK access our the WISOC LGM, which continues to attract strong interest on customers across the globe.
Last, I will conclude with an exciting update in our leadership team as we further position our results for future growth. Ross will close by providing a more detailed update on future performance and outlook for the remainder of the year.
Speaker Change: As mentioned, two three places out largely as expected as clinical volume reacts to the rate The first is your graphite.
We perform approximately 91,000 analyses in the quarter, representing your overyear growth of 16% or 17% when extruding Covid-related volumes.
Speaker Change: As expected, the temporary headwins affecting France, Italy and Spain in the crystals of the year began to subside, and analysis volume trended to work normally levels of growth across his key regions.
Speaker Change: Explicating Ross in the core business was offset by softness in the bioforma, which we flagged as a headwind last quarter.
Tishipay Tid: I'm Tishipay Tid by your former revenue, what's down in my 3-Elling the period.
Tishipay Tid: Nonetheless, I will thank the President for the change in the changes made to the bio-forma business in YouTube and leading indicators such as the Healthy and Growing Pipeline, suggest that the business is regaining momentum as we move to the end of 2024 and into next year.
Bailon, the spectators who reassure my revenue guidance for 2024 and look forward to a continued reaction of overall growth in 2025.
Speaker Change: The major driver of the clinical reaction in Q3 has been consistent strong new business momentum throughout the year.
Speaker Change: 3.2% of the new customer's site earlier this year entered with the usage, at 14 customers in the career year 3.
Speaker Change: This meaningful step-up was the result of a high-turned-focus on getting customers into routine faster and consistently signing your customers each quarter.
Speaker Change: On the Lucasom Reform, we continue the trend of signing your business, at elevated levels in Q3, has 20 new customers and updates of your IBM.
Speaker Change: Reasons of customers waiting to the marketing and such as the NHS, building a moment of spitaling the UK with adopting software DDM for a really very cancer screening. Jind you in the US with adopting the platform for rural and rurality disorders.
Speaker Change: and Australian Lebanese, one of the most prestigious hospitals in the world, Beijing Raihin, with adopting MSC access powered with Sofia de Diaz.
Speaker Change: We will continue to be laser-focused on getting these new customers into routine usage throughout the end of the year and into 2025.
As we continue to onboard more and more new customers to Sofia DTM, I have been pleased to see the scale of our technology platform come to life.
Speaker Change: Over 2024, we have consistently improved all-expans categories, while also strengthening commercial teams and customer-facing operations.
In Q3, we expand this growth margin to get again and achieve an adjusted growth margin of 73.1%.
Speaker Change: We also continue to reduce operating expenses and improve the justice of operating loss by over 10% year of a year.
Speaker Change: In addition, I'm increasingly proud that we deliberate and almost 40% year-over-gare improvement cash worth.
Speaker Change: Looking ahead, we reiterate the previous guidance with respect to adjusted cross-marchings and adjusted operating loss and remain confident in our path to profitability.
In summary, we saw a steady reaction of clinical volume in Q3, while also delivering substantial cost improvements.
Speaker Change: The U.S. Army 39% reduction in neurovigual cancer and our continued ability to deliver strong business momentum, positions as well for future goals.
Speaker Change: As we look ahead to 2025, I would like to take a moment to highlight one of our major growth drivers for next year and let's get access powered with social media.
Speaker Change: The launch of MSK access on Sophia Digem last quarter as enabled those petals and large across the globe to launch warden on the good Bay of City testing from within the world for their own institution. Instead of having to rely on essential reference lab.
In many cases, this decentralized testing results in lower costs and faster turnaround times, while also enabling institutions to retain control of their patients' data for research or other proposals.
Speaker Change: In Florence, 18 customers across the world have adopted the application.
Speaker Change: The growing global community of MSK access users on Sophia DBM now spans 5 continents and 10 can trees
Speaker Change: An increased work-loss institutions such as a nearest due of high-dose breaking Germany.
Speaker Change: and the Chessing Institutions in the UK and by your reference and the Nesian clergy in the US.
Speaker Change: It's incredibly valuable to see this community of industry leaders come together to provide best-in-class cancer testing to patients across the globe. Moreover, we are immensely proud that Sofia Lidium is the technology classroom which has made this opportunity a reality.
Looking ahead, I'm excited to the 18 customers to adopt MSK access during 2024 to implement the application and begin routine testing of the coming month.
Speaker Change: Of the 18 institutions thanks to date, the very recently completed implementation and will run took the research into 4 and into 2025. At least customers come online, they will provide the meaningful catalyst growth next year.
Speaker Change: The only impressive progress we have made with MSK access, I am also thrilled by the recent launch of the application's team-work testing counter-towers and MSK impact powered with Sofia de Vienn.
Speaker Change: Disapplication, which was launched in October, offers yet another exciting array of overall, as it is typically used in combination with MSC access to provide sessions with best infrastructure treatment.
Speaker Change: As we enable more and more institutions across the globe to launch liquid biobc and solidumore testing, our network is also starting to initiate notable interests from biophoma partners.
Speaker Change: By a format of simmering such as AstraZeneca or excited to leverage the Sofia network to improve deployment of their drugs and expand market access.
Speaker Change: Moreover, the data from these diverse station populations, as well as the predictive multimodal algorithms we are developing on the data, offer immense value to buy your from a company in the areas of drug development and discovery.
Speaker Change: Over the coming one, I look forward to updating you on our progress with bioforma partners and the expanding, decentralized deployment of MSK access and impact.
Speaker Change: As Sofia continues to grow and exciting opportunities for future growth continues to emerge, a map is to end today by announcing a few changes to our leadership team, which will position us well for the future.
Speaker Change: First, I would like to congratulate Ross on his well-deserved promotion to company President.
Speaker Change: A president, Ross, will oversee the company in global business operations and lead day-to-day efforts for cues on growing and scaling the business.
Speaker Change: We will continue to manage all commercial and go-to-market functions, building on the strong progress he has already made in this critical area. He will also work closely with me on strategic matters as we continue to evolve as the leader in the data driven medicine.
Speaker Change: Second, I'm happy to welcome George Cardoza to the team as Sophia Diochif Financial Officer. George brings the wealth of experience, which includes deep financial expertise and the strong background of scaling and growing profitable businesses.
Speaker Change: Gourmet to joining Sofia, George was the CFO and Ed of Service delivery for bio-corties. We also spent over 12 years with Neo-Ginonics in Walls which include Chief Financial Officer, President of Bio-Promas Services and Chief Operating Officer.
Speaker Change: Prior to Neo Genomics, George spent more than 14 years with Quest Diagnostics in various roles. A Sophia genetics, George will oversee all finance functions, including accounting, SPNA, tax and treasury, welcome George to the Sophia team.
George: I'm very excited to be joining up with the team. Thank you.
Speaker Change: Thanks, Jurgi. We're happy to have you as well.
Speaker Change: With this changes of P.A. is now positioned better than ever to win in our space and capitalise on the moment to support unity ahead of us. We asked, I will answer the call over to Ross, who will provide more detail on our Q3 performance and our talk for the remainder of 2024.
Ross Muken: Thank you, Jurgi and good morning, everyone. As Jurgi highlighted, third quarter results came and largely as expected. Clinical volume growth continued to re-excelerate as the temporary headwind impacting France and Italy in the second quarter began to subside.
Ross Muken: Spain remained somewhat challenged in the period and they expressed this softness to persist into 2025 given ongoing reimbursement to dynamics in the solitude and remarket.
Ross Muken: Plastform Analysis Volume was approximately 91,000 for the third quarter of 2024 compared to approximately 78,000 for the third quarter of 2023. The overyear growth in analysis volume was 16%, or 17% when excluding COVID-related volumes.
Ross Muken: from an application standpoint, strengthening hemong testing and across our rare and inherited disease force folio, led to the way.
Ross Muken: 26% and 29% year over year growth, respectively. North America and Asia Pacific experienced the strongest growth in the third quarter, with both regions growing in approximately 30% year over year.
Ross Muken: Growth in the return to the company average. However, weakness in Latin America partially offset the growth in other regions due to the churn of a larger count that was acquired by another private lab earlier in 2024.
Ross Muken: Well, clinical volume, experience of initial stage of re-exceleration, a challenging macro environment as continued to limit bile farmer growth, as budget constraints have made the signing of large contracts difficult and caused sales cycles to a long game.
Ross Muken: Additionally, we had one major high-value contract again partially slip from the third quarter to the fourth quarter.
Weakness in biopharma offset clinical performance and total revenue for the third quarter of 2024 with $15.9 million compared to $16.3 million for the third quarter of 2023, representing a year-over-year decline of approximately 2.5%.
Ross Muken: Biopharma revenue declined over $2 million from the third quarter of 2023 to the third quarter of 2024 and was the primary driver behind the overall softness in the period.
Ross Muken: It is also worth noting that in Q3 of 2023, it was a tough comp for us overall as revenue grew 40% during that period.
Ross Muken: Moving on to an update on other key business metrics.
Ross Muken: Core genomic customers were 462 as of September 30, 2024, up from 431 in the prior year period, and up sequentially by five customers relative to Q2 of 2024.
Ross Muken: We continue to see strong new business momentum in the quarter as we sign 20 new logos in the third quarter. We are laser focused on getting these 20 customers, as well as the influx of new customers signed during the first half, into routine usage as quickly as possible.
Ross Muken: Beyond new customer wins, bookings and pipeline remain strong, continuing the trend we've seen throughout 2024.
Ross Muken: Annualized revenue churn rate was less than 4% for the third quarter of 2024 which is in line with our historical averages.
Ross Muken: Net dollar retention for the third quarter, which is net of revenue churn for the year, was 109%, compared to 127% in the third quarter of 2023.
This decrease is primarily attributable to the challenging performance of Latin America and the relative moderation of growth in Europe despite the select reacceleration in the period.
Ross Muken: Gross profit for the third quarter of 2024 was $10.7 million, compared to gross profit of $11.3 million in the third quarter of 2023, representing a year-over-year decline of 5%.
Ross Muken: Gross margin was 67.2% for the third quarter of 2024, compared with 69.1% for the third quarter of 2023.
Ross Muken: Adjusted gross profit was $11.6 million, a decline of approximately 2% compared to adjusted gross profit of $11.8 million in the third quarter of 2023.
Ross Muken: adjusted gross margin with 73.1% for the third quarter of 2024 compared to 72.5% for the third quarter of 2023.
Ross Muken: We remain proud of our ability to manage costs, scale, compute, and continue to expand gross margins by 60 basis points despite soft revenue performance. This is exacerbated by the aforementioned biopharma revenue weakness, which tends to carry a higher than average gross margin.
Ross Muken: Total operating expenses for the third quarter of 2024 were $26 million compared to $27.8 million for the third quarter of 2023.
Ross Muken: Across the functions, we continued to benefit from lower headcount on year-over-year basis.
Ross Muken: R&D expenses decreased during the quarter as we increasingly focus on high ROI projects. Additionally, I remain pleased with our progress on the G&A side, where we also continue to benefit from targeted process improvements, system investments, and the optimization of our public company costs.
Ross Muken: Sales and marketing expense was up a touch primarily due to select investments oriented an accelerating penetration of several key end markets as well as marketing initiatives to support our robust new product momentum.
Ross Muken: Operating loss for the third quarter of 2024 was $15.4 million, compared to $16.5 million in the third quarter of 2023, an improvement of 7%.
Ross Muken: Adjusted operating loss for the third quarter of 2024 was 10.6 million dollars compared to 11.8 million dollars for the third quarter of 2023, an improvement of 10 percent.
Ross Muken: We remain pleased with our trajectory toward adjusted operating profitability. We continue to be highly disciplined with respect to headcount, where we have focused on optimized growth and scalability.
Ross Muken: We also continue to scrutinize all indirect expenditures, ensuring a balanced focus on hitting our growth targets and achieving the operational efficiencies desired.
Ross Muken: In the third quarter, I was particularly proud to see us maintain strong bottom-line performance despite the expected soft revenue pull-through, a proof point of strong operating leverage in our business and the discipline of our team.
Ross Muken: Lastly, total cash burn for the third quarter of 2024 was $9.6 million.
Ross Muken: The $9.6 million in cash burn represents an impressive improvement of 39% compared to the $15.8 million in cash burn in the prior year quarter.
Speaker Change: As Jurgi mentioned, we remain happy with our cash utilization trend and are on track with respect to our medium-term liquidity trajectory.
Ross Muken: Cash and cash equivalents were approximately $95.8 million as of September 30, 2024. I'll now turn to our 2024 outlook.
Ross Muken: Given the promising re-acceleration of clinical volume in the third quarter,
Ross Muken: Sophia Genetics is reaffirming our full-year revenue guidance for 2024 of $65 million to $67 million of revenue, or 4-7% year-over-year growth. We are also reaffirming our adjusted gross margin guidance in the range of 72% to 72.5%, as well as our adjusted operating loss guidance between $45 million and $50 million.
Ross Muken: following our continued strong cost management in the third quarter.
Ross Muken: Of note, the implied revenue range for the fourth quarter is wider than we would typically anticipate given the strong predictive nature of our clinical growth.
Ross Muken: It is meant to capture a wider range of potential outcomes in our biopharma contract delivery, where several large deals are expected to contribute in the period.
Ross Muken: We remain diligently focused on improving our biopharma execution.
Ross Muken: Furthermore, we will continue to guide the business conservatively on a revenue recognition basis going forward given the challenges experienced earlier in 2024. With that, I would like to turn the call back over to Jurgi for the closing remarks before we take your questions.
Jurgi: Thank you, Ross.
Jurgi: I'm proud of what the team achieved this quarter, particularly our continued ability to expand growth margins, reduce operating loss, and improve our bottom line.
Jurgi: I also remain excited about our future. Booking's momentum is strong and end markets continue to grow.
Jurgi: Cancer rates are increasing worldwide, better therapies are being developed each day, and data is critical for patient care as the new basis for diagnosis, therapy selection, drug development, and drug deployment.
Jurgi: Given our business sits at the center of these innovations, accelerating and enabling the adoption of each, we remain confident in our long-term growth.
Jurgi: In closing, I want to say thank you to our SOFIA colleagues, partners, customers, and investors for joining us in our journey to transform patient care with data-driven medicine.
Jurgi: Please note we are presenting at the Guggenheim Health Care Conference next week in Boston. We all look forward to continuing to update you on Sophia's future success of democratizing data-driven medicine. With that, operator, you may now open the line for questions.
Speaker Change: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number 1 on your touchtone phone. You will hear a prompt that your hands have been raised.
Speaker Change: Should you wish to decline from the polling process, please press the star followed by the number 2. If you are using a speakerphone, please lift the handset before pressing any key. One moment please for your first question.
Speaker Change: Our first question will be coming from Dan Brennan from TD Coven
Dan Brennan: questions here and congrats congrats on the quarter maybe just zooming out a bit on MSK the relationship
Dan Brennan: You know, you guys cited it 10 times in the press release. It's just more prominent right now than it's been in the past, I think.
Dan Brennan: Could you just kind of zoom out and give us a sense of, you know, kind of what are you guys enabling on MSK impact and access? Maybe how is this test positioned broadly and what kind of financial impact could this have as we look out to 2526? I think Jurgi, you used the word meaningful impact in your prepared remarks on 25.
Speaker Change: Good morning Dan and thank you. So I'm going to start addressing you know with what we are doing in terms of the offering and then I will let Ross give you a sense of what we expect in terms of future growth opportunities.
Speaker Change: So, as you know, then, liquid biopsy testing is primarily centralized today, right? And as demonstrated to be extremely important clinically.
Speaker Change: either for diagnosing patients when it's very hard to do that from a biopsy, such as for cases in lung cancer or prostate cancer, but as well to follow them longitudinally patients as they are being treated with a cancer drug.
And so, MSK Access to start with, as being one of the applications that has been the most used for liquid biotin testing around the world, and has been as well very much used in scientific publications.
Speaker Change: And so as a reminder, a couple of years ago, we had signed an agreement with MSK to basically decentralize MSK access as an application. And so add this application in our platform in a bundle access mode. So this means the platform comes with a test kit.
Dan Brennan: that then facilitates the adoption of this technology in the market. And so, taking a step back, it took us a year to industrialize the solution, and we launched MSK Access early this year. And since then, we've been having great traction. Right now, actually, we have already 18 customers around the world that have signed for that, including five of those that already moved to routine.
and this in five continents and 10 countries, right? So I think MSK access itself in a decentralized version with Sophia DDM has a huge potential to transform care in cancer around the world.
Speaker Change: And now, to your point on why we've been talking so much about MSK in general, beyond MSK Access, MSK has developed another application which I would say as well is best in class.
a CGP application called MSK-ImpACT, which is being used for solid tumor testing. And as we industrialize MSK-Access for its decentralized version, we've now been launching the counterpart of MSK-Access for solid tumor, so MSK-ImpACT.
Speaker Change: within our platform and there we see already a lot of demand in the market and we anticipate that eventually a lot of customers are going to actually use MSK access and impact in a combined way.
Speaker Change: So, with that, I'm going to now let Ross give you a bit of cover on how this should influence our growth performance in the future.
Ross: Thanks Dan. So relative to Jurgi's comments
Ross: Obviously, we already see quite good interest in the product with the 18 customers.
Ross: Jurgi mentioned, some of which are already starting in the third quarter and into the fourth quarter contributing from a revenue perspective, albeit quite modestly, and we expect to contribute materially more so over the coming years. We also have 13 customers right currently in the implementation phase.
Ross: Thank you.
Ross: our company average, and the volume tends to be greater given it is more sophisticated, larger laboratories that are adopting. You can assume that number is much higher than the 100K.
Ross: and so that should give you a sense.
Ross: with where we already are in terms of potential RUNRIG revenue contribution over the coming months. And just to give you a bit more color, you know, we have today in the pipeline nearly 50 incremental customers. And at the recent event, which I believe you may even have been attending, Dan, or someone from your team in New York, we had 70 customers incrementally there, right? So the interest in these product suites
Ross: are quite high, given obviously the tremendous brand name of MSK and the interest of adopting this type of testing and genomic data production in laboratories all around the world. And so, I think you can see from where we are, we're quite confident that this will be a nice contributor to our growth over the coming quarters and coming years.
Maybe Dan to end with your question. Beyond the clinical market there is a lot of interest as well of the biopharma market because the biopharma companies really want decentralized testing.
Ross: for multiple reasons including market access needs but as well to be able to be exposed to data so that they can make discoveries.
Ross: right if I can assess one more maybe you know a nice quarter I know I don't think you guys you guys touched upon some
Dan Brennan: some of the benefits for its 25, but, you know, consensus says you guys are accelerating your top line growth a little bit above 20% next year. I'm just wondering, do you think that's realistic as we sit here today, you know, given kind of where you sit with like, you know, around 5 or 6% growth in 24, and just maybe walk us through what are some of the key factors to bridge to this big acceleration in 25.
Speaker Change: Thanks Dan. So look, indeed, I think this has been a strong quarter for multiple reasons, starting with
our ability to improve cash by 39.1% on an adjusted basis, right? So this, I think, demonstrates the scalability of our operations and of our platform. And when it comes to the growth,
Ross: The clinical growth has been good, as we said, the clinical volumes grew 17% year-on-year ex-COVID, so I would say we're in a good path to re-accelerate the business.
I will leave you now, Ross, so that he can give you a bit more flavor of how this should be materialized in 2025.
Ross: So, obviously, Dan, it's too early for us to give you, you know, quantitative color on next year. But I would say...
Ross: In general, and frankly, when that happens, it will be George, our new CFO, who will do it. And so I count on him to be able to answer that in the upcoming quarters. But I would say, in general, for us, as we think about this year, obviously, as you know, we were disappointed with the performance, particularly of our biopharma business.
Ross: when we came to you in the second quarter and we had to reduce our guidance for the year, right? So I think for us, the message this quarter is kind of one of stabilization and improvement. And so, you know, as you think about, you know, the other commentary we've given you over the year with respect to pipeline, new business.
Ross: bookings that have already happened.
Ross: the exciting traction we're getting on MSK-based products that are moving into routine. I think, you know, what we're trying to get across is we're obviously quite comfortable in a re-acceleration of growth. I think the magnitude and the specifics we will obviously cover when we see you in 2025. But I think the main takeaway for you should be that we're quite confident that we're back on a path to being able to display to you more normalized.
Ross: performance typical of what we had expected for this business.
Dan Brennan: Great. Thanks, Ross.
Speaker Change: Our next question will be coming from
Speaker Change: Hi, this is Jason Alfertages. Congrats on the quarter and thank you for taking our questions. So maybe just a question on pricing. You previously talked about some pricing headwinds your business is facing. How did those pricing headwinds play out during this quarter? Was it mostly EMEA or across regions? And are you seeing trends stabilize, improve, or worsen? And if the trends haven't improved yet, are there any indicators into when this dynamic could normalize?
Speaker Change: Good morning Jason and thanks for the question. So indeed right in our volume which is a consumption based volume, volume of analysis and ASP are very important elements.
Speaker Change: Ross, do you want to give some color on the pricing?
Speaker Change: Sure.
Speaker Change: So, you know, one of the other trends we shared last quarter was obviously that
Ross: you know, we had some parts of Europe in particular where there was modest pricing pressure. You know, we saw a bit of that continue in Spain this quarter, particularly in solid tumor, but I would say in Italy, in France, we're starting to see a stabilization. So we think
Speaker Change: Some of that was quite temporal and, frankly, related as well to some of the changing dynamics in the sequencing market overall, both with new players entering as well as with new platforms coming online. I would say, you know, as we look out for us,
Speaker Change: You know, we'll continue to take Bryce on the base portfolio globally. So we're quite confident in that. I would also say, if you think about some of the newer products,
Speaker Change: right, coming in from a mixed perspective.
Speaker Change: these tend to have higher ASPs than average, right? So ultimately that as well from a mixed basis will drive up our overall ASPs. So I think again, we're managing some of the dynamics we saw in the second quarter quite well. I think we'll get back to more normalized levels again in 2025, but.
Ross: For us in general, price continues to be overall a positive lever, I would say, longer term for the business.
Dan Brennan: Got it. Thank you for that color. And then maybe just like clicking back on some product launches you talked about in the past, I think. You previously highlighted a partnership with Microsoft and NVIDIA to launch a scalable whole genome sequencing application on DDM. So how has progress been on this application, and is it still on track for launch by year end?
Speaker Change: Yes, so absolutely. So indeed, in rare inherited disorders, we see a trend towards more exome sequencing, towards more genome sequencing. And actually, we believe that there will be as well adjacent versions, which will be enhanced exomes and enhanced genomes, which will improve even the accuracy of these applications. And that's something we're very much focused on with both Microsoft and NVIDIA.
Speaker Change: Great, thank you guys so much.
Speaker Change: Welcome.
Speaker Change: Next question will be coming from Mark Massaro from BTIG.
Speaker Change: Hey guys, this is Vivian on for Mark. Thanks for taking the questions. So maybe just one on the biopharma piece. I understand that you called out headwinds in funding at the time of the guidance we set last quarter. Could you maybe just speak to your confidence that these headwinds can roll off looking at 2025? It's my understanding that that revenue was simply pushed out, not canceled. So it might even be a tailwind for you looking at 2025. Thanks.
Speaker Change: Yes, thank you Viviane and good morning. So first to start with, you know, last quarter, well last year Q3 was a strong biopharma quarter for us, so definitely on the revenue base this quarter we're being penalized versus the Q3 of last year. Despite that, as we said, the clinical business grew pretty nicely with 17% volume.
Ross: Growth Year-on-Year. On the pharma side, as you may remember, we revised our strategy
Ross: end of
Ross: 2024, where we have decided that we would be focusing on DX activities, such as sponsor testing.
Ross: as well as on market access-related needs. So basically, activities where having a large footprint and a network of customers outside U.S. is really important for the pharma industry and the pharma clients.
Ross: and I would say this strategy has proven to be pretty good and our sales pipeline has been growing over the last
Ross: quarters. Now said, obviously the pharma budgets are still a bit tight and so I think being very disciplined on understanding what's the value that one can bring to the pharma is extremely important.
Speaker Change: You know, I would just add, so if you look at the range for the full year, obviously it's wider than we would expect typically, and that's because, again, the outcome
Ross: Farmer in the fourth quarter. There's quite a wide range of potential revenue contribution But it still implies certainly from where we were in the second and third quarter
Ross: continued sequential improvement.
Ross: So, I would say there, you have a proof point to sort of...
Ross: Personally, we obviously have two new leaders that are driving those efforts that are quite strong. We feel much better around sort of our go-to-market and our positioning.
Ross: in both data and diagnostics and we're seeing that I would say manifest itself in our pipeline and so we're committed to obviously pushing those through to bookings and revenue.
Ross: and so obviously stay tuned for 2025 but I think
Ross: Fundamentally, we're in a much better position today than we were back in the second quarter, and the momentum is starting to return to that business. Although, you know, to the point I made on guidance, we're still going to remain conservative with respect to what we include in the forecast, just given the experience we had this year.
Dan Brennan: Okay, understood. And you might have touched on my next question a little bit, but just regarding the step up in Q4 to get to the midpoint of your guide, I guess what product areas or seasonality tailwinds are giving you confidence there? It sounds like it's mostly just biopharma revenue, but I just wanted to confirm that.
Speaker Change: So just a reminder on our business, it typically runs like many, you know, health care companies from that perspective where you tend to have more seasonal demand in the fourth quarter.
Speaker Change: And as well for us, given the exposure we have in Europe, third quarter from a volume perspective tends to be
Speaker Change: you know lighter just given the summer holidays and so
Speaker Change: Some of it is just the typical sequential improvement you normally see in the fourth quarter from a volume perspective.
Speaker Change: As we've also reminded you throughout the year, and I mentioned when I spoke to Dan before, we also have had quite good net new bookings momentum and logo momentum. So we have quite a number of accounts.
Speaker Change: including some of those relative to MSK access, which again per account tends to be a higher dollar revenue contribution. And so between the sort of seasonal improvement and the continued, I would say, stabilization in pricing in Europe.
Speaker Change: as well as
Speaker Change: you know, the new accounts coming online, we're quite confident that clinical will continue its strong trajectory into Q4 and then next year. And then, as you well noted, the big delta on Q4 in terms of the true width of the range really comes within pharma, right? So you can see with the material step down that we implied for this quarter that obviously our run rate for biopharma exiting 23 and in the beginning
Speaker Change: As we had expected in 24 was expected to be materially higher. So we are starting to build back to that base
Speaker Change: which should again give you confidence in sort of the revised strategy but certainly there's still some variability or at least conservatism on our end relative to the recognition of some of that revenue because it's a bit different than our typical usage based and so that is what is implied in the forecast but obviously you can expect
Speaker Change: There's, you know, at least relative to what we've provided, a high degree of confidence and certainly, you know, the low to mid portion of the range relative to what we already have or have recognized or expect to recognize.
Dan Brennan: Great. Thanks for taking the question.
Speaker Change: Our next question in line will be coming from Sir Bhunanvi from Gaggenheim.
Sir Bhunanvi: Hey guys, thank you for taking my question. Jurgi, following up on Biopharma comments, how are things trending month by month? Others in the group suggest that there is no positive inflection, but the environment is improving. And finally, I feel like you should be viewed as part of the solution for pharma customers, not part of the problem. Is that messaging resonating?
Speaker Change: Yes, definitely, and I would say Subbu that
Speaker Change: This is well understood by pharma, so this week as well, I'm in the U.S. and I have a meeting with one of the top ten pharma companies in oncology, and definitively, we're talking about how we can help them in their precision medicine strategies, starting with the decentralized testing and second, with access to data for market access needs. So I think that the position of SOFIA
Speaker Change: is a position that is definitely fit for purpose of the current constraints that the biopharma are going to. But as Ross said, this requires building a pipeline, right? And so we're being
Speaker Change: laser focus on working only with the biopharma companies who are strong in oncology and where our portfolio applications and network would be complementary to their current needs.
Dan Brennan: Thank you for that. And Ross, one for you. You guys are making good progress with operational spending discipline and reducing burn. Any initial parameters on where this can go over the next year?
Speaker Change: Obviously, we're still very committed on our path to profitability.
Speaker Change: I think relative to the progress that we've made, it's been steady, right, and I would say probably even a bit more impressive, frankly, given we obviously had some revenue challenges this year, so we've obviously held the up loss.
Speaker Change: guidance despite the revenue shortfall so we've
Speaker Change: have been quite nimble in how we've managed the cost base, and I would say even more so. You can see some of that benefit on the cash line, which at the end of the day is probably the most important. And so I look forward with Jurgi joining us now. He obviously has a great history in this as well, to partnering in this path to profitability. And we continue to be able to show you sequential improvement and continued evidence and proof points.
Speaker Change: that will get to the other side of cash generation and move towards this self-sustainability. And so again for us this is obviously a paramount focus and one that requires obviously as well a great deal of balance, right? Because obviously when you're trying to grow at the rate we would like to grow at and you're trying to manage your OPEX effectively, there's always sort of trade-offs. But I think for us
Speaker Change: We continue to pull the right levers to make sure that continued progress is evident to you guys.
Speaker Change: Thank you, guys. And can I squeeze in one more? Given the oncology market term is larger, is there differences in how your sales force focuses their effort for oncology versus rare diseases? Basically, is it one sales force or have you separated them into two spaces?
Speaker Change: So, in terms of the Salesforce construction,
Speaker Change: You know, we tend to have almost a pod-based model in most countries where you have folks that sell the full suite of menu of applications.
Speaker Change: and then technical engineers that kind of specialize and have more of the in-depth knowledge of the
Speaker Change: the kind of specifics of the product. But I would say in general, everyone sells the full portfolio. We tend to be more of a discovery based model. Right. So we sort of well understand our customers and their needs and growth and then have their sort of.
Speaker Change: I would say, pain points.
Speaker Change: drive where business goes, but to your point
Speaker Change: Considering, you know, just the general, I would say, state of things in oncology in terms of the amount of innovation and change and the dynamic products we're bringing to market like MSK-AXIS and IMPACT.
Speaker Change: and our HRD capability. Obviously, salespeople are smart and they also focus where they see the most opportunity. But frankly, if you look today, our pipeline is quite balanced. Obviously, pharma is far more interested on the somatic side of things than on germline or rare disease.
Speaker Change: Overall I'm quite happy with our our focus and where our R&D dollars are going and I think our sales force is really well suited to help the client no matter their their need or pain point.
Speaker Change: Perfect. Thank you, guys.
Speaker Change: Next question will be coming from Connor McNamara from RBC Capital Markets
Speaker Change: Thank you.
Connor McNamara: Hey guys, thanks for the questions. First, Ross, congrats on the new job and George, welcome to the team.
Speaker Change: Thank you.
Speaker Change: First just on clinical on the clinical revenue side volume growth remains healthy double-digit for you guys But a lot of investors in the states are concerned about an overall market slowdown in clinical sequencing volumes
Speaker Change: over the medium and longer term. Have you seen anything in the marketplace from a technology or reimbursement perspective that could potentially change the trajectory of clinical volume growth for you guys, either positive or negative?
Speaker Change: Yes, hi Conor, good morning and indeed congratulations to both Ross and Jurgi. I'm very excited about having them in the team and having Ross with more responsibilities.
Speaker Change: And in terms of volume of analysis, as you pointed out, you know, we have seen a re-acceleration. Maybe, Ross, you can give a bit of color of where we see the volume coming from and where it is growing the fastest?
Ross Muken: So I think if you look at us from a global perspective, I would say North America for us remains a really robust market and one in the U.S. that's I think quite promising and if I look at as well my pipeline there.
Speaker Change: as well as our bookings potential. I'm, you know, probably for, you know, the four years I've been at this company, the most optimistic of where we are in the U.S. market.
Speaker Change: We see quite a lot of runway there for us.
Speaker Change: Asia-Pacific for us as well has been quite robust. You know, growth this quarter was nearly 50%, and so obviously a lot of new areas for us to penetrate there, but quite good demand. You know, EMEA or Europe in general improved this quarter, and we're seeing really nice growth in places like Germany, the UK, Middle East, et cetera, and so there as well it's quite good. And then Latin America for us at the moment is kind of an interesting dynamic. Underlying growth is, I would say, stable, but we had one customer churn earlier in the year due to an acquisition, so that's, I would say, skewed our results all year. But frankly, if I look across the portfolio and if I look again at my pipeline and my bookings,
Speaker Change: Globally, volume growth, for us at least, is expected to be quite good.
Speaker Change: Maybe what you're hinting at is a dynamic in the market.
Speaker Change: of the total pie than, say, an instrument or a flow cell or consumable, et cetera, labor costs. And I think, for us, the most sensitive factor is volume and data production, which remains, I think, quite robust. And so, that's the metric we look at the most and feel quite confident. And I would say volume, as well, as part of that data production, is both a mix of higher patient volumes, but also the complexity of the test, right? So, moving to a CGP or liquid biopsy, MRD, et cetera, this is much deeper sequencing. And so, for us, it means much more data production, which is quite positive. You know, what happens to sort of instrument ASPs or flow cell, you know, as a percentage of the total mix? That I can't say, but I'm quite confident for us.
Speaker Change: We will continue to eat up a bigger piece of the pie over time with what we're able to do.
Speaker Change: Great, thanks for that Keller, really appreciate it. And then on the biopharma side, most life science tools investors are well aware of this dynamic of cautious spending by biopharma right now. And just if you look at your push out in biopharma revenue, how much of that push out is a function of this
Speaker Change: spending dynamic by those customers versus potential competition from, you know, other AI vendors versus maybe just a lower overall appetite from pharma in AI investments for drug discovery.
Speaker Change: Thank you, Conor. So it's definitely spending dynamics because just taking a step back, the why pharma would work with Sophia is because of our network, right, which is distributed.
Speaker Change: and in particular our network of customers outside the U.S. where definitely we have a competitive advantage as you know we we serve over 700 plus
Speaker Change: Hospitals around the world, right, which are really Tier 1 university hospitals and comprehensive cancer centers.
Speaker Change: and so when pharma is thinking about...
Speaker Change: post-approval activities for market access needs, which is, for example, you know, more patients being tested molecularly.
Speaker Change: or whether when it comes of reimbursement, strategical considerations on the basis of real world data, there we are very, very well positioned with our network versus other peers. So we don't really have competition, I would say, outside the U.S., which is our main advantage for the biopharma.
Speaker Change: So it's really what you describe as being basically budget constraints from the bioforma that for example have made activities on the pre-approval side a bit more complicated and hence our refocus on post-approval activities since June of this year.
Speaker Change: Great, thanks for that color Jurgi, really appreciate it.
Jurgi: Thank you, Conor.
Jurgi: Thank you for joining us. Thank you. Have a great day.
Speaker Change: There are no further questions at this time. I'd now like to turn the call over to Mr. Jurgi Camblong, our CEO and co-founder, for a final closing comment.
Jurgi Camblong: Thank you very much all for joining us today. Thank you as well to the teams of SOFIA who have been working relentlessly to deliver very good numbers when it comes to our cash burn year-on-year. And, well, again, welcome, Jurgi, and congratulations, Ross. And we're all looking forward to seeing you next week on Monday and Tuesday at the Guggenheim Healthcare Conference in Boston. Thank you. Have a good day.
Speaker Change: and Jurgi Camblong.
Speaker Change: Thank you very much.
Speaker Change: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day everyone.