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spk01: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the SomaLogic's first quarter 2022 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then one on your telephone keypad. If you require any further assistance, please press star then zero. At this time, I would like to turn the conference over to Ms. Marissa Beisch. Ma'am, please begin.
spk00: Thank you. Today, Somalogic released financial results for the quarter ended March 31, 2022. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make forward-looking statements during this call within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements. All forward-looking statements, including without limitation those relating to our market opportunity, growth margin and future financial performance, protein content and database growth, customer base, diagnostic pipeline, expectations for hiring, and growth in our organization are based upon current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our Florence MQ filed with the Securities and Exchange Commission excuse me, Form 10-K filed with the Securities and Exchange Commission in March 2022. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 12, 2022. Somalogic disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. And with that, I will turn the call over to Roy Smyth, Chief Executive Officer.
spk02: Good afternoon and welcome everyone to our 2022 First Quarter Earnings Call. I'd like to start off by expressing my sincere gratitude for all who are contributing to our success here at Somalogic as we work every day to relieve human suffering and prolong meaningful life by harnessing and applying the power of the human premium. We're extremely pleased with the progress we've made in the first quarter of this year as we have advanced several meaningful scientific and customer-facing initiatives. We drove record first quarter revenue for the company of $23 million, reflecting 21.8% year-over-year growth as we continue to serve a growing list of customers across basic research and biopharma. This is a year of focused execution at Semologic to drive growth across all aspects of our business. and we have great momentum. This first quarter kicks off what will be another truly transformational year for our company as we leverage our capital position to systematically put the building blocks in place to continue to differentiate ourselves and substantially grow our ability to generate both human and financial value. As a reminder, we have a healthy balance sheet with over $645 million in cash, cash equivalents, and short-term investments. This is especially important in the current market environment, allowing our team to stay focused as we continue growing and scaling our core operations and investing in areas of our business that should result in high returns. To be absolutely clear, Somalogic approach, platform, and business model are different. Our platform includes our unique proprietary proteomics technology we market as Somascan, our database, and our bespoke bioinformatics capabilities. Our foundational technology, Somascan, leverages proprietary flexible synthetic nucleic acid reagents to currently identify and measure approximately 7,000 proteins, which is two times what any other platform can measure at commercial scale. Our world's largest commercial proteomics database contains more than 2.5 billion protein measurements and over 15 million clinical data points. and our bioinformatics platform includes bespoke tools and capabilities built over a decade. This platform powers our life sciences tools business and our ability to develop applications from data only our platform can produce, including first-in-class HyPlex proteomics soma signal diagnostic tests across a large spectrum of use cases. In all respects, we have traveled further and faster down the evolutionary path of proteomics than any other enterprise. the largest protein measurement identification offering, and the most sophisticated and impactful diagnostics products and pipelines. These distinct advantages, capabilities, and proprietary tools offer us a substantial first mover advantage and a large number of near and longer term opportunities which we expect to significantly contribute diversifying and growing our sources of top line revenue. and to substantially expand our share of the rapidly growing proteomics total addressable market, estimated to grow as much as 10 times over the next several years. Our team's efforts to realize the full potential of our technology and platform has led to several exciting developments in the first quarter of 2022. To start the year, we announced a co-exclusive partnership with Illumina, effectively combining genomics and proteomics to empower and enable the future of multiomics research. The partnership combines the power and scale of Illumina's global commercial infrastructure and install base with our proteomics platform to develop a co-exclusive, co-branded, next-generation sequencing-based deployed proteomics kit product. While this partnership accelerates our next-generation sequencing-based capabilities, over time we will develop a variety of protein measurement solutions on several different platforms. including next-generation sequencing, but also arrays and emerging chip-based approaches to best meet the needs of all customers and collaborators, regardless of their technology costs or throughput needs and preferences. Later in the quarter, in support of our ongoing efforts to build our database and harness the power of the proteome to create and validate impeccable diagnostics, we announced partnerships with two large biobanks, In February, as a part of the multi-ethnic study of atherosclerosis, or MESA, a study sponsored by the National Heart, Lung, and Blood Institute of the National Institutes of Health, we will create 105 million protein measurements from 15,000 samples spanning 15 years of clinical interactions representing the largest proteomic study of an ethnically diverse population, an important contribution as we work to help solve the problem of global health inequity. More recently, we announced our engagement with the European Prospective Investigation for Cancer and Nutrition, or EPIC Biobank, a cooperative project between the Imperial College London, the International Agency for Research on Cancer, and the World Health Organization. We've begun to analyze what will be a total of 210 million protein measurements from 30,000 samples from this biobank, and this will be the world's largest oncologic proteomic study to date. We'll use this to both develop a suite of planned cancer prediction tests, tests that identify your biological risk of developing cancer before it actually occurs, as well as share the data back with a consortia for its own scientific use. These investments are emblematic of Somalogic's commitment to leveraging protein information to power new products, solutions, and services for our customers, such as impactful diagnostic applications. This is something we have remained firmly committed to, and our repeated track record of investment followed by innovative, successful development clearly validates that. In mid-April, we published a landmark study in the Journal of Science in Translational Medicine describing the development and validation of our unprecedented clinical residual cardiovascular risk test. Using the SomaScan platform, Our team created a 27-protein clinical test derived from more than 30,000 clinical annotated human samples. This product accurately predicts the four-year likelihood of significant clinical events such as myocardial infarction or heart attack in patients at risk for cardiovascular disease. As it actually outperforms current clinical approaches and was reliably sensitive to longitudinal changes in risks from multiple mechanisms, including lifestyle changes in various classes of drug, This is paradigm changing. The ability to accurately predict these events and sensitivity to change means key requirements for a surrogate endpoint for clinical trials use, as the editorial comments from Science Translational Medicine, the company of the paper, suggested. No single known cardiovascular biomarker can currently predict heart disease in this manner. This SOMA signal test is now available for clinical use under a laboratory-developed test designation, or LDT, and is in the hands of our proteomics for precision medicine partners around the country. Stay tuned for preliminary findings from this initiative later this year. Looking ahead, we continue to invest in our technology to further expand our life sciences tools business. We currently offer many of over 7,000 proteins to our core SomaScan product with the intention to reach 10,000 available protein identification and measurement aptamer reagents by the end of 2022. As a reminder, we are the inventors of this technology and the world's most sophisticated developers of these aptamer tools. We have created thousands of these proprietary modified reagents and are constantly creating more of them at a current pace of approximately 500 new aptamer constructs each quarter to go on to the SomaScan menu. Beyond growing the number of proteins we can measure and identify with SomaScan, our team continues to find other innovative ways to better serve our life sciences customers and collaborators. We have long known that differences in collection, handling, and storage of samples prior to SomaScan assay or any other way of measuring and identifying proteins can affect customer results. As part of our commitment to ongoing innovation and leveraging our machine learning capabilities, we will soon launch a new product to accompany SomaScan results that identifies pre-analytical variation in proteomics samples, and therefore will improve the accuracy and reliability of customer insights. As we have discussed, as a complement to our core assay services, we've also developed kitted, deployed side-of-service products, which are currently in early access with selected customers. We intend to move to open access later this year, which in addition to our deal with Illumina, continues to effectively expand the modalities by which our customers may access our extensive menu. Over the past 10 years, we have invested approximately $70 million to develop our diagnostic test development capabilities, and this has allowed us to create and internally validate more than 20 SonaSignal tests. Many of these tests are currently in the hands of clinicians around the country and world for their use and evaluation, and there are many more to come. We are growing our pipeline and expect to end this year with as many as 10 additional impactful protein pattern recognition tests as a result of our internal development program. Our current database has the potential to produce approximately 80 to 100 of these tests over time. In an effort to reach the market sooner, however, and build a substantial moat for our clinical products, we intend to accelerate our clinical diagnostics business by both licensing and new test development agreements. For licensing agreements, we will leverage the many existing diagnostic assets we have already developed, and for development customers, we will work to either leverage our database or samples and data they provide to us to develop new products of interest. While our current tests are LDT CLIA approved, we will bring some of these tests through regulatory processes for broader dissemination. For the world's most extensive background in identifying and measuring proteins, as well as analyzing and interpreting the data acquired from doing so, we are scientific leaders in the proteomics space. We have powered the publication of more than 500 proteomics research manuscripts to date, And this is accelerating, with more than 40 published in the last quarter alone. Many of these, such as our recent publication in Science and Translation Medicine, are landmark studies in human proteomics, rather than just method citations. I could not be more proud of these contributions, because these are contributions that will extend well beyond our own efforts. And finally, we continue to successfully grow our commercial team to reach new customers and support the adoption of existing customers. As a reminder, we ended the year with roughly 60 commercial team members with the intention of more than doubling this group size by year-end 2022. We've supported over 400 customers on our platform and continue to grow and diversify our revenue base. In conclusion, we are clearly making measurable progress against our organizational goals and effectively balancing near-term growth drivers with longer-term significant opportunities to continue to differentiate our business on a number of levels. I'd now like to turn the call over to Sean to review our reach and financial performance in our 2022 outlook. Sean?
spk03: Thanks, Roy. We are pleased to report that revenue for the first quarter of 2022 was $23 million, a 21.8% increase from $18.9 million in the same period of the prior year. We continue to see very strong new customer growth and diversification driving our core. The bottom line is our commercial team is growing and executing as expected as we continue to expand and diversify our customer base across pharma, biotech, and academia, which also continues to decrease our reliance on any one customer and positioning us to grow with our innovative partners as they also scale. No one can measure as many proteins as Somalogic or create as many applications that result from that measurement, and we are poised to win share. Growth margin for the first quarter of 2022 was 49.3% compared to 66.9% in the first quarter of the prior year and 54.5% in the fourth quarter of 2021. As a reminder, our core service business is a mid-50s% plus growth margin business at this time. Our ASPs remain strong, and our year-over-year gross margin decline was primarily due to the timing of cost accounting adjustments this quarter and the impacts of a modest capacity ramp-up in support of the EPIC and MESA samples, which start coming in Q2. Outside of potential investments in partnerships, such as population-based studies, which can affect COGS, I expect our gross margins will normalize over the course of the year. with the opportunity to recover margin this year as we leverage much larger sample volumes in future quarters. Total operating expenses for the first quarter of 2022 were $56.3 million, a 107% increase from $27.2 million in the first quarter of 2021. R&D expenses for the first quarter of 2022 were $13.8 million, compared to $8.1 million in the first quarter of 2021. Sales, general, and administrative expenses for the first quarter of 2022 were $30.8 million, compared to $12.8 million in the first quarter of 2021. This increase in expenses is in line with our expectations as we continue to build out SomaLogic and our technology to support our endeavor to become the most comprehensive proteomics company in the market. Adjusted EBITDA for the first quarter of 2022 was a loss of $32.5 million compared to an adjusted EBITDA of a loss of $7.6 million in the first quarter of 2021. Again, aligned with the investment and spend guidance we previously indicated. Please see our press release on file with the SEC as of this afternoon for a reconciliation between GAAP net loss and non-GAAP adjusted EBITDA. the bulk of the reconciliation being the non-cash valuation adjustments related to warrant and earn-out liabilities on our balance sheet. We ended the quarter with $647.8 million of cash, cash equivalents, and short-term investments. As Roy mentioned, our cash position gives us a unique and substantial capacity and flexibility to execute our strategy. Some comments I would want to leave you with regarding cash flow are that we are executing on fulfilling the SummaLogic thesis to become the most comprehensive proteomics company in the world. We will continue to execute this strategy and accompanying investments responsibly and thoughtfully with our aim to have enough runway to achieving positive free cash flow. Regarding potential M&A activity, our bar is high in assessing the quality of any asset we consider, both in terms of strategic and financial contribution. Turning to our 2022 outlook, we are reaffirming our formal 2022 guidance of $105 to $110 million in revenue, representing growth of 29 to 35% over 2021 revenue of $81.6 million. At this point, I would like to turn the call back to Roy for closing comments. Thanks, Sean.
spk02: Over the course of the year ahead, we intend to continue sharing our progress regarding our revenue growth and supporting initiatives, including expansion and diversification of our customer base, ongoing additions to our commercial team, completion of the development of the reagents needed for our 10,000 plex product, development of new soma signal tests, and clinical diagnostics licensing or co-development deals. In some logic, our decades of experience and track record of continual innovation place us on the leading edge of the rapidly evolving proteomics industry. While we pride ourselves in leading protein content and technical specifications, we know that the future of this field is not only the measurement and identification of proteins, but the use of the information that's derived from doing so, the power applications that impact human lives in a variety of ways. from a better understanding of animal model and human biology to the development of new therapeutics and diagnostics to better predict, manage, and prevent disease. This evolution from measurement and identification of things to using the insights gained from doing so to create increasingly powerful applications has happened before in genomics. However, based on the real-time insights it provides, the breadth and depth of applications, that produce human value derived from the proteome in time will greatly exceed those of the genome. Our growing clinical proteomics database, bioinformatics capabilities, and our synthetic nucleic acid reagents offer life sciences tools and diagnostics development trajectory for us to do these things far exceeding any traditional approach, including antibodies. We're providing more than just measurements at Somalogic. We're building solutions, and we're really just beginning to do so. I want to thank you all for joining us today, and I'll now turn it over to the operator for our Q&A time.
spk01: Operator? Ladies and gentlemen, once again, if you have a question or comment at this time, please press star then 1 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press the pound key. Again, to ask a question, please press star then 1 on your telephone keypad. Our first question or comment comes from the line of Brandon Couillard from Jefferies. Your line is open.
spk08: Hey, thanks. Good afternoon. Roy, you kind of mentioned that the commercial team build-out is progressing as expected. Can you give us an update on the headcount there at the end of the first quarter and how you're feeling about the productivity ramp of the expanded team?
spk02: Yes, well, we're right on pace to achieve the growth in our commercial team as we've described. In other words, to more than double the contingent of those that we have on the team at the end of 2021. And the great news is that people really want to work at Somalogic. We've managed to grow this team and the company in general. We actually doubled the size of the company in 2021 during the period of the great resignation. So we're right on track to achieve that doubling of the size of that commercial team, and first quarter results are commensurate with that in regards to hiring and retention. As far as the training time and the ramp-up for these individuals, It varies depending on where the individuals come from. We've been very fortunate over the last year to hire a number of individuals directly from jobs in proteomics or similar jobs in genomics. And as we grow the team, we may or may not be able to attract as many people from those because that pool may get depleted eventually. You know, we certainly are experiencing a great deal of success in the recruitment and training, and, you know, the time to productivity is, you know, on the order of weeks to a few months at most for these individuals, and we don't expect that to change during the course of the year.
spk08: Okay, thanks. I think you mentioned launching a new product to identify pre-analytical variations in samples. Should we think about that as a revenue driver? How exactly will that service work or product work? Or should we think about it as a way to just improve customer confidence and kinds of quality and help standardize samples?
spk02: Well, I'll make a couple of general comments, and I'll ask Steve to talk, perhaps Dr. Steve Williams, who's on the call with us, our chief medical officer, to talk a little bit about the importance of this product to our customers and collaborators. Certainly, this will generate revenue for us over time. In general, most data products that are used in conjunction with genomics or proteomics tools don't tend to be the primary drivers of revenue. but tend to create a great deal of stickiness with your customers on your platform. In other words, these accoutrements that either give you insights about samples or, in the future, insights about pathways or drug targets related to your sample tend to be the types of products that encourage people to both come onto and stay on the platform. Steve, would you comment a bit on the utility of this tool for our customers and collaborators?
spk06: Yeah, this is fundamentally really important. In fact, when I joined Somalogic 12 years ago, the first experiment that we'd ever done was in lung cancer. And it turned out that the biggest effect in the samples we had was the difference between New York University and the University of Pittsburgh. And it really all arises because when blood is a living tissue and when you leave it out on the bench, the cells start to leak their blood. their intracellular proteins, platelets get activated, complement gets activated. So if you have a precise measurement tool for measuring those proteins, you'll see the impact of those issues, the pre-analytic issues. And what we've done since then is to develop individual models for each of the ways that blood might have been abused. So I like to think of these pre-analytic variability models effectively as a criminal record for each sample. And if you know the criminal record when a sample comes, because of course it doesn't really matter what you tell your collection centers, the protocols are often not well adhered to. But if you know what the record is, then you can manage the effect when you analyze your samples. You can eliminate the worst samples, or you could choose to use proteins which are immune to those effects. You can look at how different centers, if you're running a multi-center clinical trial, you can look at which centers are the best and which are the worst, and you can adjust for those factors in the results. So I think these are really important. They add a lot of statistical power and interpretability to your results.
spk02: Thank you, Stephen. I would add, Brandon, that this is the first in a planned number of many data products that we have in development to place alongside SomaScan to give, again, to give our customers and collaborators more information about their sample. You know, both in terms of sample quality, but also, as I mentioned earlier, things like, you know, what biologic pathways are activated, what drug targets may be present, and so forth. So we're dedicated to creating these data products to support our customers and collaborators alongside our superior measurement capabilities.
spk08: Okay, that's helpful. And one for Sean, just on the gross margin of the quarter, are you able to quantify the effect of the population samples that were run in the quarter as well as elaborate a little more on the cost accounting adjustments?
spk03: john please go ahead yeah so um we didn't actually really process the mesa and epic uh samples this quarter it was just more around like listen we're trying to provide a seamless experience right for both our partners and our customers and it's not always 100 predictable of how some of the customer samples are going to come in so we did have some modest ramp up you know again in the grand scheme of our cogs it's not a big number but on our revenue it does affect the margins you know in this one quarter And, you know, those are coming in through Q2, so as I had said, I actually would anticipate that we could potentially see leverage on those increased volumes in the quarters to make up some of what we saw in Q1. It absolutely isn't being affected by anything in our core structure or the ASPs that we're seeing in our customer base. Regarding the cost accounting adjustments, Brandon, as our business is growing, the reality is that we're turning over faster in terms of inventory. And not to get too technical, but that's just requiring us to recognize some variance expenses, such as a ramp-up for the MESA and EPIC studies. faster than we had to in previous periods. And so it just sort of hit us in Q1 in a way that we didn't fully anticipate. Sometimes those are a little bit difficult to predict. But again, I expect that will normalize throughout the year. It was a little bit unique in the adjustments we had to take this quarter.
spk08: Gotcha.
spk03: Thank you.
spk01: Thank you. Our next question or comment comes from the line of Dan Brennan from Cowan. Your line is open.
spk07: Great. Thank you. Thanks for taking the questions. Maybe the first one, obviously, there's a lot of dislocations, if you will, in the global market with supply chain, inflation, still work through COVID in the first quarter and interest rates. There's a lot of noise out there. I'm just wondering, can you speak to how you guys manage that, like any impact that you saw or undo in the first quarter and In light of that and the revenue ramp that's kind of assumed in the full year guide, any thoughts on how kind of patient could play out throughout the year?
spk02: Sure. The first comment I would make is that we certainly were not surprised by the supply chain disruptions around the world over the last year and a half, and thankfully our operations leadership and managers did a great job of planning for this. And so for some items where we had concerns about inventory and so forth, we got ahead of it. The one area that I would say that the supply chain issue has potentially impacted us over the last few quarters has just been the unpredictability of when samples are going to come into the door for our service business. So while we're not experiencing necessarily operating challenges internally from this disruption, some of our customers are. And we can have, you know, during any one quarter, you know, a large number of samples that are supposed to come in that don't come in that, you know, toward the end of that quarter, they come in at the beginning of the next quarter because that biopharma company or that investigator did not have the right tubes to aliquot the samples into because of supply chain issues. So we have seen some unpredictability of sample delivery, and that may continue during the course of the year. We feel quite confident that that is something that will happen between quarters and will not have an impact on our overall top-line revenue by the end of the year, that it will even out.
spk07: And any related comments, just as we think about pacing, I know you're guiding for the full year, which is great, and given the volatility, maybe it's difficult. But anything to kind of point out, particularly in light of, you know, the guy 29-35 versus, you know, the way the comps play out, I think you do, you know, call it like low 20s in the first quarter.
spk02: John, would you like to take that one?
spk03: I'm not sure. I mean, honest, I couldn't hear the very end of your question, Dan. You're talking about the guide and the comps.
spk07: Yeah, sorry about that. Yeah, it was really just on full year. You guys feel great about just anything to point out, whether it be Q2 or the back half, just given the revenue acceleration and the supply chain issues, anything you guys want to point out about this thing?
spk03: So, I mean, I think Roy summed up the supply chain situation fine. Again, you know, I would reiterate that, that, you know, while we certainly, like everyone else in the world right now, you know, you see little pockets of issues here and there. We've been able to overcome those constraints. And, you know, again, it's not really even an issue, like Roy said. It's just that there has been a little bit more unpredictability sometimes about when samples are going to come in, you know, from our partner and customer site. You know, I think the only thing I would add is, you know, you know, to this is just a little bit more, you know, expounding non-expectations going forward is that, you know, I might even want to just like put the takeaway here that going back to the end of 2020, we had, well, like around 10, right, Roy, people in the commercial team. That's right. And, you know, we put up, you know, we scaled that team, started scaling it in 2021, and we put up, you know, just over $80 million. And we're going to continue to scale it to be over $100 million company this year. So, you know, I think that bodes well, right, for future quarters, right? you know, in a way that, you know, again, I'm not suggesting there's upside to our guide. Our guide is our guide. But these are things that could be potential, you know, growth accelerants that we aren't considering because I think that as you do see a lot of our sales team members, which were added in the latter half of 21, really start hitting the stride of efficiency, you're going to see that effect, I think, most impactfully in Q3 and Q4. So, you know, again, I think that all plays out into, you know, where our guide is coming in, but I think you're going to really start seeing that impact hit, you know, as we get into the latter part of Q2, especially Q3 and Q4.
spk02: Yeah, two quick comments for me, Dan, on this point, and just to put a little bit of emphasis on something that Sean mentioned. I do think it's an important consideration for analysts and investors to remember that We generated the revenue we generated last year with about a third of the sales force that our closest comps had extant. So the confidence that we have in our ability to ramp our business as we grow our commercial team is based on some good information there. And the second is that In regards to this unpredictability, the pipeline is very healthy and the anticipated sample delivery is really sort of spread out across the year. We don't have any huge anticipated deal, for example, in the last quarter that if it gets delayed by a couple of months, we'll have a big impact on our guidance. The anticipated delivery of samples is somewhat evenly distributed through the year. But, again, there could always be a quarter-to-quarter, you know, tweak based on supply chain issues of our customers. Got it.
spk07: And then maybe just one on diagnostics. I know this year with bringing in the licensing executive and, spent some time in their prepared remarks, you know, in terms of the 27 protein tests and the ability to continue to find more targets. How do we think about what's the early, I know it's very early days on this licensing side, but how do we think about, you know, if we're standing here 12 months from now looking back, what type of action or traction should we be expecting to see on the diagnostics, whether on your own kind of tests or, more importantly, on some of the licensing efforts?
spk02: Well, the good news is without any business development over the last year, we've had a number of opportunities come across the transom to us for both licensing and co-development. So there are a number of those active conversations right now. And again, this is without us actually doing serious business development on the side of of diagnostics, which again, I think is a really good sign. We certainly are building out those business development capabilities in that segment of our business. As we've said repeatedly, the bulk of our investments right now are going into our life sciences tools business because that's a real business and a significant near-term growth opportunity for us. But I do believe that during the course of this year that Some number of those conversations will turn into contracts and consummated deals, and we'll look forward to talking about those during the course of the year.
spk01: Thank you. Our next question or comment comes from the line of Kyle Mixon from Canaccord. Your line is open.
spk04: Great. Thanks, guys, for the questions. I guess two to start about the quarter, mainly on the top line. Could you just quantify the sample pushout, I guess, that you kind of referenced, Roy, as it relates to the supply chain in the last question? And the second question on this, I just wanted to ask, how many new customers did you add? You said strong new customer growth was a driver of results, but you didn't mention the specific number. Thanks. Thanks.
spk02: We haven't tabulated or discussed openly the number of new customers or the number of samples that have moved out of this quarter into the next quarter. Certainly our number of new customers has grown this quarter commensurate with our previous year. And You know, the number of samples that have moved into next quarter, we just haven't discussed that. But it's something, again, as I mentioned earlier, that's likely going to occur over the course of the year in variable amounts.
spk04: Okay. That's fair. Thanks for that. And I just want to revisit the soft gross margin. It's something that's been pretty common this quarter among your peers for different reasons, obviously. Your explanation of the epic and the mesa ramp and kind of the accounting timing makes sense to me, but why weren't those dynamics expected when you reported the fourth quarter results in late March? And I'm not trying to be difficult. I want to understand if there's another population proteomics deal, if this would happen again. And again, I hate to be kind of myopic, but can you just characterize the cadence of the gradual improvement in gross margin going forward? Like, did they return to the third quarter, fourth quarter, kind of mid-50s level, Sean?
spk02: I'll make a couple of general comments, Kyle, and then I'll turn it over to Sean. The overarching comment here is that we've clearly communicated to the market that population-based studies are important to us. They're important to the future of proteomics. They're important to those biobanks around the world that they have access to this data. We don't know, oftentimes, until a contract is consummated or until a discussion, you know, leads to a contract about the timing of these deals. But we will continue to invest in these, and there may be others during the course of the year for sure because this is something that we think is very important, not only to our own business and helps of creating a measurement standard using our reagents, but also for those biobanks around the world and their enviable goals that we would like to support. Sean, any comments about the – other comments about the margin?
spk03: Yeah, so regarding the predictability of it, I would go back mainly to the point that – I mean, you know, Mesa and Epic sample volume is pretty significant for us. And so, you know, the predictability of when those would come in was a little uncertain. And so I think it's a unique internal you're seeing in Q1, you know, at that, you know, the effect that it had. Again, it's certainly not indicative of any, you know, permanent structural issues, you know, in our cost structure or, again, on ASPs. And, you know, again, I think that you'll see that come back. So this is not specifically an issue in Q1 of an investment in a population study per se. And, again, like Roy said, as we know about those, we certainly will signal them. But the core business is, like I've always said, I mean, you know, like I said at the end of the year, you know, Q1 of last year was a little bit unusual in its margin. You know, our core service business is not a 67% business right now. It's in the 50-plus type business right now, and it still is. So I do anticipate you'll see margins normalized. If we do see any large deals come in, and again, the way they're structured, right, sometimes, Kyle, they might hit R&D or sometimes they might hit COGS. But, you know, it's not possible to always predict that until we've gotten into negotiations and we've signed a contract and we know what's going to happen.
spk02: I would add that this is an important consideration as well that you mentioned that others – You know, there have been discussions about other companies in our sector or related sectors with margins over the last few weeks. The great news about Summologic is that we have only just begun to actuate a large number of levers that we have to improve our margins over time. As we've discussed, we have been working for well over a year on cost out on the assay. We've made progress on that project from the standpoint of R&D and deciding which approaches are more likely to work than others. We are working on our engineering project to box up the front end of the assay. We are also, in our deal with Illumina in the future, obviously those revenues come without... without stress on the margins that come from royalties. And we also, once the diagnostics business comes online increasingly, the margins for those diagnostic tests should be considerably better as well. So we are just beginning to pull the levers for improved margins across all of our products and services, and there's a fair bit of runway in front of us there.
spk04: Great. Thanks, guys. Before I hop off, I want to just ask one more. So the execution has been great, you know, over 20% growth year-over-year. I'm just curious, though, like would you characterize this growth as increasing market share or deeper penetration as this market kind of expands? Just curious what you think the specific growth drivers are in the broader context.
spk02: It's really both. It's really both. We really see two big opportunities in front of us for revenue growth in the life sciences tools side. One is obviously same store sales with existing customers. We are only just beginning to, you know, ink or have discussions about longer term, larger sample deals from some of those customers that came online in 2021. In this business, it's really rare for a new customer to come online, you know, and ask you to run 10,000 samples. There's usually a pilot. So there's significant, there is a significant opportunity in same store sales for us over the next couple of years, just because of the new customer growth that we've had. And of course, You can't have that without new customer growth. So these are both real opportunities for us. We have not even remotely tapped out same-store sales. Even with some of our larger, longer-term customers, there are significant opportunities that we'll be bearing down on. And then, as I mentioned earlier, you know, we are experiencing new customer growth at a pace at which we had, you know, suggested last year would continue into this year.
spk04: Perfect. Thanks, guys. Appreciate the time.
spk01: Thank you. Thank you. Our next question or comment comes from the line of Dan Arias from Stiefel. Your line is open.
spk09: Good afternoon, guys. Thanks for the questions. Roy, on the CBD risk assay that you highlighted and that got published recently, how are you thinking about a path towards pharma usage there as a surrogate biomarker within trial work? And then what's the thought around timing for something like that and then what you'd need to do with the FDA?
spk02: Well, we're really excited about this publication. Obviously, it wasn't shocking to us that this diagnostic test had this capability. We've got a number on our docket that can do similar things, and other publications are coming out relatively soon. And it is exciting as well that a test like this really has multiple use cases. Obviously, as a former physician and someone who has spent his career and professional life working toward tools that can make healthcare better, more equitable, more efficient, and more effective, a tool like this to be able to tell a clinician in the context of physician-patient encounter that a patient has risk that might not otherwise be quantifiable or identifiable is very exciting. We know that as many as 15% of acute events in cardiovascular disease occur in individuals with no known traditional risk factors. So at the first level, this is a clinical diagnostic that will have great benefit over time. However, on the way there, it potentially has a number of uses in clinical trials and in population health management. So from the population health management standpoint, if you're a Medicare Advantage plan, it would be great to know in your population who you need to bring in this year to have a more involved look at their cardiovascular risk because we've identified a risk that, again, might not otherwise be identified until an event happens. And we are at some of those conversations I mentioned earlier with potential customers, not only in licensing and co-development, but also in actual use of this test in an LDD CLIA fashion. Some of those discussions are along those exact lines for population health management. And then lastly, the question about clinical trials. Number of places where tests like this can be used. We know that as many as 30% of patients at interclinical trials should not have entered that trial either because they don't have the disease in question or the severity of their condition won't allow that trial to determine whether or not a drug has been effective. So tests like this could obviously be important for inclusion and exclusion and stratification for clinical trials at the outset. And then again, you know, currently the way, if you're evaluating a cardiovascular risk-reducing drug, the way that you know if the drug has worked in a clinical trial is to wait for events to happen. You actually have to wait for heart attacks and strokes to occur to know if the drug is effective. And even those drugs where the primary goal is not to reduce cardiovascular risk an antihypertensive, an antilipid drug, they still look at those endpoints as well because obviously that would be a great selling point for a new therapeutic if it would also in a real way reduce overall risk by reducing your lipids or your blood pressure measurements. So tons of use cases for a test like this. As far as the FDA requirements to use a test like this in clinical trials, It varies depending on how you're using it. So a test like this can be used as an RUO test if you're looking back at data. But if you're looking prospectively at data, there are FDA requirements, potentially depending on which phase of trial you're working on. And we are engaged with the FDA currently on these questions. Dr. Williams is on the call. Dr. Steve Williams runs not only our clinical test development program, but also heads up quality and regulatory. Steve, could you provide some additional comments about the regulatory path for a test like this?
spk06: Yeah, I think you specifically asked about uses within drug development. And before we designed this program, we actually discussed it at a public workshop with the FDA sponsored by the FNIH. And then we ran this program that evaluates prognostic performance, sensitivity to change, and the universality of the test in the publication. We designed it that way to exactly match the FDA framework for biomarker qualification. We've also presented those results at the Cardiovascular Clinical Trialist Forum in a session attended by the FDA We're presenting them again at a workshop at Duke sponsored by the FNIH later this month. So clearly we've interacted with the FDA all along. As Roy said, we haven't announced formally yet what we'll do officially with the FDA, but I can tell you we've been very aligned with their requirements for the use of a test like this as a surrogate endpoint in drug development. Ultimately, if that's successful, it would enable accelerated approval of breakthrough drugs and cardiovascular and the assessment of safety for normal cardiovascular drugs for cardiovascular safety.
spk09: Okay. Appreciate those comments, guys. Roy, maybe just as a follow-up, can you spend a minute on Asia? I think that was one of the regions where the commercial team expansion seemed like it had the ability to make a difference in just how just given how subscale you had been historically. So just sort of love to hear an updated thought on expectations for that geography this year.
spk02: Sure. So as we've previously stated, at the beginning of last year, we had one individual in EMEA and no one in APAC. We have hired a number of individuals in both regions. In APAC in Asia, we have hired a couple of regional leaders, and those regional leaders are now working with us to recruit additional feet on the street in Asia. So good progress has been made. Our goal was to find some senior folks that could lead those efforts in those regions, and we've been successful both in EMEA and in APAC in hiring those senior individuals, and they are now building out their teams. So we're quite confident that build-outs will continue during the course of the year this year.
spk09: Okay, thank you. Last one, if I could, just Sean, on the $30 million from Illumina, anything new on thinking around how to treat that payment? I think you had talked or Roy had mentioned that most of that was thought of as being recognized when products were commercialized. just 2024 by your last comment. So, you know, sorry for looking past the current year, but just for the purpose of modeling, should 2023 have anything more in it than the latter half of 2022, which I think you said was nominal.
spk03: um yeah so the way that it will be recognized we now have the answer to that although it's still complex because there's a lot of management judgment in in you know how this will progress and then actuals will hit and it could be adjusted but it's going to be based on the provision of reagents so in other words it'll be recognized as we provide reagents to alumina which again the bulk of that will obviously be over the course of an actual commercial product But point in fact, we will be providing reagents now, right, as they are developing the kit. So I would expect it to be very nominal amounts, you know, as in, you know, again, I don't have the exact answer right now, but you're talking probably less than a few million in each year until we commercialize would be kind of a rough way to think about it. 2022 and 2023. We'll have nominal amounts this year, but the bulk of that will definitely come post-commercialization when we actually are selling a lot of reagents into companies the commercial product.
spk09: Yeah, okay. Very good. Thank you.
spk03: Again, I will always be explicit about any Illumina revenue in our number, and there's nothing to report in Q1.
spk09: Is there an explicit amount in the guide for Illumina this year? No, the 105 to 110 excludes any Illumina.
spk03: Okay.
spk01: Thank you. I'm sure no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. Roy Smyth, CEO, for any closing comments.
spk02: Well, thank you again, all of you, for joining us today. And I'd also like to thank Sean Blakeman and Dr. Steve Williams for some of the logic, as well as Marissa from Gilmartin. And thank you as well, operator, for your assistance today. We certainly look forward to seeing some of you. When I say seeing you, I hopefully mean increasingly in person. at the upcoming Jeffries Conference in June, and at other venues moving forward.
spk01: Take care. Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.
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