IsoPlexis Corporation

Good day and thank you for standing by. Welcome to the ISO Plexus third quarter 2021 earnings conference call. At this time, all participants are in listen only mode. After the presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star then one on your telephone keypad. Please be advised today's conference may be recorded. If you require any operator assistance during the call, please press star then zero. I'd now like to hand the conference over to your host today, Keri Mendeville, Investor Relations.

Thank you. Earlier today, Isoplexis released financial results for the quarter ended September 30, 2021. If you have not received this news release, or if you'd like to be added to the company's distribution list, please send an email to investors at isoplexis.com. Joining me today from Isoplexis are Sean McKay, Chief Executive Officer, and John Straley, Chief Financial Officer. 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 risks 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 Isoplexis Issue today. For a more complete list and description, please see the Risk Factors section of the Perspectives filed on October 12, 2021, and in the other filings with the Securities and Exchange Commission. The company intends to file its quarterly report on Form 10-Q for the quarter ended September 30, 2021, later this week. Except as required by law, ISO Plexus 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, November 10th, 2021. With that, I'd like to turn the call over to Sean.

Thanks, Carrie. Good morning, and thank you for joining our third quarter 2021 earnings call, our first as a public company. We completed our initial public offering in mid-October, raising approximately $111 million in net proceeds. This brings our total capital raise in the last year to more than $245 million, strengthening our balance sheet to capitalize on opportunities in single cell proteomics and single cell multiomics. Before we get started, I'd like to express my sincere thanks to the strong team we have assembled at IsoPlexus. Our progress is truly a testament to their collective dedication and passion. At IsoPlexus, we are focused on capturing powerful biology to accelerate advanced curative medicines. Over the last five years, modern medicine has changed substantially through an accelerating stream of innovation across proteomics, single-cell biology, and functional multiomics. Cell and gene therapy has revolutionized medicine. Vaccines are now driven by RNA, and two of the largest-selling oncology drugs in the world are cancer immunotherapies. With this innovation, there is a tremendous opportunity to leverage human biology to cure disease. However, in order to do that, we need a better understanding of in vivo biology to create personalized medicines faster. At IsoPlexus, we have developed a unique technology platform, which is bringing together proteomics, single-cell biology, and functional multiomics to reveal a higher fidelity picture of in vivo biology. At its core, our platform is able to capture the critical proteins from single cells that drive disease response and therapeutic impact. A new wave of bulk proteomics is identifying a series of complex disease and therapeutic drivers that genomics misses, unlocking a new era of understanding in biology. We at IsoPlexus are able to uniquely capture proteomics at the single cell level to reveal the earliest sources of therapeutic response and disease activity, in ways that both proteomics alone and genomics miss. We focus our platform with a lens towards predicting in vivo biology, and in particular, the long-term responses that are driving these novel, advanced, curative medicines. For example, our single-cell proteomics platform has revealed highly active supercells in our immune system that have proven key to creating an optimal response against various cancers, In addition, single-cell multiomics via our new offering, Duomic, is paving a path to find the genetic drivers of these supercells, which can allow us to synthetically reproduce these pathways and cells into more curative medicines. Our unique single-cell proteomics products have driven our growth to date, and our new single-cell multiomics products in development represent a large opportunity ahead. We have made great strides demonstrating the utility of our platform in single-cell proteomics through extensive clinically relevant published studies and data. Single-cell proteomics is unlocking significant discovery and advanced medicine understanding in various preclinical trials where we shed light on the most potent biology and in clinical studies where we identify early signals and response in patients. Our platform is available in two Benchop instruments, the IsoLite and the IsoSpark. With similar functionality and ease of use, both instruments are proteomic hubs with the higher throughput IsoLite built for core labs and the IsoSpark catering to personalized labs. Based on our growing leadership position in clinically relevant publications, we continue to expand our installed base and usage. We are now in the majority of National Cancer Institute-designated comprehensive cancer centers in all 15 of the top 15 pharma companies. Now we will turn to Duomic, our new single-cell multi-omics product offering. We are well-positioned to leverage our core single-cell proteomics offering as we can now sequence the supercharged proteomic cells we detect. The ability to highly multiplex unique combinations of transcriptomics and proteomic targets will accelerate therapeutic discovery even faster. We do this by bridging the genomic cell atlas in the discovery realm with key proteomic analytes like cytokines and phosphoproteins for the first time, which is necessary to leverage the single-cell biology in the clinic. Our proteomics technology is applicable to a wide range of immune-based advanced medicines and serves a $12 billion addressable market opportunity across roughly 5,500 clinical programs. We believe this market will continue to grow driven by the massive interest in discovery across proteomics. The more proteomic targets that are identified, the more our customers are interested in identifying the cells creating those proteomic analytes, to identify the earliest signals of response and disease. In addition, Duomic provides us access to a separate discovery focus market, which represents an additional $12 billion total addressable opportunity. Our long-term growth will be driven by the expansion of our functional cell library, the growing number of high impact clinically relevant publications, showing the value of our technology, and providing customers with new innovations to expand our technology's capabilities. We have made tremendous progress this year across all three of these areas. First, we continue to expand our functional cell library for single-cell proteomics, which is the proteomic equivalent for the clinic that the cell atlas has been for human discovery in genomics. We now have a wide number of cell types, protocols, and workflows, which enables understandings of immunology, tumor biology, and more broadly, inflammation. Our goal is to comprehensively cover all proteomically driven cells in the human repertoire in the coming years. Second, we have seen a growing number of publications demonstrating the value of our technology. We believe customer publications will be a leading indicator of traction in key end markets. This data creates the unique use cases of our platform, such as developing optimized and more durable immunotherapies and delivering predictive potency for bioprocessing and cell therapy development. In addition, the clear clinical utility of developing early biomarkers from our most potent single cells is increasing for academic medical centers, biopharma, and biotech alike. To date, there have been 95 publications demonstrating the necessity of single-cell proteomics to drive the earlier signals of response in key high-growth markets like cell therapy and immuno-oncology. To that end, there are two recent sets of publications that really exemplify this value. starting with two Nature Medicine publications that were landmark studies in cell therapy against blood cancer and TILS therapies against solid tumor. Both publications illustrate our platform's strength in identifying early indicators of potency and durability in cell therapies against a wide variety of cancers. These predictive use cases are proving to be of high value in both developing cell therapies and developing bioprocess strategies for cell therapy. Additionally, a Journal of Clinical Oncology study highlighted isoplexis and single-cell proteomics as the biomarker identifying the long-term patient responders in a combination checkpoint inhibitor study in solid tumor. This publication is important for the field as it demonstrates the clear ability to detect early signals of long-term response in patients which were otherwise not possible with existing proteomic and genomic technologies. Our goal is to continue to leverage these proven use cases to generate increased market share in each of these critical cell therapy and immunotherapy areas. Third, we introduced our duomic platform, which ties our unique single-cell proteomic biology to the genetic drivers of those protein responses for the first time. This builds on not only years of development, but also on our recent acquisition of an extensive DNA and RNA sequencing portfolio earlier this year. Now, turning attention to our recent progress, I'd like to give an update by orienting around three key themes, customer adoption, operational execution, and product innovation. Starting with customer adoption, we are focused on growing our install base through our land and expand strategy. During the year, we continue to make progress adding new customers and placing more instruments within existing customer accounts. For example, this year we placed four units in a designated comprehensive cancer center, which are being used across multiple investigators. A key driver of this expansion is the ability to place the personalized lab system, the isospark, in individual research labs while placing the higher throughput isoide in core labs. The flexibility for each to act as a hub of various functional proteomic assays while maintaining an attractive price point creates the ability to have a large potential market for multiple units at each cancer center or biopharma. We are also seeing growing utilization within our expanding installed base. When we place an instrument, our instrument sales team, our consumable sales team, and our field application specialists partner with the customer to get the customer up and running quickly. By investing early, we were able to educate key users, drive consumable usage shortly after install, and also expand usage to other departments or researchers that see the capabilities and value of our system. This customer centricity is contributing to increased utilization, which in turn drives more instrument sales within a larger academic center or biopharma as adjacent labs buy their own systems. A core focus of our commercial team has been to develop close relationships with the customer at each stage of our sales funnel. We have added an inside sales team to manage the increasingly large incoming interest in our platform while being responsive to requests and prospects. This team works closely throughout our global regions, inclusive of the Americas, EMEA, and APEC, In addition, our growing instrument sales team and leadership leverages our funnel management software systems to deliver sustained and predictable instrument growth. To bolster our international offerings, we have hired a larger support team in EMEA and have begun expansion into APAC, including the recent hiring of a general manager and securing our local business license. Finally, our close relationships with our customers allows us to know where the market is going next and stay at the edge of innovation. For example, one of our largest customer requests was to sequence our unique supercells. Through development and acquisition, we are delivering on that customer request with our Duomic product. Turning to operations, we are focused on scaling our business to meet demand now and over the next few years. for our high-growth single-cell proteomics business. To do this, we have significantly expanded our manufacturing and logistics team and footprint to include multiple equipped facilities, inclusive of clean rooms and automation, which have the capability to produce Isolite and Isospark instruments and our single-cell consumables at scale. We have built many of these capabilities internally so we can manage any variability in supply chain in the coming years. We have invested in a technology enabled procurement team and system to ensure we have multiple sources for our most critical components. We continue to leverage a high quality lean manufacturing methodology, while at the same time ensuring that our customer demand and top line revenue will not be impacted by any part shortages. To bolster that, we continue to acquire critical long shelf life inventory, especially on the computer chip and electrical technology side, to ensure our resilience. Finally, our logistics team has invested in a series of partnerships globally with our expansions into EMEA and APAC to ensure that our growth in those regions can be supported by a continuous source of instruments and chips, as well as the necessary onsite field support required. We will continue to stay focused operationally and take steps to support our current and future growth. Turning to our pipeline, we are investing heavily in our duomic platform, which addresses a large unmet gap in the multi-omic market, offering a new functional proteomic analyte class to single-cell sequencing and proteomic-connected biology. With our investment in focus, duomic is coming along faster than expected. We have already concluded a proof-of-concept demonstration with data released at AGBT Precision Health in September. The data demonstrated new access to deeper tumor biology, in particular the ability to connect genetic information directly to the phosphoproteins in each cell. For the first time, we were able to generate deeper data in CAR-T therapy by connecting genetic circuits to proteomic cytokine response as well. Duomic represents what we see as a discovery bridge between the genomically driven cell atlas and the proteomically driven clinical development process. The evolution into proteomics and the desire to leverage the cell atlas provides a unique opportunity for isoplexis via duomic to connect with two for the first time with functional proteomic analytes. The information Duomic provides has the potential to reveal the genetic drivers of the earliest proteomic responses to cancer and other diseases. It provides for the first time the ability to sequence the highly active polyfunctional supercells that orchestrate the immune response. Based on our data, we plan to offer our Duomic platform via early access and service in the second half of 2022 with a full Duomic product launch in the middle of 2023. Our team is the foundation of everything we do at IsoPlexus. People and culture are core to innovation, and we have continued to attract a world-class pool of talent and made significant additions to our leadership team over the past few months. We have strengthened our current position in the market and our prospects for scaling by adding seasoned leaders from various life sciences tools and omics companies to contribute to our operational excellence and global infrastructure this year and beyond. Additionally, we have continued to strengthen our board with seasoned operators in the life sciences tools and omics field, including Jason Myers, formerly CEO of ArcherDx, Siddhartha Kadia, formerly President of Life Sciences Division at Life Technologies, and Michael Egholm, formerly CTO of Danner Life Sciences and President of Paul Life Sciences. Their unique and complementary perspectives on technology expansion, healthcare innovation, and market development will be invaluable to IsoPlexus as we accelerate and expand our markets. Overall, we are excited about what is ahead for IsoPlexus and are confident that our technology platform enables our customers to capture powerful biology to accelerate advanced curative medicines, I will now turn the call over to John for more details on our financials.

Thanks, Sean. Total revenue for the third quarter of 2021 was $4.2 million, up 28% from $3.3 million in the prior year period. This brings our total year-date revenue for 2021 to $11.7 million, a 68% increase from the prior year. Product revenue was $3.9 million, a 29% increase compared to $3 million in the prior year quarter. And service revenue was $300,000 compared to $250,000 for the prior year quarter. Our commercial team continued to drive adoption and sold 22 instruments during the third quarter. We have now sold 172 instruments since initial commercial launch in late 2018. In the last two quarters, We have seen strong instrument growth due to onboarding and training of our commercial team, increasing customer account coverage, and launching more products into the market. We are encouraged by the pace of customer adoption, demonstrating the versatility of our platform across a range of applications. Consumable revenue was $1.2 million for the quarter compared to $554,000 in the prior year period. We continue to see growth in consumable sales from both a larger installed customer base and from increased customer utilization. In the near term, we are focused on increasing our user base, training customers, and growing our consumable test menu as we expand our functional cell library. All of these activities will help our customers advance their research programs and create the foundation for our long-term recurring consumable revenue stream. Gross profit for the third quarter of 2021 was $2 million compared to $1.8 million in the same period of 2020. Gross margin was 47% in the third quarter compared to 54% during the third quarter of 2020. The decline in gross profit was primarily due to increased cost of raw materials and increased inventory reserves booked in the quarter. Similar to others in our industry, we are starting to see pressures on the supply chain, specifically constraints in obtaining certain key components for our products and R&D programs. These include increasing lead times and higher prices. As a result, we have continued to build our inventory in order to fulfill instrument demand in 2022 without disruption to the customer. Despite the current environment, we expect our gross margin to improve over time, as we ramp our commercial efforts and as recurring consumable sales become a larger component of our total revenue mix. Over the next five years, we expect our gross margin to improve and settle into the low to mid 70%. We have a clear path to this goal, and we continue to increase consumable margin and as consumables become a larger portion of our revenue. Operating expenses for the third quarter of 2021 were $21.9 million, an increase of 173% compared to $8 million in the third quarter of 2020. The increase was primarily driven by headcount expansion across our business, centered in the commercial organization. R&D expense increased by 2.2 million, or 90% over the prior year period, of which 1.4 million was associated with personnel and related expenses. SG&A expense increased by 11.6 million, or 210% of which $7.4 million was associated with personnel and related expenses and increased marketing and promotional activities. Our net loss was $20.2 million or $10.66 per share for the third quarter 2021 compared to $5 million or $3.16 per share in the third quarter of 2020. We ended the third quarter of 2021 with $40.7 million in cash on the balance sheet. As Sean mentioned, we completed our initial public offering in October, raising an additional $111 million of net proceeds. Looking ahead to the remainder of 2021, we expect full-year revenue to grow by at least 61% compared to 2020. We also plan to significantly increase our investment in the business, to scale up our operations as we continue to ramp our commercial efforts. Given the opportunities we see for commercial expansion of single-cell proteomics and the large opportunity for the Duomic platform, we expect 2022 operating expenses to be significantly higher. We'll continue to invest in the opportunity ahead, building world-class capabilities to execute our growth plan and meet customers' needs. At this point, I'd like to turn the call back to Sean for closing comments.

Thanks, Sean. 2021 has been a pivotal year for isoplexis, and we believe this is just the beginning. Looking ahead to 2022, we will continue to leverage our commercial strategy to, one, place more instruments and drive usage in high-growth verticals across biopharma, biotech, and academic medical centers. expand deeper into existing accounts through our land and expand strategy. And three, continue to innovate on our existing product roadmap to continue to offer products at the cutting edge of technology. The wave of proteomics is leading to the need for targeted proteomics at the single cell level to provide the type of predictive early biological signals that will transform medicines and improve patient treatment. The need to tie genomic discovery to proteomic applications in the clinic is also leading to a large opportunity for a novel duomic platform. As we connect three key biological paradigms, we are well positioned to capitalize on the high interest in proteomics, single-cell biology, and multi-omics. We are committed to transforming this unique intersection of proteomics and single-cell biology to change the future of medicine. With that, we will now open it up to questions.

As a reminder, if you'd like to ask a question at this time, please press the star, then the number one key on your touchtone telephone. To withdraw your question, press the pound key. Our first question comes from Tejas Avant with Morgan Stanley.

Hey, guys. Good morning. Sean, before we get into the details on some of the near-term dynamics here, I just wanted to ask you a big-picture value proposition question. A lot of newer technologies have come to market aiming to accelerate academic and biopharma research over the last couple of years. Each of these has its own advantages. They're all competing for the same budget dollars at the end of the day. So, along which dimensions of the IsoLite and IsoSpark platforms do you find that your platform is resonating best with your customers today?

Thanks, Ajit. I think the main thing that we point to when we go to a customer site and they purchase our systems and use our systems is, one, the unique data, the unique single-cell proteomic data in particular. Two, the proven utility of that data. And then three, the ability to actually get, let's call it an easy-to-use system with an accessible price point. And so if I go through the first, what was the first technology out there that's able to access the range or the comprehensive degree of these functional secreted proteins, chemokines, cytokines, growth factors, or phosphoproteins per single cell relative to, let's say, bulk proteomics or flow cytometry, which focuses on, of course, the surface marker phenotyping per cell. That unique data set that we have, if you just look at the relevant sort of clinically relevant literature out there, for example, the recent Journal of Clinical Oncology paper, you know, our immune profiling, let's call them superhero cells, have predicted things like long-term response to cancer in that JCO study where, for example, flow cytometry was unable to And that unique access to the superhero cells that we're able to pick up and coupled it with an accessible benchtop instrument and a price point that is accessible to a wide range of labs, either for a higher throughput isolite or the lower throughput isospark system, makes it an attractive proposition to, let's say, add a critical component to what they might be doing in cell and gene therapy for predictive product potency where you can't get it off of the standard bulk proteomics, flow cytometry, or genomic systems. And the same thing exists for, again, the wide-moving space of cancer immunology for data in many side-by-side studies where we showed unique access to proteomic biology at the single-cell level gives you uniquely early signals of predictive information you were unable to get with flow cytometry and genomics.

Got it. That's helpful. And then on the ISO Spark launch, Sean, any early color that you can share there? Has this impacted your placements of ISO light at all? And can you walk us through your expectations for the blended AFP impact, both in the third quarter and into 22?

So a couple things. The ISO light's been an exciting technology for us because, as described, I think we've experienced two sides of the market, where it's You know, the majority of our revenue today comes from biotech and biopharma relative to academia. But we noticed that the eight-chip higher throughput isolate system represented sometimes a price point and a, let's say, a throughput that was not necessarily needed for a smaller academic lab or a smaller biotech. And so the isolate system has really allowed us to get into those academic labs. And we've seen an uptick in this recently. since launch earlier this year in the end of Q1. And what we're seeing now is that the ISO Spark is, let's call it making accessible labs that typically can move at a quick sales cycle and don't have to go through normal capital committees based on the selling price. I think right now what we're focused on is continuing to grow the installed base As we have, we're at 172 instruments in the field through the end of Q3. We won't be disclosing or releasing ASP on this call, as well as the mix of isolites versus isosparks. But I can say that the isospark has been significantly advancing our cause to proliferate our systems into these three verticals we focus on, biopharma, biotech, and academic medical centers.

Got it. That's helpful. And then one final one on Duomic. You mentioned you've already started generating data, and I think you're expecting additional data at CIDC as well. But your Early Access Program isn't expected to launch, I think, until the third quarter of next year. So can you just walk us through what remains to be done there, or is it essentially just to buy you some time as you, you know, you have a lot on your plate, ramping up sales of, you know, ISO Spark and ISO Light here, and you just want to bake in some cushion to generate a pipeline of projects that you then start with early access in the back half of 22?

So I'll outline. It's a long line in what you're saying, but there's a specific innovation playbook that we developed with single-cell proteomics that we're exercising with the Duomic platform. So the commercial plan for accessing the large Duomic market, which represents, as we discussed, this $12 billion additional TAM, is sort of patterned on what we early on did with single-cell proteomics. So for one, until that early release access as a service, which will be generating some early revenue with selected amount of customers, we're going to develop key opinion leader data for about, you know, as we talked about the next year or so, showing a unique impact of the hyperconnected biology from functional proteomics and for the first time to the sequencing driver of those functional proteomics. Second, as we launch early access service later next year, This is going to be with a limited number of customers, just as we did with single-cell proteomics. And it's really what we're focused on is continuing the customer centricity that isoplexis is known for. And like you mentioned, learning a lot from first the KOLs and then from our early access users as we expand not only the, let's call it the ability to answer key questions from tumor biology, immunology, and central nervous system cells, but additionally so that we're generating the, let's call it the entire application suite that comes with these cell types that we're offering. What that'll do for us, we believe, is similar to what we experienced with our single-cell proteomics platform, we'll have what we need from a, you know, let's just call it a holistic product, stability, shelf life, et cetera, to launch to the market in 2023 with our full product working on the IsoSpark and IsoLite system. The one difference versus what we originally did with single-cell proteomics, when you think about it, is we're now at a much larger scale than we were. We're also in a much larger awareness pool, us being well-known for the work that we've done in proteomics with direct detection from single cells. And of course, the much larger commercial team than we had with just a few employees when we started launching single-cell proteomics. What this is allowing us to do is We're going to be able to utilize the capabilities we gain from our commercialization efforts with Isospark and Isolite and leverage our strength in single-cell proteomics. And then our initial channels for Duomic represent very similar total customers via the biopharma, biotech, and academic medical centers. We do expect that as we expand in these centers, though, we get access to this further sort of sequencing discovery-focused market that we're our plan is to help bridge what's going on with the genomic cell atlas today into clinic, which requires a lot of these functional proteins that we have on our technology by putting the two together for the first time, which we're calling our, you know, discovery bridge led by the functional cell library.

Got it. Very helpful. Thank you.

Thank you.

Our next question comes from Punit Sudha with SDV Learing.

Yeah, hi, Shawn. Thanks for taking the question and congrats to the first quarter of the public company. So my first question is on panel expansion. You talked a little bit about DO-MIC. Maybe just at a high level, help us understand how you think about prioritizing the panel expansion on chips How are you prioritizing disease areas versus research topics given the plethora of antibodies that are available out there?

Thanks, Rene. So a couple ways to think about this. As we've started generating a language around how we're expanding what we're doing for single-cell proteomics, we're discussing what we're calling our functional cell library, and we'll put a lot more information around that in the coming weeks. But this has been something in process for quite a while. And what this means is, you know, we're looking at the responses from each of these proteomic cell types across a range of cells. So, you know, we really started with T cells, but if you look at the workflows we provide across the functional cell library, meaning all of the human proteomically driven cells that complement the Genomic Cell Atlas, we've now put out a lot of workloads and protocols in the corresponding panels on T-cells, natural killer cells, monocytes, cancer-associated fibroblasts, a range of the immune armamentarium against cancer, and even more broadly against disease. And what our focus is on is continuing to develop. There is a wide array of proteomic analytes, as you mentioned, and what we're seeing is isoplexuses in a way benefiting from this wave of bulk proteomics on the discovery end that's then driving the need to say, okay, what single cells are delivering these proteins and can I get earlier signals from the cells that are actually orchestrating response? And so we are developing a greater process to not only widely increase the cell menu we have, but also increase the proteins that are accessible from those cell menus. The typical way we sort of prioritize it is, you know, we already have a long list of the cell menu that's necessary to sort of drive our business. And we notice what we talk to our customers, have close conversations with those customers, and we determine what proteins are required to capture the comprehensive function of those single cells in the cell menu. And then we kind of derive the panels thereof for our single cell proteomic panels. I hope that answers your question for me.

Yeah, no, that was super helpful. Just a brief question on budget flush. You know, given the size of the sales force and current opportunities that you're looking at there, I'm just wondering if you're seeing any, you know, budget flush dynamics in biopharma given the pricing of Isolite and IsoSpark, which is pretty attractive. I'm just wondering if you're seeing, you know, increase in pull from that in the quarter here, you know, from labs that are investing into ELISA and flow cytometry and then potentially looking at these two instruments as opportunities that they can pursue in single-cell proteomics?

Well, I won't comment on, you know, numbers directly about the quarter. You know, as we close out the year, what I will say is you're right to notice that the majority of our business is biotech, biopharma, as we alluded to in our previous filings. What we do see is, as we've come out with the literature that we've recently come out with, which is the Nature Medicine journals that emphasize isoplexus' polyfunctional strength, our superhero cell detection, is really important for TILS therapy against solid tumor. And that was one NatureMed paper. The other Nature Medicine clinical study was, again, emphasizing there's a quote in it about, you know, engineering iterations should use this, you know, isoplexus supercell, i.e. the polyfunctional strength in order to guide engineering iterations of cars. What we're seeing is that there's really a burgeoning number of biotech biopharma interested in the cell and gene therapy area. You know, it's coming that we're the emerging standard and we have a unique readout. So we are seeing quite a bit of interest. You know, I reiterate the guidance that we've put forward, you know, for the full year, at least 61% revenue growth. And what I would say in addition to that is, there's a tremendous interest to leverage, I think, unique and enabling technologies right now that are at an attractive price point. And I think we're right in the sights of a number of biotech biopharma. And also, if you think about it, there's just a tremendous investment in later stage development and for cell therapy, advanced process sciences to improve the product itself. And so I think internationally, we're experiencing a bit of that right now. But I don't want to sort of speak to any numerical details about what we're seeing in biotech, biopharma.

Sure, that's helpful. And then just last one, could you elaborate a bit more on the commercial team? Where do you stand in terms of the total headcount there and frontline sales force? And given the recent hires, how should we think about the productivity ramp among that group? Thanks so much.

Hey, Puneet, it's John, and I'll take a shot at that one. So you will see in the 10Q that we'll file later this week our total headcount for the sales and marketing team. We are not breaking out more specific details around that, sales reps, et cetera. But I will say, and kind of following up on Sean's last comments, that we are confident that the team we have in place is equipped to achieve our commercial goals going forward.

Okay. Super helpful, guys. Thanks. Thanks, Puneet.

Our next question comes from Max Masucci with Cowan & Company.

Hey, Sean and John. Congrats on a strong showing in the public arena. Just to start on the guide, can we just walk through maybe with a bit more detail the assumptions and the implied Q4 guidance, it would be great to hear your expectation for Q4 placements, whether we can expect continued strength for ISO SPARC, and then any expectations around sequential growth in consumables. It just has the 61 instruments you've placed in the first nine months of the year go live, and as the other recent publications in Nature and in the Journal of Clinical Oncology are digested by your customers.

Hey, Max and Sean, let me pick up on a couple of those points. I think, you know, just reiterate the guidance for 2021, the full year. So 61% total year-over-year growth. Obviously, you can see our total revenue for the first nine months of the year, $11.7 million. And again, at this point, we're not giving specifics about, you know, the number of placements and the breakout, you know, between the light and the spark. Sean talked a little bit earlier about about the spark and you know we're pleased with the uptake that we've seen on the spark after the initial launch earlier this year you know it's basically doing its job for us helping us access you know the academic and smaller biotech market so that helps us in terms of placements and you know obviously placements critical to setting that stage for you know, the future recurring consumable sales. I'm not sure if you were asking about 2022. I think, again, there we're not prepared on this call to, you know, give formal guidance. But, you know, we'll say that as we close out the year and thinking about the 2021 full year guidance, you know, we're building a strong pipeline of prospective customers. And, you know, we certainly expect to continue our commercial momentum into next year.

One other follow-up as to John's comment, and we'll reiterate a couple things on consumable pull-through. So we're, of course, seeing growing utilization within our expanded install base. As we discussed before, through half 1 of 21, our TTM consumable pull-through is around 38,000. I think one important thing, just to think of the workflow when you asked about sort of the installs, Now when we place an instrument, and this is part of building that commercial team, John alluded to headcount, our instrument sales team passes off to our field application specialists, our consumable sales team, and our growing service team, which we've really built out under our new VP of customer support, Michelle Reed, who led customer support at QIAGEN. What we've been able to do is invest early, educate key users, and drive consumable usage shortly after install. So that's really a goal of ours. The other thing is, you know, our expanding or vastly expanding functional cell library, again, we'll have more information on this in the near future, is important to say it drives more comprehensiveness for the customer sites. It drives, I would say, more lab users to want access to the system. Of course, as they see the publication literature, that happens That happens naturally as well, again, driven by our consumable sales force. And we do see a clear path to our long-term goal of that 75,000 in consumable pull-through as we achieve that path in the next few years. One other just thing to think about is we do see customers and expect customers to be growing their utilization over time. Our focus will remain, again, as you alluded to, on expanding our installed base leveraging our ability to land and expand and really capitalizing on that razor, razor blade model over time as, you know, awareness of the high need for our technology also expands across key verticals.

Great. And then, you know, understanding that we're still in early days here, but can you give us a sense for the early performance or capabilities you've observed for the Duomac proof of concept product and any feedback you've received following the data release at AGBT in September or even from any KOLs that have had the chance to use the proof of concept product?

So we have some early responses since we finally began introducing the data. I think the The first that comes out, and we reflected this in a much larger survey that we had instituted with one of our consulting partners, is that the nature of being able to connect in each single cell the sequencing information directly to some of these functional proteomic analytes that we analyze, right, the cytokines, chemokines from immune cells or the phosphoproteins driving these potentially resistant tumor cells, That's very valuable because it's not accessible today on today's platform. It's built on the strength of our proteomic barcoding technology to detect those analytes uniquely from single cells and then leverage some of the recent work in accelerating duomic to pick up the sequencing information. So what we've found is that that unique data that's connecting those two parts of the biology is a clear known need in the market, which we're excited about, because what we've seen is as we release, of course, press releases and then we release the data set, key opinion leaders are coming back, wanting access to the system right away, again, telling us they want to include this key data, even if it's from a few samples in publication literature, because it's, again, adding a key piece to the equation of if you know there are proteomically driven cells in the body, they look very different than just the genetically driven cells themselves. You want to detect that. You do also want to know specific to that cell, what are the gene drivers? And so, for example, releasing this data set in tumor, there's these downstream, you know, again, future applications where if you can understand the gene drivers driving potentially resistant tumor cells, you can start editing things in those tumor cells. You can start understanding the pathways that drive the most problematic subsets of cells you would normally miss in the bulk where you would normally miss if you didn't have access to that proteomic information. So there's, there's a lot of excitement. I think what we're going to do is continue to evangelize the technology, evangelize these data, show how the system works and put out a lot more information on it so that there's transparency in the market. And what we see is that creates a very nice series of pent up demand as we discussed earlier, for what we're doing in early access and service later next year, and finally the product in the following year.

Great. Thanks for taking the questions.

Our next question comes from Vijay Kumar with Evercore.

Hey, guys. Thanks for taking my question. Sean or John, maybe one on the queue itself. It looks like... instrument revenues were down sequentially, consumable revenues were flattish at 1.2. Maybe talk about any sequential trends here, you know, 2Q versus 3Q. Was there some timing element, you know, which impacted the performance in the Q?

So, I'll address that, Vijay. As you mentioned, you know, we're still at a relatively small instrument base where timing issues, for example, with an instrument delivery could impact revenue. So yes, potential timing issues have that impact today. As I mentioned, we are still operating in the environment with the pandemic, seeing some restrictions in certain geographies, which can drive those timing issues. I would say this, if we look back at the last nine months, we're growing 68% year-to-date with strong progress so far in 2021. We're focused on the pipeline that we're really generating due to the IsoSpark launch with the IsoLite system around the bio from a biotech, especially in this final quarter of the year, as well as more broadly academia, which we've seen a strong surge in given the IsoSpark. So, you know, we sold those 61 units through the end of Q3 versus 57 units for the entire year of 2020. And I also think importantly, you know, when you think of our expansion in of the usage, we put a lot of new members of the team out there. Those people are getting trained very quickly. We've expanded the accessibility to many different cells in single cell proteomics using our functional cell library. All that's happened quite quickly. And again, this is very complimentary to what's happening in the cell atlas today. Now in the functional proteomic cell library that we're developing, that has driven 199% year-over-year growth in consumable revenue. through the end of Q3. So what we're going to focus on is just continuing to build the pipeline, continuing to expand our commercial coverage, and continuing to make sure that we can mitigate any sort of timing issues that we see or constraints throughout the world. But we do feel strongly positioned for Q4 and beyond, given the momentum we have.

That's helpful commentary on. Just along those lines, timing element, I'm assuming this is supply chain. The implied Q4 revenue is around roughly $5 million-ish. That's a sequential step up. And any rest of those numbers, what kind of visibility do we have, you know, concerning the environment and potential for supply chain disruption?

So I'd say a couple things. You know, we do feel confident in Q4, which is why we're, you know, reiterating that guidance We do feel confident in the multi-quarter ramp ahead. As you mentioned, there's always obstacles to maneuver, and COVID has intensified some of these restrictions, especially with the supply chain. Two things. The proteomic platform remains very strong. We're seeing wide interest for our instrumentation, especially end-of-year biotech biopharma. Duomic is also representing this interesting sort of evolution where customers see we're using it on the spark, the customers recognize that we're moving more and more in the discovery realm, which remains, you know, attractive to those folks that long-term want many, many analytes across the connected biology continuum. If I just address the COVID items, just a couple items. So certain countries do have tighter restrictions, supply chain being impacted worldwide, but we have taken steps to ensure these risks won't have a meaningful impact on our business. Supply chain-wise, We are adding a lot of inventory right now, as John mentioned, to the call. Really, the reason for that is we feel strongly we need to satisfy the heavy demand for what we're doing, for what we have in 2022 and beyond. We feel confident we're going to be in a position to do that. We've brought on a new head of operations, Anthony Catalano. He was previously a leadership in operations at Perkin Elmer, and You know, that coupled with a broader logistical team throughout the world and logistical partners, we do feel confident we will be able to overcome sort of what's called logistical problems that exist just within COVID and restrictions. Finally, just in terms of educating and reaching customers to get consumable pull-through up and running, we have added significant support staff in global regions to train customers locally, get them up to speed to ensure that consumable usage without those constraints of international travel. So we have been pretty focused on that, Vijay.

Understood. And then, Sean, one on – I saw the SEC comment letter you guys put out. Are those comments – are those normal? I don't have a context to understand if, you know, this is part of the process. And there was some language around, you know, risks associated with technology margin rates, you know, Maybe if you could just elaborate any risks on the technology, margin rights that seem new to me, that would be helpful.

Yeah, I think this relates overall to broader intellectual property risks throughout the United States that don't necessarily just pertain to isoplexis. I mean, I'll say a couple of things and I'll refer to margin rights. So first, the... What we've done over the last few years is build up a substantial intellectual property portfolio with our own issued intellectual property around single-cell proteomics and multiomics in all the major life sciences regions throughout the world, as well as exclusively in licensed IP, which also covers our products. So our picket fence is very strong. You know, there's various facts, and I'm not going to claim to be the world's experts in this. We'll have to talk to our legal team, but there's various facts and related items, which have certain implications with intellectual property on licensed IP from university. So I do think that these risks that exist are really just part of what any company goes through when they license university technologies. But again, from a business risk, these are our core IP, both university and licensed and isoplexis. And These represent, from all of our close advisors at the top-tier legal firms we work with, strong protection versus anyone else trying to do what we do, and also strong freedom to operate.

That's helpful. If I could just add one last one, perhaps for John. Gross margins down 600 basis points. You mentioned supply chain material costs as well as inventory reserves. Do we know what portion was that material cost versus the reserves? What were the reserve charges for, and when do we expect those charges to reverse?

Yeah, hey, Vijay, so it really is the impact on the margin does really revolve around those two elements, increase in raw material costs, as well as the inventory reserves. And I'll just tell you, on the reserves, I mean, to your point, we You know, we took that charge through the third quarter P&L, and we did that as our inventory balances have gone up to about $20 million. So just prudent accounting, you know, to reserve for excess or potential obsolete inventory. You know, the components that we've been building in the inventory, I think Sean mentioned, you you know, their hardware, their long shelf life, you know, component. So we don't see a risk there that we're writing stuff off. So we do think we have inventory that we will utilize as we fulfill 2020 demand. And, you know, at some point, Vijay, I don't know if it comes back in terms of a reversal, you know, or, you know, we just have that on the balance sheet, you know, against our future inventory balance.

That's helpful comment, Sean. It looks like there's more conservatism on the accounting side. That's it from my side, gentlemen. Thank you. Thanks, Vijay.

That concludes today's question and answer session. I'd like to turn the call back to Sean McKay for closing remarks.

Thanks, everyone. We really appreciate everyone joining. Look forward to meeting you in the coming weeks. You'll see us at the upcoming Evercore conference. And the last thing is And for the first time, we're putting our investor presentation on our website. So if you'd like to review and flip through, that'll be up today. And we look forward to moving forward with the business. We're excited, and we'll all talk soon.

This concludes today's conference call. Thank you for participating. You may now disconnect.