Telesis Bio, Inc.
Q3 2022 Earnings Call Transcript

Published: 12 Nov 2022

[Operator:]

Welcome to the Q3 2022 Telesis Bio Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the call over to your speaker today, CEO, Todd Nelson. Please go ahead.

[Todd Nelson:]

Thank you. Good afternoon, and thanks for joining us for Telesis Bio's Third Quarter 2022 Earnings Call. With me on the call today are Chief Operating Officer, Eric Esser; Dan Gibson, Co-Founder and CTO; and our VP of Finance, Brent Hunter. Our third quarter press release is available now on the Investors section of our website. Before we begin, I'd like to inform you that certain statements we make during the call will be forward-looking statements 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 release and in our filings with the SEC. This conference call contains time-sensitive information and is accurate only as of the live broadcast on November 8, 2022. Finally, any percentage changes we discuss will be on a year-over-year basis unless otherwise noted. And with that, we can get started. Telesis Bio, our mission is to inspire and empower scientific breakers across life sciences translational research applications. Our automated on-demand multiomic and synthetic biology solutions enable scientists to streamline and standardize both building and testing of DNA and mRNA, allowing us to address large unmet needs in our targeted markets. Our customers and collaborators include premier academic research institutions, rapidly growing biotech companies nearly all -- top 25 biopharma companies. Our systems are utilized by academic and industry sciences worldwide in various discovery activities ranging from the discovery of novel infectious disease vaccines, developing precision immunotherapies for cancer and antibody therapeutics to the creation of engineered need substitutes in sustainable cellular agricultural products. Our biopsy automation solutions allow scientists to synthesize and assemble DNA and mRNA with the push of the button, allowing our customers to bring critical products to the market in an unprecedented amount of time. We believe that our strong financial momentum will support long-term issues of the company. And with that, I'll turn our discussion as -- we turn the discussion to recently reported financial results and corporate updates. To start, I'd like to review highlights from the third quarter and for the first 9 months of 2022. In the third quarter of 2022, we grew total revenue by nearly 140% compared to the prior year period, excluding contributions from Eton Bioscience acquired in Q4 of last year, overall growth for the third quarter was 83% for the 9-month period ending September 30, 2022 total growth, excluding Eton was 69%. We sold 13 BioXp units during the third quarter, bringing the number of units sold during the first 9 months of 2022 to 47 units. Instrument revenue was up 28% and 37%, respectively for the third quarter and 9-month period ending September 30. We also experienced a record quarter for biopsy kit sales, which has continued a strong growth trajectory, posting 69% growth over the prior period and 58% for the first 9 months of the year compared to the same period in 2021. And we're very pleased with the initial market uptake of the recently launched by BioXp 9600. Collaborations, royalties and other revenue grew 224% for the third fiscal quarter and 170% for the first 9 months of the year, respectively. Gross margin improved significantly during the third quarter from 41.7% in Q3 of 2021 to 54.8% in Q3 of 2022. For the first 9 months of 2022, gross margin improved from 42.9% to 50.9%. Margin expansion for the third quarter as compared to the same period a year ago was largely driven by a positive mix shift to higher-margin products, including the BioXp 9600, mRNA and a lower cost of DNA raw materials. Our vision has never felt more achievable. We've made significant progress developing new innovative applications for existing biopsy systems that drive sales of on-market products, and we are developing [indiscernible] future technologies. These innovations have the potential to fundamentally transform our industry and at the same time, position Telesis Bio to serve significantly larger and broader addressable markets. Inherent in this vision is our path towards improving our gross and operating margins, becoming a profitable company in the second half of 2024 and delivering value to our stakeholders. With that, I'll pass the call over to Brent to review our financials and updated 2023 financial guidance.

[Brent Hunter:]

Thank you, Todd. Detailed financial results for the third quarter were included in today's press release. In my remarks today, I'm going to walk through our income statement, touch on a few key financial metrics and finish with our updated financial guidance for 2022. Telesis Bio is well capitalized with cash and short-term investments of $49.9 million as of September 30, 2020. Revenue was $6.7 million for the third quarter of 2022, which was a 140% increase in total revenue from $2.8 million for the same period in the prior year. This strong growth was driven by a record quarter for BioXp kit revenue totaling approximately $884,000, up 69% year-over-year and solid contributions from Eton sequencing services and oligo production revenue, which totaled $1.6 million. Royalties and other revenue also grew due to revenue related to the Pfizer collaboration agreement. Organic growth for the core business net of Eton contributions was 83% for the first 9-month period. The growth for the first -- 83% and for the first 9-month period, the growth was 69%. Gross margin for the third quarter was 54.8% compared to 41.7% for the same period in the prior year. The increase of 13.1% or 1,310 basis points was primarily driven by collaboration and licensing revenue, improved product margins resulting from price increases and increasing contributions from higher-margin products, such as mRNA and the launch of the BioXp 9600. For the first 9 months of 2022, gross margins were 50.9% compared to 42.9% for the prior year period. Operating expenses were $14.9 million for the third quarter compared to $10.6 million for the same period in the prior year. This increase was driven by headcount expansion, primarily in our commercial, R&D and G&A organizations. The increased personnel expense relates to sales and marketing efforts, increased product development efforts and hiring of new leadership and professional support staff. Operating expenses for the first 9 months of 2022 totaled $47.8 million compared to $26.7 million for the same period in the prior year. Net loss was $12.3 million or $0.42 per share and $40.3 million or $1.37 per share for the third quarter and first 9 months of 2022, respectively. This compares to a net loss of $9.8 million or $0.34 per share and $26.5 million or $1.83 per share in the same period in the prior year, respectively. Now I'd like to briefly cover our updated financial guidance for 2022. Due to our continued strong results in 2022, we are again raising full year revenue guidance accordingly. As a reminder, during our Q2 earnings call, we increased our guidance revenue to $22 million to $24 million for 2022. Based on our third quarter results, we are further increasing our revenue guidance to $23 million to $25 million. With that, I will now turn the call back over to Todd.

[Todd Nelson:]

Thanks, Brent. Telesis is executing against the plan that will allow us to achieve profitability during 2024. So let me take a few moments now to walk you through the high-level landscape of that plan. On revenue growth, I would remind investors that we've grown the business for 4-year compounded annual growth rate of 48%, and we have a robust series of new biopsy product launches that should generate significant continued revenue growth in the next couple of years. As an example, the launch of the BioXp 9600 system brings with a significant revenue potential stemming from higher instrument ASPs, higher BioXp Kit utilization rates and an ability to expand in new adjacent markets. Additionally, we plan to launch the first in a series of BioXp DBC benchtop instruments that will allow for the same-day turnaround of CRISPR guide RNAs and all of those or gene synthesis on a single integrated device. Moreover, in the first quarter of 2023, we plan to launch a new series of modular kits for rapid cell-free DNA scale-up and mRNA synthesis for customers and use their own DNA as a starting point. This new product offering will allow customers to use this system at their convenience and provided they have on hand or make the stock modular kids, they can use the system every day in multiple tons a week. Results of this product launch is that we will be able to rapidly go after the largest part of the customer base that requires or desires to start with their own DNA. The advantage to Telesis Bio is that we believe we'll see increased velocity in replacement of these instruments, increased utilization of [indiscernible] Gibson Assembly kits for de novo gene synthesis and strong potential adoption of the modular kit and at higher gross margins. And we remain on track to launch internal oligo's synthesis capabilities that will allow us to offset a portion of the raw material purchases. All told, we believe gross margin in the next 18 to 24 months should turn upwards to between the high 50s to low to mid-60s. On cash, Currently, we estimate that by the end of the year, we will have a cash position of approximately $40 million, additional debt capacity and over the next 12- to 18-month period, the potential to earn through the achievement of technical and licensing milestones an additional $30 million. In conclusion, let me say that we're pleased with our overall third quarter and first 9 months results and that we remain encouraged by continued strong commercial execution and progress in our product pipeline. We are focused on executing against our near-term commercial goals, launching new products, furthering new and existing partnerships, growing market share, improving profit margins and decreasing costs. We continue to invest in talent, technology and processes to drive long-term sustainable growth and a path toward profitability. With that, I will ask the operator to open the call for questions. Thank you.

[Operator:]

[Operator Instructions]. Our first call comes from the line of Brandon Couillard from Jefferies.

[Brandon Couillard:]

Todd, could you just elaborate a little bit more on just kind of how you're seeing the order book develop for the new 9600 system maybe the mix of new and existing users. And then how many of the 13 systems that you placed in the third quarter were comprised of the new 9,600 units?

[Todd Nelson:]

Yes. Brandon, thanks for the question. We'll probably bounce around the room a little bit here on the answer. What I would say to start is that we're very pleased with the initial market uptake of the 9600. It seems to fit very well with customers. We did a lot of VOC on that, so for higher throughput customers, it seems to resonate very well. In the third quarter, we shipped 13 instruments. We had a bit of a mix shift as we launched early the 9,600, and that accounted for about 3 to 4 systems. So we're really happy with that. I would say, looking forward into the fourth quarter as the book of business builds for the instruments, I think that we're very comfortable that the 9600 is going to continue to ramp and we're happy with that. And I'll hand it over to, I guess, Eric to answer the rest of the question.

[Eric Esser:]

Yes, I think the other part of the question was how many of the orders that we have for 9600 on the books right now come from or have come from existing customers versus new customers. And I think that's close to a 50-50 ratio. I don't have the exact data in front of me right now. It's a little bit less than 50% existing customers and the rest is the new customers.

[Todd Nelson:]

Yes. So Brandon, we're happy with that because I think we -- it's a new system. And so obviously, you would think, well, a lot of it would be upgrades. I think we're really happy with the exposure and adoption within new customer segments. A lot of customers, I think, have been waiting for a higher throughput solution. We've now brought that to the market and looking forward into 2023, which is clearly forward looking, but I think we're really excited and several customers about the ability to open up that particular system to open modular kits. Did that answer your question?

[Brandon Couillard:]

Yes. Yes, that's helpful. In terms of the revenue guide, as you see the increase to the midpoint of about $1 million, still implies a fairly wide range for the fourth quarter. Can you give us any directional color on that and to the degree to which your fourth quarter estimate changed at all -- just an update for the year-to-date performance?

[Todd Nelson:]

I think, Brandon, I think the answer to that is, you're right. We increased the guidance and so 24% is in the midpoint of our new guidance. I think we remain comfortable with kind of that midpoint guidance number for revenue. Our estimates for Q4 internally haven't changed. I think we're pleased with commercial execution, providing we can operationally ship against the purchase orders that we received for the 9600. I think we're comfortable with our estimates. So I don't want to tell you I think we'll be at the high end of the range. I think we're comfortable with the midpoint.

[Brandon Couillard:]

Okay. And then the gross margins improved quite a bit in the third quarter. You talked about over the next, I think, 12 months' time to be gross margin being in that mid-50s to low 60s range, you're kind of touching that ballpark already here in the third quarter. Should we expect that to step down for some reason in the fourth? And then maybe help us think about the magnitude of benefit that you'll get as you begin to move some of Eton's oligo production for your own in-house raw materials? Just the magnitude of potential tailwinds from that transition.

[Todd Nelson:]

Yes. I think, Eric and I'll probably go back and forth on this one. And what I would say on the gross margin that we have in here, too. But I think on the gross margin for the third quarter, we had -- you'll see in our financials, we had a little more cash booked in collaborations, which I think helped the margin accretion. We also sold 9,600 for the first time, which come with higher margins in ASP. And our product mix is shifting from -- while it's growing very well, that gets an Assembly kits for de novo gene synthesis, our product mix is shifting towards higher-margin NPI for mRNA, long-fragment builds and RapidAMP products. So the combination of the instrument business with 9600 more proprietary kits coming out and the accretion of gross margin as a result. I think it was an acceleration of the Pfizer [indiscernible] honest with yes, correct. Going forward, Brandon, I would say our goal, of course, and it has been since we started is to get the product margins into that range that we discussed, and we think we've got realistic plan to get there to discuss the magnitude of the basically margin recapture, I'll hand it over to Eric. I don't think we have a prepared comment on the number of basis points of accretion. But I think in general, it will be pretty significant because it's our largest single raw material acquisition.

[Eric Esser:]

Yes, that's right. I mean we are in the process of turning on that capability that's happening this quarter, and we'll scale as we head into next year and through the year. So certainly [indiscernible] it will be significant for us relative to the overall margin. And it's one of, I think, a number of the factors that will help us in the gross margin area next year as we get into the year, along with the other items that Todd mentioned. So we're heavily focused on gross margin. I think the trend will continue in Q4 and into next year and we'll continue to see expansion in gross margin.

[Todd Nelson:]

Yes. And again, just a bit of a bump in the third quarter because of the amortization of a little bit more cash in the Pfizer milestone.

[Brandon Couillard:]

Okay. That's helpful. And lastly, just a bit on supply chain status right now. You've been carrying any component shortages that relates to Kit shift or anything that might the hurdle as far as kind of shipping against the 9,600 order book near-term? Anything you're seeing on the supply chain front to call out.

[Todd Nelson:]

Yes. I'll hand that over to Eric.

[Eric Esser:]

Yes, Brandon, no, we don't have any significant issues right now in supply chain. I think on balance, broadly speaking, things have loosened up a bit in that regard, we don't have concerns about the supply chain around the 9600, we'll be able to fill the orders that we got.

[Operator:]

Our next question comes from the line of Paul Knight of KeyBanc.

[Unidentified Analyst:]

This is Carson [ph] on for Paul. I was wondering, given the 9600 placements in the quarter, were those the placements that you were expecting for the full year? And I guess what I'm trying to get at is, do you expect to see some placements in the fourth quarter as well? Or are you going to be pulling 32, 50 orders from 3Q into 4Q now?

[Todd Nelson:]

No. I think what we had said is that we anticipated -- so the launch was early, it was scheduled for fourth quarter. We launched in September, and we got 3 or 4 instruments shipped out in a short period of time during the third quarter. You can expect that we'll be receiving and shipping against orders, so the 9600 in the fourth quarter. I believe in our last call, we said that we anticipated and we would sell during the course of the year following the launch in the mid- to high single-digit numbers BioXp systems. We remain comfortable with that -- 9600.

[Unidentified Analyst:]

Okay. Got it. And then I think you mentioned the Pfizer milestones equaling up to about $30 million in FY '23. Just wondering if we could kind of get an update on your progress there and what's, I guess, possible or likely in FY '23 there?

[Todd Nelson:]

Yes. Let me get centered to those recent order around the times. We've got access to about $39 in potential milestones, technical and otherwise over the next 12 to 18 months. Specifically for the 2023 period, we're working to achieve 3 or 4 technical milestones. That program continues to impress. We're very excited about that. We remain I think first to market with a large validated effort around enzymatic DNA synthesis. We're super pleased with that. I can hand it over to Dan to -- so he can tell you a little bit about his sales around that program. But 3 or 4 milestones in 2023, and I think that totals around $10 million.

[Daniel Gibson:]

Yes. This is Dan. So exactly, as Todd said, we continue to make tremendous progress around our SOLA enzymatic DNA synthesis solution. We've had a lot of success building the target genes for Pfizer, and we just continue to improve the reliability, infidelity and how quickly it takes to go from sequence to those genes using the process, but the program is going extremely well.

[Operator:]

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

[Todd Nelson:]

Thank you.