Berkeley Lights, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to Berkeley Light's fourth quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. It is now my pleasure to introduce Carrie Mendeville, Investor Relations.

Thank you. Earlier today, Berkeley Lights released financial results for the quarter and year ended December 31st, 2020. If you have not received this news release, or if you'd like to be added to the company's distribution list, please send me an email to ir at berkeleylights.com. Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal securities laws. These statements involve material risk, and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Forward Looking Statements in the press release Berkeley Lights issued today. For a more complete list and description, please see the risk factors section of the company's final prospectus filed with the SEC on November 19, 2020. The company's quarterly report on Form 10-Q for the quarter ended September 30, 2020, and in its other filings with the Securities and Exchange Commission. Except as required by law, Berkeley Lights disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast, February 25th, 2021. With that, I'd like to turn the call over to Eric Hobbs, Berkeley Lights Chief Executive Officer. Eric?

Thanks, Carrie, and thank you, everyone, for joining us this afternoon. Joining me today is Sean Holt, our Chief Financial Officer, and Kurt Wood, our Vice President, Business Development. As we announced in early February, Sean is moving on from Berkeley Lights at the end of April to pursue opportunities with earlier stage companies. On behalf of the Berkeley Lights team, I want to thank Sean for his leadership and his many contributions to the company over the past five years, especially his work taking us public last year. Kurt will officially transition into the role of Chief Financial Officer on March 15th. On the call today, Kurt will provide the financial detail on both the fourth quarter and full year 2020. And then, at the end of the call, Sean will join us for Q&A. There is no doubt 2020 was an incredibly challenging year, but I am so proud of the Berkeley Knights team for their continued efforts, especially in the presence of COVID restrictions, to drive the installations and adoption of our industry-leading platform. We finished the year strong with fourth quarter revenue growing 31% year-over-year to $21.7 million, and ended the year with an installed base of 75 platforms, up 56% from the end of 2019. For those on the call who are new to Berkeley Lights, we are a leading digital cell biology company focused on accelerating the rapid development and commercialization of biotherapeutics and other cell-based products. We envision a future where cells are a scalable and sustainable way to manufacture the products that we need to live a long and healthy life. And the Berkeley Lights platform is key to enabling this by providing precise, rapid discovery, and functional validation of biology. Our goal is to become the industry standard across the cell-based product value chain. Now, the markets that can be addressed by cell-based products are varied and large, and we are initially focusing on three markets, antibiotic therapeutics, cell therapy, and synthetic biology. Collectively, these markets accounted for estimated and market sales of $148 billion in 2019 and are projected to grow to over $250 billion over the next four years. We believe these markets represent an estimated addressable market opportunity of $23 billion to Berkeley Lights. In 2020, we continued to deliver on our commitment to drive innovation by releasing six new workflows, bringing the total number of commercial workflows to eight. This included the most recent Opto Cell Line Development 2.0 workflow that provides even higher access to relevant biodiversity and further enables complex polyfunctional assays. With this new workflow, we were able to start taking a share of the capacity expansion occurring in the CLD CDMO market segment. In the fourth quarter, one of our customers received the first IND approval by the FDA for an antibody therapeutic developed using our opto cell line development workflow on the beacon. What this means is that our highly replicable standardized automated cell line development workflow with the associated automated data capture, including our industry leading monoclonality, received a stamp of approval for the creation of monoclonal cell lines. We believe this will further shorten cycle times in the overall approval process for all customers and drive incremental demand for our OPTO CLD workflow products. During the year, we also released two workflows for antibody discovery, OPTO Plasma B Discovery 2.0 and 3.0, which drove demand across all three geographic segments, especially in Asia, which was the fastest growing region of the year. As we look ahead in 2021, there are three key tailwinds that are driving growth across our markets. First, demand for cell-based products is growing. Second, the complexity of cell-based products is increasing, requiring more precise multifunctional assays with the highest resolution. And third, there are new therapeutic modalities, including multispecific antibodies, cell and gene therapies using DNA or mRNA therapeutics, which require precise functional validation. As a result of these tailwinds, the number of customers is growing, with many smaller biotech companies chasing specific drug targets with even shorter drug development times. This is creating rapid growth in the number of CDMO customers that we serve and provides us with the opportunity to offer different access models for our technology and attract new customers onto the Berkeley Lights platform. Yet while this market grows, it continues to be constrained by the manufacturability of novel therapeutic products and modalities. To alleviate these constraints, we are developing workflows that move the functional validation of manufacturing parameters early into the process, giving customers higher predictability of manufacturing yield and throughput. We are also enabling new manufacturing approaches with much higher throughput. Each and every biologic modality, whether it's antibodies, cell therapies, gene therapies, and every gene sequence discovered or cell line that's engineered requires functional validation, which we believe can be optimally performed on the Berkeley Lights platform. Our customers are looking to accelerate their capability to discover, develop, and to manufacture cell-based products. And we believe to do this, all roads ultimately lead to Berkeley Lights. To benefit from these market tailwinds, we continue to focus our growth strategy on two key areas. First, we are driving the core business in existing and adjacent markets. And second, we are leveraging our technology to expand into new addressable markets. Starting with the core business, we recently announced a next generation antibody discovery workflow, Opto Plasma B Discovery 4.0, which will be the industry's first fully integrated antibody discovery workflow from target to functional molecule. Today, the big challenge in antibody discovery is finding rare antibodies against difficult targets such as GPCRs and ion channels. GPCRs constitute the largest family of proteins targeted by FDA-approved drugs, resulting in nearly $200 billion in annual sales. Antibodies against GPCR targets have great therapeutic potential in a variety of diseases, including cancer, inflammatory disorders, neurological, and metabolic diseases, but they have been extremely hard to hit targets, which is why there is only one FDA-approved antibody to date. The challenge here is finding a rare antibody, which is like searching for a needle in a haystack. In this regard, the Opto Plasma B Discovery 4.0 is a game changer. It further increases access to biodiversity and screens against multiple, highly sensitive cell-based assays, thereby increasing the probability of success in finding rare antibodies effective against these hard-to-hit targets. So effectively, we are helping customers find that needle in the haystack. In fact, in a comparative campaign between Hyperdome and Beacon, one customer was able to increase their yields by a factor of 10. The more difficult the target, the more distinct the gain that was achieved. We are excited about the potential value this workflow will provide to customers and expect to launch it by the middle of 2021. We are also executing on our strategy to enter the rapidly growing cell therapy manufacturing market and expect a meaningful amount of R&D investment towards the development of a cell therapy manufacturing system. CTMS is designed to be the first fully integrated, closed-loop, GMP-in-a-box manufacturing solution which integrates unit operations of manufacturing as well as embedded analytics for in-process and final QC to streamline development. When our characterization capabilities are combined in a manufacturing platform, we will provide the industry with the greatest opportunity to dramatically accelerate the deployment of cellular therapies. In the fourth quarter, we reached an important milestone and completed the development of the first alpha unit. We've successfully demonstrated assays on Beacon that are ready to transfer onto the alpha units. The CTMS platform will support both centralized and distributed manufacturing models. We also continue to leverage our technology to access new markets through business development partnerships, and we are excited to announce that we just signed a collaboration agreement with a global leader in the CDMO space to make stable cell lines for viral vector manufacturing in the rapidly growing cell and gene therapy markets. Generating stable cell lines is hard. This is because the stable integration of the DNA required to produce these viral vectors is a very rare event. Today, conventional screening processes are limited to tens of cell lines and typically require at least six months to complete. As a result, the industry has been utilizing transient cell lines to make these viral vectors. This process requires cell lines to be constantly developed, making viral vector manufacturing very expensive and less predictable as compared to stable cell lines used for antibody therapeutics. Through this new partnership, our goal is to make stable cell lines for viral vector manufacturing as accessible to the world as they currently are for antibody therapeutics. In this collaboration, we will leverage the capabilities of our platform and existing cell line development workflow to rapidly validate multifunctional parameter spaces have very high throughput. So rather than tens of cell lines over six months, we will be screening thousands of cell lines in less than a week. We expect this partnership, and more like it, to have a meaningful impact on our growth trajectory over the coming years. This non-exclusive collaboration has a multi-year revenue opportunity of up to $17 million, expands our total addressable market, and perhaps even most importantly, adds a new viral vector workflow, which we hope will become the standard to make stable viral vector cell lines in the future. We are seeing many of these new opportunities. and our ability to execute on these partnerships and generate new workflows is enabled by our biofoundry. Therefore, we are expanding the biofoundry and business development teams to capture these new opportunities. We are also expanding our biofoundry capabilities into the APAC and EMEA regions. In the fourth quarter, we launched the first lab in APAC and are planning to go live with the second lab in the EMEA by the end of the second quarter. These labs are essentially mini biofoundries and will enable us to demonstrate our technology to future customers, accelerate customer training, and engage in these new market opportunities globally. To execute on our ambitious vision, we are scaling the organization to achieve our growth objectives. In early February, we announced the expansion of our senior leadership team, with Pete Letty joining as Chief Human Resource Officer, Mimi Healy joining in a newly created customer-facing role of Chief Product Officer, and Kurt, who is transitioning to CFO in March. Their collective experience and track record in high-growth organizations will be invaluable as we continue to advance our strategic objectives. We're executing aggressively to accelerate the use of cell-based products, and I'm confident that, with these key additions, the executive team is well-positioned to lead Berkeley Lights into the next chapter of growth and success. With that, I will now turn the call over to Kurt for more detail on our financials.

Kurt? Thanks, Eric. Total revenue for 2020 increased by 13% to $64.3 million. over 2019 in large part due to strong demand for our workflows across all core market segments and antibody therapeutics, cell therapy, and synthetic biology. On a quarterly basis, revenue for the three months ended December 31st, 2020 was $21.7 million with $17.7 million coming from product revenue and $4 million coming from service revenue. Fourth quarter revenue increased 31% over the fourth quarter of 2019, driven by new system placements and increased recurring revenue from the growing installed base. Looking at our three revenue streams, direct platform sales totaled $44.7 million in 2020 and $15.3 million in the fourth quarter of 2020, increasing by 14% and 39%, respectively, over the prior year periods. In both cases, growth was largely driven by strong demand and antibody therapeutics. Revenue from joint development agreements and partnerships was $5.8 million in 2020 compared to $9.6 million in 2019. In the fourth quarter of 2020, this revenue stream generated $1.6 million compared to $2.6 million in the prior year period. As we look forward, we expect this revenue stream to grow as we recognize revenue from the viral vector collaboration as well as additional future collaborations. Recurring revenue was $13.9 million in 2020, representing 22% of our total revenue. This compares to 2019 recurring revenue of $8 million and 14% of total revenue. The increase in total dollars as well as the overall percent contribution to total revenue, is a result of our growing installed base. We expect this stable and predictable revenue stream to further grow as we continue to drive adoption of our technology. Recurring revenue increased $1.8 million in the fourth quarter of 2020 to $4.8 million compared to the fourth quarter of 2019, growing 59% year over year. During the year, we placed 27 platforms, nine of which were placed in the fourth quarter. We continued to expand our customer base with 18 placements coming from new customers and nine being repeat orders. This brought our installed base to 75 systems at year end, a 56% increase over 2019. Gross profit for 2020 was $44.6 million compared to $43.5 million in the prior year. Gross profit for the fourth quarter 2020 was $14.8 million compared to $12.4 million in the fourth quarter of 2019. Gross margin for 2020 was 69 percent compared to 77 percent in the prior year. Gross margin for the fourth quarter of 2020 was 68 percent compared to 75 percent in the prior year period. Both the full year and quarterly gross margin declines were driven by the substantial completion of two higher margin collaborations during 2020, as well as the revenue reductions associated with the buy-down rights for two Ginkgo workflows. As a reminder, our 2020 gross margin includes the costs associated with the buy-down of Ginkgo workflows. This buy-down allows us to accelerate the commercialization of these workflows and is consistent with the strategy Eric outlined earlier. Total operating expenses in 2020 were $84.9 million, including $10.6 million of stock-based compensation, compared to $60 million in 2019, inclusive of $3.8 million of stock-based compensation. The increase of $24.9 million was driven by $9.2 million of G&A expense as we transitioned to a public company, $6.9 million of stock-based compensation expense, $5.3 million of R&D, and $3.5 million of sales and marketing. Fourth quarter 2020 operating expenses were $26.6 million, compared to $15.7 million in the fourth quarter of 2019, and including $5.7 million and $1 million of stock-based compensation, respectively. The increase was driven by $4.7 million of additional stock-based compensation expense $3.9 million increase in G&A, $1.3 million of R&D, and $1 million of additional sales and marketing expense. Net loss for 2020 was $41.6 million compared to a loss of $18.3 million in 2019. Net loss for the fourth quarter of 2020 was $12.1 million compared to a loss of $3.5 million for the prior year period. All net loss numbers are inclusive of stock-based compensation. We ended the year with a strong balance sheet consisting of $233 million in cash and cash equivalents. Now turning our outlook to 2021. We expect revenue to be in the range of $90 to $100 million, representing growth between 40 and 56% over the prior year. We expect revenues for 2021 to be more heavily weighted to the back half of the year, as more business development collaborations and partnerships come online, coupled with the normal seasonality we typically experience in the fourth quarter. With that, I'll turn the call back over to Eric for closing comments.

Thanks, Kurt. Overall, I'm so proud of our team and what they were able to achieve in what turned out to be an incredibly challenging year. Amidst a global pandemic, we continued to deliver throughout 2020 and ended the year strong in the fourth quarter. But even more important than our commercial success, during the year we continued to build a strong foundation in existing and new markets that will position us for success in the coming years. Looking ahead, I am more bullish than ever about the opportunities in front of us. The demand for cell-based products is growing rapidly, and as these markets grow, our technology will become the critical component to accelerate the commercialization of these products. I am confident that we are well-positioned to execute our strategy to transform the market for cell-based products in the coming years and beyond. With that, we'll now open it up to questions. Operator?

Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. First question comes from the line of Tycho Peterson with JP Morgan.

Hi, this is Julia. I'm for Tycho. Thanks for taking a question. I want to start with the viral vector new workflow. Can you talk about, you know, does that have a play into vaccines or is that more tailored for gene therapy and how should we think about the addressable market, and the number of marquee customers that you can have outside of this partnership. And you mentioned the $17 million deal size. How should we think about the revenue ramp cadence?

Thanks for the question. Just a reminder for everybody on the line, a core part of our strategy is to leverage our technology to access new markets through business development partnerships. And, of course, we're excited to announce this. this new collaboration with a global leader in the CDMO space. Generating stable cell lines is hard, and in particular, in this particular case, we're talking about generating stable cell lines for viral vectors in the cell and gene therapy space. And they're hard. It's hard to do this because conventional screening process is really limited to tens of cell lines over a six-month period. And through this new partnership, our goal is to make stable cell lines for viral vector manufacturing. as accessible to the world as they currently are for white therapeutics. As we move forward in this partnership, we signed the $17 million deal, as you described, which, of course, a certain part of that is a fixed or locked-in payment that will occur over the first couple periods, and then there's additional upside as we go into the future. When you think about the overall market that is servable in this particular space, you know, CDMOs in general globally are really working to provide these cell lines, these stable cell lines. But also, you know, right now currently they're being provided, the viral vectors are being provided via transient cells. And so we believe that with the stable cell line production we'll be able to take additional market from the transient cell line market as well. Great. Oh, go ahead.

No, please go ahead.

Yeah, your second part of the question is about the $17 million, how much to put in for this year. We've obviously baked that into our guidance. It could vary, obviously, depending upon how much work gets completed and what time frame. But I think it's safe to say there's probably 25% of that total would hit in 2021.

Got it. Very helpful. And then my second question regarding the 2021 guidance, obviously came very strong and above our deal model. Could you discuss what's driving the upside in guidance? Is that mainly that the partnership or Or do you think, you know, the number of new workflows that you launched over the course of 2020 has also kind of, you know, accelerated the momentum for you to penetrate into, you know, customers who were, you know, maybe previously, you know, holding out, waiting for these new workflows to come? And could you also touch upon your ASP instrument, ASP expectations for 2021 as well?

Yeah, I'll let Kurt take the second half of the question. I'll jump at the front part of the question, which was, you know, 2020 was a great year for us. And as you mentioned, we delivered six workflows, which brings our total release workflows up to eight. And placing 27 tools was a 56% increase in our install base. So we finished 2020 strong with a strong Q4 at 21.7 million, which enabled us to close the year out at 64.3. And what we're feeling in the market is we feel multiple tailwinds are blowing in our direction. And so as these tailwinds are blowing, you know, it's really helping us in aligning with our strategy to expand not only in current and adjacent markets in antibody discovery, cell line development, or syn-bio. but also in cell therapy and also in the viral vector space. And so there are additional market-expanding deals in the pipeline. And this is why we're really looking forward to 2021 and where guidance was laid out. But, Kurt, do you want to provide clarity on the back end of that question in regards to ASPs?

Yeah, I think when we look at it, ASPs are relatively stable year over year. The way we look at our business is more of a portfolio approach. So as we get some of these high-value business development deals coming into play, we will manage that to the long-term model that we have communicated previously with expectations of long-term gross margins in the 70% range.

Got it. Lastly from me, you mentioned that you completed the alpha unit for a cell therapy manufacturing system in the fourth quarter. How should we think about the timeline for you to start placing beta systems with customers?

Yeah, it's a fantastic question. As you mentioned and we discussed previously, right, we have completed the output prototype and we are integrating additional assays from the beacon and transitioning onto the system. You know, I think how we should think about it is this is a multi-year project, right, and as we move forward in this multi-year project, which the timeline is heavily dependent on, of course, the regulatory aspects, right, as we engage in partnerships, I believe that timeline can be brought in pretty significantly. But we continue to see cell therapies as one of the most exciting and emerging modalities, and so we're going to continue to push forward in the CTS development process to engage more deeply in the cell therapy market.

Great. Thanks, guys, and congrats on the progress.

Thank you. Thank you. And our next question comes from the line of Dan Arias with Stiefel.

Hey, afternoon, guys. Thanks for the questions. Eric, maybe just a couple on sort of the business development process. For the customers that are on the service side, CROs and CDMOs, I'm curious whether as you go to pitch the beacon, if you're finding that there are sort of particular economic cases that they look for. In other words, is there something about pricing or a payback period that sort of has the light go off when it comes to their own ability to make money? Any commonalities there that you're seeing?

Dan, it's a great question. Absolutely. I think the best case study is in cell line development, where what we're finding is that our customers are able to recover based on the additional value that BergerDyce provides by very rapid turnaround in cell line development. that we're able to provide significant value. In certain cases, our customers are saying that, you know, the return on investment is less than five engagements, customer engagements that they pay the system back. And this was before Dan. This was before, you know, our first customer approval of an IMD in Q4. So our customers are really, you know, accessing value from the very high throughput that we provide with these automated systems.

Okay, that's great. And then maybe just, you know, if you look at the sales funnel, where are the application areas where it feels like customers are sort of on board in concept but maybe waiting for some externally validated data to emerge? I'm just trying to understand where you're kind of at the verge of a tipping point once folks sort of look around and see that someone else is doing it and having some success.

Yeah, and I think, you know, we're either there or passing that. I mean, we provided a guidance range of 90 to 100 million because, you know, it's predicated on our current sales funnel as well as historical and anticipated conversion rates. And, you know, as we said in the prepared remarks for the full year in Q4, we saw strong growth, particularly if we say for antibody discovery in the Asia-Pacific region, but also cell line development, as I mentioned, with the the IND approval that continued to go up. So we continue to innovate, and our customers are looking forward to the release of these new workflows such as, you know, Opto Plasma B Discovery 4.0, which will create the new gold standard for molecule discovery, and also cell line development with the IND approval. So we continue to see growth in our sales pipeline to support our guidance.

Okay. All right, maybe last one, if I could just, you know, on the placement trajectory, it seems like biopharma is in a good a pretty good place right now. But you do have COVID in the mix still and there are some questions. So in terms of just cadence across the quarters on the placements, is there anything you would kind of point us to in terms of back half of the year or front half of the year dynamic that are that are noteworthy?

Well, you know, Dan, in regards to the discussion of whether it's pharma or, you know, pharma or CDMOs, we continue to see capacity expansion happening in the market. And, you know, our customers are not slowing down at all, whether it's the pharma or the CDO customers. So, you know, the typical seasonality that we see, I think, is in order. Other than that, Sean or Kurt, anything to add in regards to quality stuff?

Yeah, I think this year in particular you've got, you know, as we ramp our business development team and we make the investments there, you know, as those deals materialize, you'll see more of our, you know, high-value collaborations there be, you know, skewed towards the second half from a revenue recognition standpoint.

And, Sean, anything to add on the seasonal performance, historical stuff you'd like to add?

No, I was just going to kind of, I think, add to what Pert was alluding to a bit. You know, we absolutely plan to grow the placement number year over year. I think what you also see is like this AAV deal we just articulated in the earnings script, you'll start to see an expansion of sort of our high value sort of partnership revenue stream as well. And some of those deals, Dan, would be in lieu of placements, right? So we capture a bit more value doing a partnership, a high value partnership approach than a placement. So I think you'll see placements continue to grow, but I also think you'll see the business development line, the partnership revenue grow year-over-year significantly as well. Yeah, okay. Thanks very much.

Thank you. And our next question comes from the line of Doug Schenkel with Cowen.

Hey, hi. This is Subbu Nambi on for Doug Schenkel. So to begin with, following up on Julia's question on the CTMS system that allows for both centralized and decentralized manufacturing, Does this mean it will also be compatible to allergenic T-cell therapies? And can already approved therapies or the ones in clinical trials also use your technology? Or would it have to be at the IND stage?

Yeah, so let me, I'll handle both questions. I'll first start with aloe versus autologous. What we see in the market is, of course, you know, the approvals of the autologous cell therapies. And so our automated system, we believe our automated system, coupled with our beacon system, system with cell therapy development 1.0 and 2.0 workflows are the most rapid way to accelerate the development, whether it's autologous or allogeneic cell therapies. The cell therapy manufacturing system is tailored more towards autologous cell therapies, but also will work for allogeneic cell therapies. There's often a common misconception in terms of just the number of cell therapies that can be manufactured or the volume of cell therapies that can be manufactured from an autologous or for an allogeneic overall workflow. But in any case, it certainly is more tailored toward the autologous right now. In regard to the approvals, right, in the cell therapy space, you know, you talk about whether it's IND stage or BLA stage. It's certainly this is IND stage because the process is a key part of the product. And so working and engaging with the clinical cancer centers is a core part of our overall strategy as we move forward and is the next point of engagement in our overall strategy for CTMS.

So then already approved T-cell therapies and CAR T-therapies, they are missed opportunity at this point, right?

Yes, unless the customer wishes to, of course, rework or go back through certain levels of the clinical trial, then I would not anticipate they would move to the Bercudite CTMS. But we are able to capture things in Phase I and Phase II.

Okay, that's helpful. And one last one for the antibody discovery workflow 4.0. Is it targeting only new BLI customers? And if not, since the workflows are pretty automated and modular, would you also be able to market it to your previous customers just as an upgrade?

Yeah, it's a great question. Antibody Discovery 4.0, as we move forward and we develop our plaza beet sales and discovery workflows, we continue to engage with the early adopters and innovators who were the first to join and first to buy the Brigade's platform for antibody discovery. Antibody Discovery 4.0 really pushes us into the broader market, and it's not only for new customers, but absolutely is applicable to existing customers. When you engage in the Berkeley Lights platform, we provide updates as a function of time that just continue to make the platform more and more valuable for our customers. And so in this case, with a software update and a purchase of a new kit, that's chips, reagents, et cetera, a customer who's on antibody discovery 1.0, 2.0, or 3.0 can upgrade to the 4.0. The 4.0 workflow has an increased recurring revenue based on the value that we provide with this additional workflow. We see there are several existing customers who are already running Antivirus Discovery 4.0 in kind of a prototype mode who will receive the full workflow as we release it in the mid of 2021.

Okay, got it. Thank you so much.

Thank you. And our next question comes from the line of Tay Joss, Savant with Morgan Stanley.

Hey, guys, thanks for taking the time for the questions. This is actually Edmund for Tejas. Just wanted to circle back to this new viral vector collaboration with the CDMO partner. I understand the value that it brings to your company with the expanded, I guess, applications and the markets and the additional opportunity to develop workflows. But I guess the question I had was the stabilized cell lines that you guys are manufacturing with the CDMO, is this going to ultimately be proprietary to your partner or is it something that you guys plan on marketing to the end users or other CDMOs? And would there be a revenue sharing aspect of that included in the partnership? And I guess maybe this is a little too early on to ask, but should there be any additional milestones or catalysts that we should be looking for here?

So part of our strategy in general is to find really big problems in attractive markets that leverage cell-based products and then engage with an industry-leading partner to create a solution. And for us, that solution comes in the form of a workflow. So in the case here, we are creating a workflow that will help our customers rapidly generate stable cell lines for viral vector production. And as you may have mentioned, these collaborations are not only to provide that to the collaborative partner. This is a non-exclusive deal by which we will generate this workflow, provide that workflow to that collaboration partner, but then we have the ability to market the solution, the workflow, to other CDMOs and other market participants. And so these collaborations, and it's a very standard thing for all of our collaborations actually, that in addition to the value that they bring in the short term, they open up these new markets that lead to recurring revenues as a function of time into the future. Now in regards to the aggregated business model, at the tail end of this collaboration, there's a transition into a subscription with this particular customer as we work through the milestones. So there is locked in some level of future downstream revenues, but there are other economics that other participants may be subject to that the early movers are not.

Got it. So the focus is still on the workflow and the market expansion opportunity, and there won't be any sort of revenue sharing associated with the stabilized sell line that's ultimately developed. Got it. There's not a royalty on the back end, if that's what you're asking. Yes. Okay, got it. Yeah, that was the question. Thanks. And then just to get dive into a little more detail on your nine units placed this quarter. Can you provide some sort of color on the, I guess, the end market mix and maybe the geo mix? And then was that all beacon direct placements? Did you have any subscription placements? And how was Lightning and Cell Culture Station looking this quarter?

Yeah, Sean, since this is a Q4, do you want to take this?

Yeah, absolutely. So we did have a subscription placement, and we can talk a bit more about that in a bit. As we drill down sort of into the mix of, I guess we can start with market segment. The majority of our placements were in the antibody therapeutics, although we did have a placement in both cell therapy and SynBio as well. So hopefully that gives you some color on Q4 in terms of the market sort of segment mix. When we talk about customer segments, fairly evenly split between biopharma and CRO CDMOs, and then we had multiple placements into the academic segment as well.

Geographically, was this all in America?

Geographically, Asia Pacific led the year. Sean, do you want to provide color on Q4?

Yeah, so about, let's see, looking at the mix here, about a third... About a third went to Asia. We did see actually some progress and growth in Europe, which was very encouraging. But the majority were Asia and Americas in Q4. We're not actually providing the detailed splits.

Got it. Thank you very much. Yeah.

Thank you. And our next question comes from the line of Brian Weinstein with William Blair.

Hey, guys. Thanks for taking the question. Good afternoon. Just sticking on the theme of the call here with the viral vector deal here. Can you talk just a little bit more just about the proof point of what this is for kind of the broader strategy here of a partnership model? And really, as we think about it, which customers are more amenable to this as you're going out and kind of hunting these things? I mean, it's obviously economically beneficial to you. So I'm just curious. you know, where you think that you have the biggest opportunity there. And then longer term, how do you guys think about the mix here evolving over time as a result of these types of deals as we think kind of long term between, you know, recurring revenue partnership and capital or system sales? How should we be thinking about that, you know, call it, you know, several years out? Thanks.

Yeah, Brian, that was a great question. Great to hear from you. This is all part of our strategy. And as we talked about, Brian, in Q3 and into Q4, we were really going to make the investment into the business development team. So we invested in the business development team, which very rapidly filled up our business development pipeline. And the business development pipeline, of course, feeds into a part of our biofoundry that we call the innovation lab. And in the innovation lab, we go run some experiments to see what's the level of impact we can make in some of these markets. And so in particular for the viral vector, the viral vector went through that path. We had a customer who showed extreme interest in engaging with us to solve this particular problem. We were able to go into our bio foundry and show not only could we measure things like maximum capsid titer, but also we could understand and see if the capsids that are being generated had properly packaged DNA. And so being able to do both of those things gives us a leg up on the chip, gives us a leg up to move from something like tens of cell lines in six months to over thousands of cell lines in under a week. And so what we do is we continue to invest into our bio foundry. to develop these workflows. Now, as we work through these partnerships and generate these workflows, we deliver the workflows to the field, right, out to the field, and in regards to, well, who is the customer? Where will we benefit? The CDMOs, of course, will benefit, but as we move upstream, right, I think there's an opportunity to displace the transient cell lines that are being made today and used today with stable lines, which I think, you know, will possibly be be better for starting into clinical trials and these things. And so what happens is that workflow goes out into the market, Brian, and then it becomes a revenue stream for us. And that revenue stream can come in multiple ways. It can be tool placement via CapEx sales. It can be subscriptions, as we've discussed previously. So how you should think about our business is as we engage, the earliest engagement happens in the business development pipeline, which then leads to a workflow. So we have some low revenue in the business development pipeline, which leads to recurring revenues through the release of the workflow. And then we have a revenue stream in a market. And so as we look out multiple years, you'll see stacking up of multiple revenue streams. And the proof points are in our business right now. We first released cell line development, that is a large portion of our business. Then we released antibody discovery, which very rapidly caught up to the same level of revenues of cell line development. And then we have synthetic biology, which is a revenue stream through the Hinko collaboration. Furthermore, cell therapy development, which we released workflows in the second half of last year. In the future, you'll expect to see viral vector workflows and additional other workflows that will come through our pipeline. Brian, does that answer your question in terms of how you should think about these stacking up revenue streams?

Yeah, it does. I mean, we'll do some additional thinking about it and follow back up with you if needed. But I think that was a good answer. I appreciate it. Thank you.

Thanks, sir.

Yeah, just one other one. If we can just talk a little bit more just on a modeling question. So if we think about, you know, you've given a full year, but you've talked kind of second half waiting, but is there any additional color that you can give us on sort of pacing here just on the revenue for your most of the way through kind of Q1 here? How should we be thinking about that? But then also, spending and how, you know, we should be kind of layering in, you know, the incremental spending here throughout the year, considering that you guys have significant opportunities here. How are you thinking about that kind of playing out throughout the year? Thanks.

Yeah, let me jump into this one, then I'm going to hand it off to Kurt. And I'm going to answer the second part of the question first, Brian, which is jumping in, which is we see multiple opportunities in the business development pipeline. And since we're entering what it looks like to be a target-rich environment, we're going to invest to develop workflows to achieve, to create those workflows for those particular market segments. and that will require a level of investment. But at this point, what I'll do is I'll hand this off, the rest of the question off to Kurt for him to fill in, you know, the quarterly split and what the spending looks like. Kurt?

Yeah, Brian, as Sean mentioned earlier on an answer to a question is we typically have seasonality that's stronger in the fourth quarter. You'll continue to see that this year. And some of the business development activities, as I alluded to earlier, will be more back-end loaded. But I think the The quarterly profile that you saw in 2020 will be similar to what you see in 2021 here going into that. The second part of your question in terms of the expense function, we do expect a step up in the OpEx as early as in Q1. We talked about we got the biofoundries going up, the investments we're doing in business development. and then the investments we're doing in R&D, not only for the biofoundry, for additional CTMS development and alphas, but also for these development collaborations that we're doing with BD. And I think that step up in overall OpEx is probably in the mid-single-digit millions in the first half, and then that probably is consistent in some headcount growth from that stepped-up function kind of going out into the second, third, and fourth quarter. Does that answer your question?

Yeah, it does. I appreciate it. Thank you.

Thanks, Mark. Thank you. And our next question comes from the line of Paul Knight with KeyBank.

Hey, Eric, could you talk to the 75 placements out there? How many customers are there? have multiple units installed, and are existing customers ordering a greater amount of additional units, and also are those customers buying other platforms besides Beacon?

So, of the 75 units, we absolutely do see customers with multiple units. Our customers typically, you know, they'll buy, they'll hear about the Berkeley Lights Beacon, the impact that our workflows are having in the market. They'll pick up the first beacon, and then within a couple months, they realize how valuable it is, and they'll pick up the second, third. We have one customer who has up to five beacons. at this point in time. In regards to overall total number of customers, I would hand that off to either Kurt or Sean. Sean, do you want to jump in and then Kurt, if you have any details?

Yeah, absolutely. So just to go to, I think, another part of that question was the sort of mix between new and existing customers. Of that 75, nearly 3% are actually existing customers adding to their fleet. Paul, when we think about our customer base, I mean, we have over 70 customers in total But obviously there's a handful that are, you know, the collaboration partnership type that wouldn't necessarily have a unit. There's customers under subscription as well. But that should give you a flavor of the mix of new versus existing customers and the growth of the customer base over time.

And the structure of your partnerships, is it milestone payments and then they purchase a unit? How do you structure one of those deals?

Yeah, so what I'm going to do is I'm going to pass the business development question off to Kurt Wood. Kurt?

Yeah, you know, earlier on in the life of Berkeley Lights, we were doing more milestone-based. And, you know, we found that really didn't work well for us or the customer because, as you can obviously tell, when you're working with biology, things change and you want to be nimble. So we've moved more to what we would consider an R&D capacity-type model where we work with customers and they get a certain amount of time from our biofoundry And it allows us to be a little bit more nimble and for the customer to, you know, respond to what they're seeing from the workflow and change the milestones without there being, well, you can't do that because contractually you're obligated to deliver a certain milestone. And that's been really well received from the customer base as well. And we believe it leads to faster learning cycles for us as well as the customer. And so that's more of the model we're doing now. And so, you know, The viral vector deal, for example, as Eric mentioned, we're working on delivering a workflow. It's capacity-driven from our bio foundry. And then at the back end of the successful completion of that, we have a continuing of the relationship with a potential subscription of the tool to keep going. So that's more of the model we're applying to now. Now, obviously, each deal will have a little bit of a – nuances to it to go there, but that's what seems to be working really well for us and the customer and how we've evolved over time. And it's allowed us, I think, to increase the pipeline of deal activity.

If you have success in a viral vector workflow, how long do you think it would take for that to be a commercially available product for the broader market?

Yeah, so one of the things about how we're running these business development deals is we do, as I described, Paul, we do run early kind of prototype runs on these things before these kind of deals. And so we have some preliminary results that show we can measure the things we need to measure based on our platform capability. It's one of the strengths of Berkeley Light, actually, that we have a platform where we can write some new software code, create a new assay, and then deliver a workflow pretty readily. And so I do believe that with new, the way that we're investing into the biofoundry and the innovation lab, we're going to be able to accelerate the rate at which we can get these workflows to market. And I think that's a really important thing to consider. So in this particular case, where it would have taken several years to get a workflow out to market, I think you're looking on the order of 12 to 18 months to have something available.

And then lastly, do you think that the data you're developing on machine learning in effect is widening the moat, or is your imaging technology, a database, rising in value? Could you just talk to that?

Yeah, absolutely. As part of Antibody Discovery 4.0, we released what we call PrimeSeq, which is a cloud-based software which takes the phenotypic data from the bird's-eye beacon and then pairs it to the sequencing data that comes off the sequencers because we have barcoded sequencing that comes off the platform. And we believe the combination of those two, bringing the phenotypic or functional data together with the sequencing data, is a critical component to accelerate machine learning in the future. We believe there is significant value in that, and the more that we run in our Biofabriate, in our innovation lab, we continue to build databases that are useful to us. And that also already paid off in another way in Antibiotic Discovery 4.0. When we import the cells into the tool, we actually use a deep learning algorithm to pen the cells that are the happiest secreting cells into the nanopens. which we figured out using some of the data that we had from running on different collaborations. And so I do believe that the database and deep learning algorithms that can be generated based on this data, multi-parameter data, multi-functional data, is going to be critical for accelerating the rate at which we can help our customers discover, develop, and commercialize cell-based products in the future.

Okay.

Thank you. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.