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spk04: Ladies and gentlemen, thank you for standing by and welcome to the Quantum SI first quarter 2022 earnings call. At this time, all participants are on listen mode only. After the speaker's presentation, there will be a question and answer session. To ask a question, you will need to press star one on your telephone. If you require any further assistance, please press star zero. Please be advised, today's conference is being recorded. I would now like to turn the conference over to Juan Avendano, Head of Investor Relations with Quantum SI. Juan, please go ahead.
spk01: Good evening, everyone. Thank you for joining us. Today, after market close, Quantum SI released financial results for the first quarter ending March 31st, 2022. A copy of the press release is available on the company's website. Joining me today are Dr. Jonathan Rothberg, Interim Chief Executive Officer, Patrick Schneider, our newly appointed President and Chief Operating Officer, and Claudia Creighton, Chief Financial Officer. Before we begin, I'd like to remind you that management will be making certain 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 this risk and uncertainties appears in the section entitled forward-looking statements of our press release. For a more complete list and description of risk factors, please see the company's findings made with the Securities and Exchange Commission. This conference call contains time-sensitive information that is accurate only as of the live broadcast today, May 9, 2022. Except, as required by law, the company disclaims any intention or obligation to update or revise any forward-looking statements. During this call, we will also be referring to certain financial measures that are not prepared in accordance with U.S. generally accepted accounting principles or GAAP, including adjusted EBITDA. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is included in the press release. With that, I will turn the call over to Dr. Jonathan Rothbard.
spk06: Thank you, Juan. Good afternoon, everyone. Thank you for joining us. In today's call, we will provide a business update and present our first quarter financial performance and outlook for 2022. We will then open the lines for questions. QuantumSI's mission is to transform life science research and proteomics by becoming the first company to launch next generation protein sequencing. We believe that digital, massively parallel, single molecule protein sequencing will revolutionize life science research and healthcare in a similar manner to how next generation DNA sequencing transformed these industries when my team first brought it to market over a decade ago. Our search for a full-time CEO is ongoing. We have met with several high-caliber candidates and have found this process to be valuable in focusing our criteria for this critical hire. As our search continues, we are looking for an individual who has a deep understanding of technology, a proven track record launching complex life science tools, and the velocity, tenacity, and charisma to make QuantumSI a commercial and financial success. As interim CEO, I have been motivated by QuantumSI's team's commitment to our mission. I am now even more confident that we have the right people, technical capabilities, and resources to not only pioneer but also own the fork in history we create with next-generation protein sequencing. While I have loved leading the day-to-day operations of QuantumSI, and have been able to truly appreciate and help advance our technology. I am very excited to announce I have a new partner to raise the probability of our success. I would now like to introduce Patrick Snyder, our new president and chief operating officer. He brings two decades of life science senior leadership experience to Quantum SI. and we are excited to have Patrick on board to enhance our leadership team and allow me to identify strategic opportunities and evangelize next-generation protein sequencing technologies by demonstrating the potential in high-profile projects.
spk05: Thank you, Jonathan. I'm honored to help lead this impressive company into the future of next-generation protein sequencing. During my past appointments, I led the acquisition, productization, and market introduction of many new technologies, from benchtop flow cytometers to ultra-sensitive single-molecule counting proteomics instruments and kits. All of these have had a common thread, instruments with reagents and software working in concert to deliver, in a unique way, solutions to some of the most challenging problems in research and drug development. I emphasize productization because a big challenge for any technology company is to transition their technology into a product, introduce it to the market, and drive adoption. That's exactly what I've done throughout my career. And now I join a talented team that has deep experience developing next-gen DNA sequencing instruments and are applying their knowledge and skills to protein sequencing. They've done it before and are doing it again. I'm deeply impressed with the level of talent here. QuantumSI's digital proteomics platform is powered by next-gen protein sequencing and single molecule analysis. It has the potential to unlock a deeper understanding of the proteome, which is the collection of proteins and their variations that are associated with health and disease. Next-gen DNA sequencing fueled new understandings in genomics and gave scientists insights into what might happen to an individual during their lifetime. The promise of next-gen protein sequencing is to tell scientists and ultimately clinicians what is happening now. Proteins turning on or off, increasing or decreasing in their levels of expression, and importantly, being modified in ways that drive all of life processes from conception to death and have a profound impact on health. That's why over 90% of today's pharmaceuticals target proteins. I've dedicated my career to the pursuit of solving the most difficult challenges in drug development. The current processes are too slow and too expensive. On average, it takes 10 to 12 years and an estimated $1.3 billion spent per drug developed. And about half of the approved drugs in the last several years are not first in class, which means no new or unique mechanisms of action. In order to develop better drugs faster, we need to find new mechanisms of action. We need to find new proteins to target. Digital proteomics with next-gen protein sequencing and our associated single-molecule technologies have the potential to find novel protein targets and help develop new drugs for unmet medical needs. I'm excited about the QuantumSI's technology to bring the power and scalability of a semiconductor chip technology to this field, Moore's Law, and help answer questions in proteomics that have been too difficult or expensive to answer using past approaches. I envision in the next coming years, QuantumSI's next generation protein sequencing technology finding its way to the center of the digital proteomics ecosystem with a wide range of applications and upstream protein sample prep approaches and downstream analytics as part of that ecosystem. I'm eager to start building this ecosystem with our first launch this year. Again, I'm honored to be named president and COO of Quantum SI. I'll work closely with Dr. Jonathan Rothberg and the rest of the team as we build a dynamic, transformative company. Back to you, Jonathan.
spk06: Thank you, Patrick. We're off to a strong start in 2022. Patrick, the team, and I are focused on launching in the second quarter. I continue to be encouraged that continued progress, like we saw this quarter, will enable us to go from being comfortable with how systems go for launch.
spk03: On the operations front, we're executing well on commercial bills for our platinum insurance units from our contract manufacturer. With regards to semiconductor chips, we successfully completed the tech transfer to our garden. As a reminder, this is the chip assembly and packaging facility that we brought in-house to the acquisition of Q4 of last year. We are scaling up our chip production capacity in future years.
spk06: In addition, we are preparing to launch our library prep and protein sequencing consumables by working closely with multiple reagent vendors and placing advanced orders for key components. These consumables are some of the most complex the industry has produced, and I'm heartened to have both a great internal team as well as a group of vendors we are confident in. During Q1, our headcount increased by 22 to 175 employees. Thanks to our ability to attract and retain best-in-class talent, as well as significant investment in R&D, we accelerated our application and instrument development activities. What we are doing is unique. What we are doing is game-changing. What we are doing will affect all aspects of life science research and human health care. On the commercialization front, we are establishing a sales funnel for more than 500 advanced leads and growing. Our marketing team has a robust business development plan, which will include attending several industry conferences in the second half of the year, among other strategic initiatives. We will announce specific events in the coming months. One of our goals over the next several months is to continue to release white papers and application notes describing the technology and demonstrating our single molecule protein sequencing in the context of the most common workflows our customers use every day. To be successful, we understand we must fit into how people work today. To this end, we recently released an application note demonstrating the use of QuantumSI's Platinum Sequencer to interrogate variants in beta amyloid, a protein of key pathological and clinical significance in the progression of Alzheimer's disease. Information on our products, technology, and applications can be found in the newly created resources page on the QuantumSI website. In addition to these initiatives, we continue to support our early access partners as they validate system performance and prepare to initiate their own research projects. I will now turn the call over to Claudia to review our financial results.
spk00: Thank you, Jonathan. Hello, everyone. Let's discuss the details of our Q1 2022 financial performance. Research and development expenses in the first quarter of 2022 were $18.8 million compared to $8 million in the first quarter of 2021. The increase in R&D expenses was primarily driven by the increased number of employees, including stock-based compensation expense and product development activities. Selling general and administrative expenses in the first quarter of 2022 were $8.4 million compared to $3.8 million in the first quarter of 2021. The increase in SG&A expenses was driven by additional employees associated with our scale-up and costs related to being a public company. In aggregate, total operating expenses in the first quarter of 2022 were $27.1 million compared to $11.8 million in the first quarter of 2021. Net loss for the quarter was $35.2 million compared to $11.8 million in the first quarter of 2021. Adjusted EBITDA was a loss of $27.4 million compared to a loss of $11.1 million in the first quarter of 2021. A reconciliation table of adjusted EBITDA to GAAP net loss is provided in a press release filed earlier today. As of March 31, 2022, we had $434.8 million in cash, cash equivalents, and marketable securities. The balance reflects $11.5 million in unrealized losses and marketable securities we recorded during the quarter. We believe that this cash position can support our operations through the year 2024. Finally, we expect GAAP operating expenses to grow within the range of 70 to 80% in 2022. I would now like to turn the call back over to Jonathan for closing remarks.
spk06: Thank you, Claudia. In summary, I'm excited to pass the day-to-day operational leadership of the gifted operations, commercial, research, technology, and software teams to Patrick, our new president and COO. I'm focused on driving the company's strategy and identifying exciting projects to evangelize and bring to the world the technology that will transform life science research and ultimately help save the life of someone you love. We have made substantial progress towards launching the world's first massively parallel next generation protein sequencing system. Operator, please open for questions.
spk04: Thank you. If you'd like to ask a question, please press star followed by one on your telephone keypad. If for any reason you'd like to remove that question, please press star followed by two. Again, to ask a question, press star one. And as a reminder, if using a speakerphone, please remember to pick up your handset before asking the question. We will pause here briefly as questions are registered. Our first question comes from Kyle Mickelson with Canaccord. Please proceed.
spk02: Hey, guys. Thanks for the questions. And welcome to Patrick. Good to have you on board. So I guess we are nearing the launch here. It could be here that the second half target remains in place. I'm just kind of wondering if it's safe to assume that your sales funnel continues to expand throughout the first quarter. I heard the commentary, but just wanted to know if it's continuing to, you know, grow to this day, I guess. And a good way to frame that might be talking about, like, how many of the, I guess, 500-plus leads that you want to basically convert in the first maybe year or so post-launch. And I think, like, big thing there would be any kind of modifications or optimizations that need to be done to the platform before the full launch later this year. Thanks.
spk06: Great question. As you know, we've gone through this before, and we watched – oncology-drive DNA sequencing, which makes sense because cancer is a disease of your genome. And we're now seeing, with long COVID and immunology and immuno-oncology, an intense desire to understand what's going on in the proteome. And that makes sense because the majority of complex diseases are diseases of the proteome. And as mentioned, the majority of drugs are target the proteome. At this point, we don't have quantitative measures to give you in terms of the interest. But as a general rule, we're seeing the tens of thousands of labs that adopted next generation sequencing are now ready to answer questions at the protein level. Historically, they had to do this through a surrogate sequencing RNA. Now is a moment where they want to access proteins, but it's slow and cumbersome with mass spec, which either needs a core facility or intensive experiments and half a million dollars plus of capital. So interest continues to be driven because we're behind a huge wave of organizations moving from DNA analysis, and now seeing that the next step in all of their projects, whether it's drug development or biomarkers, are focused on understanding the protein problems that their DNA work has elucidated. So that 500-strong funnel is growing, and it's growing because the world is shifting, and all of those positive demographics are driving us. The other competing technologies are analog, and people are realizing it's not about whether your protein is there, which you can do by analog technologies, but it's how that protein is being modified. So those 25,000 proteins can be modified in over a million different ways. So right now it's really about The world's shifting from studying genes, from using RNA as a surrogate for proteins, and having an urgent need, especially with COVID and immunobiology, to understand proteins.
spk02: Okay. That was great. Thanks a lot, Jonathan. That was an awesome answer. So I actually, you know, I noticed that you're going to be launching now. It's confirmed with the 2M chip with 2 million wells. I know you're obviously down by Poisson, but just what applications and projects are you confident that this 2M chip will allow users to conduct during these early stages of commercialization? And I know this has definitely been touched on before, but again, now that you've confirmed the density of the chip, we can kind of like now drill down on these applications that you're looking at.
spk06: Thanks. I love the questions. And again, I'm drawing on analogies with next generation sequencing. And right now, at launch, the ideal match for us is people who are focused on five to 50 proteins over three to four orders of magnitude in terms of concentration range. And these can be questions from blood, from cerebral spinal fluid, coming off your chromatography columns. But in most cases, they're panels of proteins. For example, if you're interested in cancer drug development and you work on the mTOR pathway, you want to pull down those 50 proteins and see if there are new proteins or modifications of the proteins. So very targeted. And I look at the company as two circles of a Venn diagram coming together. what the world wants to do in proteomics, and what we want to do. All comers, any problem, throw it on the chip and get an answer. And what we can do now, small problem, 5 to 50. But I can tell you in the same way that when we worked on next-generation sequencing, the people who framed the correct questions got great grants, got famous, discovered new biology like small RNAs, And the same thing is going to happen now. Because we can see single molecule modifications that no one else can see, often there are fragments of proteins that fly the wrong direction and are mass fat. So people who ask focus problem, whether they're in aging, immunology, or COVID, will be able to get answers that will transform their work in terms of biomarkers or drug mechanism of action. But it is targeted, again, general protein sequencing, but you want focused problems where you have 5 to 50 proteins, and this translates into the use of those 2 million wells. And in the same way, next-generation sequencing at first was driven by poisson distribution. So we'll be happy when you get 200,000 to 600,000 reeds. giving you great statistics on 55 to 50 or 100 proteins over that 3 to 4 magnitude of concentration difference. But we recognize that people will break Poisson, just like they did with DNA, and the 2 million chip is only the start. So focused problems, and I promise you, investigators working with us will get famous, will get grants, will get drugs and biomarkers that absolutely will save the life of somebody you love.
spk02: Perfect. Just sticking with kind of, you know, applications or capabilities, actually, and just thinking about, like, post-translation modifications, you know, PTMs, I know that you have a lot of confidence that the Quantumify platform is scalable with respect to PTMs relative to maybe some of the other next-gen protein seed within companies that, you know, generally leverage a form of amine degradation. You know, I just wanted to ask, what drives that confidence level of yours, Jonathan? And maybe is that due to the kinetics or something else given, you know, the underlying technology of the platform?
spk06: I love the question. So when you do DNA sequencing, you have to have a platform that can distinguish four things, A, C, G, T. We have a platform that can distinguish 20-plus things because we're watching the kinetics of our binding events. And so why I have confidence is we can see a single atom, a single oxygen change on a methionine, amino acid, when it's next to one of our recognizers. Now, what this means is when we first start, we'll have trained the system to recognize the most common and most important post-translational modifications, which are phosphorylations of tyrosine or serine or threonine and potentially common glycosylations. However, when you look at post-translational modifications, you realize that there may be as many as 50 types of modifications. And so what we'll be able to tell people with confidence is often we'll see those modifications, but until we have a proof or a truth set that you may follow up with mass spec, we'll be able to tell you, by the way, you have an important modification in this sample versus that sample. But we won't be able to identify all of those without training. So I have confidence we'll see the modifications, and confidence together over the next few months we'll start training the systems to understand more. Again, 25,000 genes code for protein, but probably over a million proteoforms. We'll be able to see those proteoforms while analog technologies cannot because you can't have a million different reagents. And over time, our artificial intelligence won't only see them, but will identify them like we're able to do for common phosphorylations or common modifications. So this is a learning platform. This is a powerful platform. And it's not only single molecule, but literally examples of single atom modifications. So it's really an exciting time. And I know crazy things like understanding the protein degradation or the protein modifications in aging will be uncovered by this platform. Again, can't answer all problems day one, just like you couldn't with DNA sequencing. But we have Moore's Law. And investigators that focus on key differences in samples and have enriched those samples for tens to hundreds of proteins are going to make biomarkers and drug discoveries that will be profound and unaccessible, real dark matter, by other technologies.
spk02: Okay. That was great. Maybe a question for Patrick on the whole kind of commercial strategy. I mean, this was sort of touched on a little bit in the prepared remarks. What type of, like, initial projects or, you know, sales team training, I guess, has to happen before launch in order for you guys to hit the ground running?
spk05: Yeah. Thank you for the question. It's a great question. For us to hit the ground running, we need to obviously understand and really focus place the technology with the key applications in that Venn diagram that Jonathan was talking about. And so in doing so, certainly, you know, training, training the sales team around those those technology application areas, but also working closely with the customers as well, as we're driving adoption of the technology. And so that's really key as we go through this process. One of the things that we also need to do is target, for example, academic researchers as well as pharma and biotech. And they'll have different needs. For example, in academic research, you'll be able to develop more closely with the researcher particular application and application areas. one of the things that we're doing from a commercial uh market development perspective is we'll be announcing soon that we'll attend some trade shows in the last half of the year, generating more and more interest and, of course, more and more leads. And so a lot of activity will be happening throughout the year in terms of getting us ready for a commercial launch, getting our sales organization ready, and also working closely with customers.
spk02: Got it. Okay, that was awesome. Thanks a lot for that. Maybe just a final question on supply chain, obviously super topical right now. And the commentary earlier was pretty positive in my opinion. I just wanted to ask Jonathan, do you have enough inventory currently or are you still kind of building that? It wasn't quite clear from the remarks, so I just wanted to understand it a little bit better.
spk06: Good. Great question. And Mike McKenna has really been key on this. Mike has worked with me for a number of decades on these issues. So on the supply chain, I hate to say it, but we're all like the people who hoarded toilet paper in the beginning of the pandemic. We literally have gone through 500 item parts list of our platinum platform and stockpiled for this year and next year to meet any demand. We're doing the same with key reagents, where we're creating and stockpiling key reagents. So on the supply chain, we're ahead of the game. We've been ahead of the game. Second part of the equation is the assembly. And we are seeing in the entire world is seeing both a supply chain issue as well as a labor issue. so we're working closely with our suppliers to make sure we don't just have the parts but we're actually having them deliver now fully assembled units so we're ready to meet that demand and in some cases and you've seen this with us we are verticalizing so there wasn't enough capacity for example to dice wafers and mount them into chips so we bought our supplier and have transferred our technologies there. Some of that verticalization may happen in other of our sub-assemblies where we have to take over. The good news is Patrick has done this before, Mike McKenna has done this before, I've done this before, so we're getting ahead and I'm quite confident We have both the parts and the ability to put things together and ship them. But it has been a huge labor, and it's been going on for the last 15 months. So great question. We're ahead of it, but it is a different type of activity than we've ever had to do before because now you have to stockpile. There's no such thing as just-in-time inventory anymore.
spk02: Great. Okay. Yeah, that's fair. Encouraging, though, to say the least. So I'll leave it there. Thanks again, guys. Appreciate it.
spk04: There are no further questions waiting at this time, so I'll pass the conference over to the management team for any closing remarks.
spk01: Thank you all for your participation today. We look forward to updating you on our progress in the next quarterly earnings call. Have a good evening.
spk04: That concludes the Quantum SIQ1 2022 earnings call. Thank you for your participation. You may now disconnect your lines.
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