Codex DNA, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Quarter 1 2022 Codex DNA Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. I would now like to turn the conference over to your host, Richard Lepke, Director of Investor Relations.

Thank you, Faith. Good afternoon, and thanks for joining us for CodexDNA's first quarter 2022 earnings call. With me on the call today are Todd Nelson, our chief executive officer, and Jennifer McNeely, our chief financial officer. Our first quarter press release is available now on the investor section of our website. If you'd like to be added to the company's distribution list, please send an email to ir at codexdna.com. Before we begin, I'd like to inform you that certain statements we make during this call will be forward-looking. These 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 May 10th, 2022. Finally, any percentage changes we discuss will be on a year-over-year basis unless otherwise noted. With that, I'd like to turn the call over to Todd, CodexDNA's CEO.

Thanks, Rich, and good afternoon, everyone. Thank you for joining us today. We're pleased to discuss our financial results for the first quarter of 2022. To start, I'd like to talk about our first quarter highlights and commercial results. We are off to a very strong start to the year across our entire product portfolio. We continue to strengthen our business and see robust demand for our products. For the first quarter, we grew revenue by 142% compared to the prior year period. And excluding the inorganic contributions from Eaton Bio, growth was 82%. Revenue during the period was driven in part by our highest number of quarterly placements of our BioXP 3250 instruments, strong growth in BioXP consumable kits and biofoundry services, and increased partnership revenue related to our agreement with Pfizer. As a reminder, our go-to-market strategy can be broken down into three distinct categories. First, our BioXP automation platforms and portfolio of consumable products, including Gibson assembly kits and a growing catalog of synthetic genomes, which are all sold globally through both direct and distributed sales channels. Second, our BioFoundry services, which now includes parts of Eaton Bioscience and leverages those same direct and distributed channels to provide customers with BioXP-enabled services and solutions. And third, value-creating partnerships which build on our technology portfolio, intellectual property, and technical capabilities to support customer needs while giving us access to substantial end-user market economics. We executed in all of these areas in the first quarter, and I'll touch on each one. We expect these strategies to drive long-term sustainable growth and to create maximum value for our customers and our shareholders. Our BioXP automation platforms are headlined by our BioXP 3250 system, which is a fully automated push-button platform for the rapid synthesis of DNA and mRNA. Certain drug discovery activities that previously took months can now be completed using the BioXP system in just a week or so, and what previously took days can now be done in just hours. Industry-leading quality combined with enhanced speed, accuracy, and scale can lead to vast productivity improvements. In our last earnings call, we discussed the headwinds we experienced in the fourth quarter of 2021 related to the emergence of the Omicron variant. This affected our ability to meet with certain customers on site and to ship, place, and install our BioXP3250 instruments. This resulted in fewer shipments than we had anticipated as we closed out 2021. However, the COVID-related commercial disruption subsided in the first quarter, which contributed to a record quarter of shipments as some of the delayed instruments from the prior period were able to be delivered. Therefore, while we had our largest number of instruments placed, we expect this to normalize in the second quarter. Overall, we had an excellent quarter of commercial execution. Our customers continue to recognize the benefits of the BioXP platforms. As a reminder, we ended 2021 with nearly 200 instruments in our installed base and are off to an outstanding start to 2022. We believe we are still in the early stages of product adoption for our BioXP3250 instrument, and the demand remains strong. Within our portfolio of consumable products, BioXP kits experience a solid quarter of growth compared to the prior year period. This was driven by gene fragments, cloning, and our recently launched mRNA product offering. Over time, we intend to expand our installed base of instruments and launch additional kits, to meet the needs of our customers, which will fuel a consistent and profitable razor razor blade business model. On a related note, we anticipate that consumable kit gross margins will improve significantly as we ramp up our internal oligosynthesis capabilities in 2023. This will provide us with a path to sustainable profitability in the future. Moving on, our CodexDNA BioFoundry services experience robust revenue growth in line with our year-over-year organic growth rate. This was driven by strong demand for customer genome orders and variant libraries, and we expect demand in this area to continue to grow rapidly. As a reminder, our BioFoundry services organization leverages our best-in-class BioXP automation platforms to provide customers with custom solutions, quick turnaround, and excellent quality. In addition to being a catalyst for growth, our BioFoundry services team helps to expand our customer reach, build strong customer relationships, and demonstrate the value of our BioXP instrumentation and the CodexDNA team's scientific expertise, which ultimately drives product sales. Therefore, services enable us to provide more solutions to a broader customer base and offers a key customer funnel into our product business. Within services, Eaton Bio performed solidly in the quarter and contributed approximately $1.4 million of revenue, which was ahead of our internal forecast. We saw very strong demand for sequencing services in the quarter, resulting in higher than expected performance. As a reminder, we have allocated a significant amount of Eaton's resources and manufacturing capacity in the near term towards our own internal raw material supply to invest in oligo production and R&D efforts to support the Pfizer collaboration. Starting in the fourth quarter of 2022, we believe Eaton can begin scaling up the production of oligos, which should reduce our raw material costs within several product lines and provide significant accretion to gross margins as we ramp up production into 2023. Toward the end of the year, we intend to complete the integration of Eaton's operations into biofoundry services, and we believe Eaton's legacy business will grow steadily as a part of this combined service organization. Moving on now to partnerships, I'm pleased to report that we're off to a very strong start in our collaboration agreement with Pfizer. While we can't get into the specifics at this point, our progress from a technical development perspective related to our Sola EDS technology has been outstanding. For example, we have successfully synthesized key target genes of interest using Sola EDS workflow and made progress developing new protocols for rapid high fidelity synthesis of target genes. It's very early days, but we're very encouraged by the data and the results we're seeing so far and we will provide updates as we progress further toward our joint objectives. As we discussed in our prior call, our business development and leadership teams continue to cultivate partnerships with potential partners and we intend to establish additional agreements with both new and existing customers over time. More specifically, we aim to pursue value-added partnerships that can leverage our differentiated intellectual property portfolio and proprietary technologies. This includes all of our technology categories, such as BioXP automation solutions for DNA, mRNA, and protein synthesis, and our VMAX platform for the efficient and large-scale cloning and scale-up of DNA. Before I turn the call over to Jennifer to discuss the financials, I want to touch on the progress within our R&D programs and organizational updates. We recently showcased our innovative SOLA EDS technology and automated benchtop BioXP systems at SynBioBeta's Built with Biology global conference and in our first R&D investor webinar in March. SOLA is our proprietary enzymatic synthesis platform based on DNA ligation and amplification approaches that is used to build oligos from a make-to-stock universal library of short DNA building blocks. We believe that this approach is the ideal solution for synthesis of longer fragments of DNA, mRNA, and protein at the benchtop due to its advantages in fidelity, buildability, scalability, and cost. We expect our approach to building oligos using SOLA in the BioXP system will result in higher quality and more cost-effective products compared with other enzymatic DNA synthesis approaches. During the first quarter, we advance our SOLA development programs. We continue to reliably generate high-fidelity DNA oligos of 20 to 100 base pairs at the benchtop As a part of an internal development project, SOLA-generated oligos were efficiently assembled into full-length SARS-CoV-2 spike protein genes, which is approximately 3.9 kb in length, and the company's longest gene ever assembled enzymatically. This achievement further validates our belief that this technology is the leading approach for building high-fidelity, longer segments of DNA using enzymatic DNA synthesis technology. At the Built with Biology Global Conference, we also showcase the BIOXP 9600 to potential customers. The 9600 is designed to have approximately three times the capacity as the current BIOXP 3250 system, making it an ideal solution for higher throughput customer segments within biotech and pharma. We are pleased to report that the BIOXP 9600 is on track for a full commercial launch in the fourth quarter of 2022. And finally, during the first quarter of this year, we recruited and hired key positions across the organization. These new hires will enable us to scale to meet future anticipated demand for our products, services, and technology partnerships. And with that, I'll pass the call over to Jennifer to review our financials.