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spk10: Good day, and thank you for standing by. Welcome to Somalogic's Q2 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during that session, you'll need to press star 1 1 on your phone. Please be advised that today's conference is being recorded. And I would now like to hand the conference over to your speaker today, Ms. Marissa Baish. Ms. Baish? Please go ahead.
spk00: Hi, thank you. Today, Somalogic released financial results for the quarter ended June 30, 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 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, our gross 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 our 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 form 10Q filed with the Securities and Exchange Commission today and the section entitled Risk Factors in our most recent annual report on Form 10-K. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, August 15, 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 Royce, my Chief Executive Officer.
spk08: Thank you, Marissa. Good afternoon and welcome to our 2022 second quarter update call. As always, I want to express my sincere gratitude to all who continue to invest in and support us. At Similogic, we continue to make progress toward building a differentiated, scalable, and durable proteomics enterprise. Despite a challenging and ultimately disappointing quarter, our confidence in our technology and its trajectory and its unique ability to successfully unlock the power of the proteome for our customers and society at large remains unchanged. In the past quarter, we objectively grew and diversified our customer base. We also continued our strategy organically and inorganically expanding the platforms for our protein measurement and identification technology, and investment in new products to expand our market reach. I would also like to call specific attention to the health of our balance sheet and cash position, especially in comparison to others in our sector. This capital strength provides Semilogic significant optionality to evaluate and act on inorganic opportunities, diversify platforms and products, increase scale, continue to attract execution talent, and grow revenue. We have made a significant amount of progress over a very short period of time, turning our largely research and development organization into a commercial enterprise. However, we still have work to do. And while this remains a challenging period to navigate, we continue to work diligently to build on the foundational elements we have put in place. I'd like to turn now to our second quarter revenue of $14.1 million, and provide additional color on the factors that have impacted revenue for the most recent quarter and thus far in 2022. First, not dissimilar to other companies in the innovative life sciences tool space, the macroeconomic backdrop has had an adverse effect on both supply chain and customer spending behavior. Supply chain disruptions have affected sample delivery, pushing revenue out into subsequent quarters, while also slowing the launch and deployment of our side-of-service distributed SOMA scan kits. At the same time, the macroeconomic environment has forced some customers, particularly a number of our largest, to slower than normal contracting, and thus has also impacted our revenue recognition. Specifically, we saw several million dollars in contracts that were underway late in the second quarter only finalize after the quarter closed. Second, as we've discussed previously, while we are in the process of evolving our technology to a more distributed model, over 75% of our business currently relies on contracted in-house service revenues derived from sample delivery from customers. We have experienced and continue to experience a great deal of delayed sample deliveries, and this in turn creates variability in month-to-month and quarter-to-quarter revenue recognition. And third, As we are still building commercial capabilities, especially in EMEA and APAC, at present we are a relatively small sales group. The team currently consists of only 35 competent and highly dedicated individuals who are primarily working in the U.S., and 60% of them have joined the company in the last six months. This has limited our ability to expand our global customer base and to generate increasing revenues from large customers who are already on our platform. Our revenue growth from 2022 for EMEA and APAC has fallen short of our expectations thus far this year, something others are seeing as well across the industry, and likely tied both in part to macroeconomic headwinds, as well as our need to substantially grow our sales team in these regions. As these factors are still operative and headwinds still evident, we are revising our full-year guidance to be more conservative And Sean Blakeman, our Chief Financial Officer, will give more details on our revised view during his portion of our prepared remarks. I will now address these foregoing factors and how we are mitigating them. At a high level, our incredibly strong capital position with more than $600 million currently on the balance sheet will substantially facilitate our ability to weather the challenging and less predictable current macroeconomic environment. Nonetheless, to be abundantly cautious, we're significantly reducing planned expenses by as much as $75 million for the remainder of this year and through 2023, with an eye towards maintaining a healthy balance sheet and optionality in an evolving market. And Sean will provide details for this as well in his comments. It's important to note that as we do adjust expenditures, we will continue to invest and build out our life sciences commercial team, and appropriately supported to ensure we allocate resources to our largest opportunities, especially large biopharm enterprises, and particularly in EMEA and APAC. At even greater urgency to execution, we are also organizing all life science commercial activities into one business unit and promoting a seasoned and talented executive to run it in Adam Teich. Adam joined the company earlier this year after a successful 22-year career at Thermo Fisher, an established powerhouse in this sector. Adam led all aspects of the molecular biology business there, where his portfolio included products sold into research, diagnostic, and therapeutic markets. He also led the protein and cell analysis business, strategy and corporate development for the life sciences group, and global services and support at Thermo Fisher. He will now take those learnings to drive the same execution as General Manager for our Life Sciences Business Unit at Semilogic. And in this role, Adam reports directly to me. To address the variability of our business related to macroeconomic factors, we are working to achieve greater business scale and diversity of customers and to have more product options available to them as well. As you can see on slide 15 in our online investor deck, we have doubled new customers over the past year and added 20 new customers in this most recent second quarter alone, which actually represents our largest quarter-to-quarter increase of customers over the past 12 months. As the larger revenue opportunity for our life sciences business requires, we encourage large existing customers who come onto the platform to do increasing amounts of business with us, often moving from pilots or small studies to much larger ones Our significant and ongoing new customer growth should pay real dividends over the next year and beyond. In addition to customer growth, we are also working to make it easier for customers to secure and deliver samples to us, which should help relieve some of the supply chain and contracting effects we have recently experienced. In regard to diversifying product, we have successfully transitioned SomaScan from 5,000 proteins to 7,000, And our 10,000 protein measurement identification product is in successful development and is expected to launch commercially in 2023. We have continued to develop new SomaSignal HyPlex protein pattern recognition diagnostic tests with significant academic, clinical, and early commercial traction. And there are also significant use cases for these products in evaluation with our biopharma customers as well as known downstream clinical applications. In consideration of our current service business orientation and its impact on month-to-month and quarter-to-quarter variability, we are successfully putting the foundational elements in place to substantially grow our distributed business over time with a three-part plan. Increase the deployment of our existing array-based FOMA scan kits, launch NGS-based distributed solutions with Illumina, and create and launch chip-based products with recently acquired Palometrics. The first part of the plan is to supply our existing array-based kits to biopharm and research customers, having recently reinitiated this program. Supply chain factors have negatively impacted our ability to acquire and build inventory of kits, hardware, and in turn, our ability to distribute these products. However, we have found new vendors and are considering taking some components of manufacturing in-house. The second part of our plan is to get our Aptimer constructs onto one of the world's largest provider platforms of distributed life sciences solutions in the world with Illumina. Our close partnership with them and their commitment to create, market, and sell an NGS application of Somascan will change the commercial landscape for Aptimer-based arrays and proteomics in general when co-branded products are launched in 2024. Work between our two groups continues to go very well, as mentioned in Illumina's quarterly earnings call last week. Third, at the end of July, we announced the strategic acquisition of Palometrix, a San Diego-based global leader in DNA nanotechnology, to develop a chip-based, next-generation version of our Sirmascan assay. This acquisition brings differentiated miniaturization technology, scientific and engineering expertise, and unparalleled talent. as well as the potential for enhanced future distributed and ease-of-use capabilities to our platform. Ultimately, our goal is to make proteomics accessible to all with true benchtop technology. We want to do for proteomics what was done for genomic sequencing, making the equipment needed to do this work smaller and more modular and the process more economical and faster, all while increasing the number of proteins measured over time. Finally, and while a future but enormous long-term revenue opportunity, we continue to make progress in our diagnostics, product, and business development efforts. In June, we announced an agreement with OncoHost, a global leader in next-generation precision oncology. This deal includes both OncoHost running samples on SomaScan as well as a license to use our development platform to create new clinical cancer characterization tests to potentially enable earlier treatment decisions and informed choices for alternative therapies. In July, we began an exciting partnership with Mubadala Health to enable deployment of SomaSignal tests in clinical practice. Mubadala is an integrated network of world-class healthcare providers in the United Arab Emirates, and the new agreement represents the first international healthcare system to be part of the SomaSignal Proteomics for Precision Medicine Initiative, a large-scale clinically-focused partnership effort aimed at equipping healthcare providers with the power of proteomic technology to inform decisions at the point of care. As part of this deployment, clinicians at multiple Moabatala-owned provider groups, including the Cleveland Clinic Abu Dhabi, will now order summit signal tests under a minimum volume agreement for patient care through their own Daphilia National Reference Laboratory. These tests will be deployed to support patient care across precision prevention, executive and VIP health, and other wellness-focused clinical programs. This new partnership is just one great example of our growing successful effort to enable provider and patient access to soma signal tests. We've asked Todd Johnson to assume full control of our diagnostics business unit, and he will now report directly to me as well. Todd serves as the chief executive officer of two digital health companies he led from startup phase through commercialization as CEO. At HealthLoop, a digital consumer health company, he deployed new digital tools into over 70 health systems and hospitals and facilitated its acquisition by GetWell Network. Prior, he was founding CEO of Solar, which was acquired by Transcend Services at that time, the nation's second largest publicly traded medical documentation company. At Somalogic, we have successfully initiated our operating talent recruitment efforts and built an accomplished and experienced board and management team. We have raised more than $850 million since 2022, including our transition to public company status in 2021. Importantly, we have also managed our finances such that we have an extremely healthy balance sheet and cash balance. to cover operating expenses ahead of achieving profitability, an important point of differentiation during these challenging times. The team at Semilogic is growing and differentiating, and our focus is strong. We will continue to work hard in the coming quarters to expand the business and to outperform. I'll now turn it over to Sean.
spk06: Thanks, Roy. Revenue for the second quarter of 2022 was $14.1 million, a 28.5% decrease from $19.8 million in the same period of the prior year. While we are, of course, disappointed in this quarter's outcome, the core value and potential of our platform hasn't changed, and we are still laying the necessary foundation for long-term sustainable growth and profitability. Our core customer base remains solid, and new customer acquisition continues to be a strong point. The challenges of the macro environment are not lost on us, and we are acutely focused on what we can control to drive growth. We remain optimistic that this groundwork will yield future dividends as we build our global commercial enterprise. Gross margin for the second quarter of 2022 was 50% compared to 59.6% in the second quarter of the prior year. While we did see stronger margins sequentially from Q1 2022 as expected, volumes are significantly lower than anticipated, which is driving margins lower from the mid-50s percentage that we saw last year. Q2 2022 also had a modest negative mix impact from lower royalty revenue compared to Q2 2021. Looking forward, we anticipate benefiting from more favorable mix and volumes, and I expect margins to continue to improve in the second half of this year. But I do want to point out that we expect samples from one of our private public partnerships at lower margins to modestly impact both Q3 and Q4. So we anticipate aggregate margins in the second half to improve to the low 50% range. Total SG&A and R&D expense for the second quarter of 2022 was $54.4 million, a 133% increase from $23.4 million in the second quarter of 2021. R&D expenses for the second quarter of 2022 were $17.6 million compared to $8.6 million in the second quarter of 2021. Sales, general, and administrative expenses for the second quarter of 2022 was $36.8 million compared to $14.8 million in the second quarter of 2021. Adjusted EBITDA for the second quarter of 2022 was a loss of $46.4 million compared to an adjusted EBITDA of $11 million loss in the second quarter of 2021. 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. We ended the quarter with $619.1 million of cash, cash equivalents and short-term investments. As Roy touched upon, we understand the importance of protecting this cash balance as it is a true differentiator, allowing us to uniquely consider strategic options. Now more than ever, we recognize the necessity of staying focused on building out our life sciences team and diversifying our product offerings. In addition, with the benefit of our past investments, we have a first mover advantage in diagnostics with a broad portfolio of assets. As we continue to evaluate this vast opportunity, we will focus on those tests that we believe offer the best returns potential for monetization. So I'd like to reset expectations on our SG&A and R&D expense. We have enacted plans to reduce our operating expense spend by $75 million from the last consensus through 2023, with $10 million already in progress this year. In addition, we are also revising our 2022 revenue guidance to 80 to 90 million dollars. While we are cautiously discounting expectations given the challenging macro environment, I want to point out that to reach the upper range of the guidance, we believe that we would need to benefit from our typical past Q4 customer seasonal behavior, and that impact is likely to be muted, though the extent is unpredictable. I will close by saying that we believe Q2 will be our low point on commercial execution, and while the macro environment may take time to improve, We believe that our focus on the key priorities Roy highlighted earlier will deliver the strong growth expected of our platform and technology. At this point, I would like to turn the call back to the operator for Q&A.
spk10: Thank you, sir. As a reminder, to ask a question, you'll need to press star 1-1 on your phone. Please stand by as we compile the Q&A roster.
spk02: One moment.
spk10: Our first question will come from Dan Brennan of Cowen. Your line is open.
spk03: Great. Thanks for the question, guys. Maybe this first question is high level. Could you tease out a little bit of the supply chain impact on the quarter and how much you guys are now forecasting that in the back half of your guidance versus what you highlighted as the macro impact from customers being more restrictive And then I wanted to follow up on that kind of second part on the spending aspect between OUS and the US. But I'm just trying to tease out from a high level how we think about those two.
spk08: Thanks, Dan. The supply chain issues for us were really twofold. One is disruptions in supply chain have continued to make it less predictable that we're going to get samples on time from our customers. Things as trivial as not having the right tubes to aliquot samples into and then a host of other issues obviously impact those samples coming to us on a predictable timeline as opposed to a more distributed business model. The second impact that supply chain has had on us thus far this year as I said, a significant impact on our ability to create and stockpile and inventory the hardware we need to push out our existing array kits. So these have been the two major impacts for us, one related to the fact that we're a primarily service business, and the second, it's really had a disruptive impact on our ability to push our kits out and our reinitiated array kits and program. As far as macroeconomic impacts on spend, again what we've seen is a slowing of finalizing contracts with our customers. And our assumption is that this is just those customers, you know, taking a careful look at their own expenditures, you know, as compared to previous times. We have not seen customers leaving our platform, but we have seen a slowing of, you know, some existing customers' contract processes.
spk03: Right. And kind of between the two, are they kind of equal, or is one more significant than the other, just because obviously the supply chain issue is in one queue, and I think people very much expected it here in Q and beyond, and just trying to tease out the relative magnitude.
spk08: Yeah, I don't know that we are prepared to talk about the relative magnitude of one versus the other. There are really two different types of impact, right? So the first, again, is the supply chain issue has an impact on the sample delivery being on time or being predictable, and then our ability to roll out our existing array kits. That's obviously... an impact both to predictability of revenue and actually our ability to capture revenue in the second case around the existing array kits program. And the macroeconomic, again, has not really had an impact on our ability to capture revenue. It's just slower. It just slowed revenue recognition. As we mentioned, you know, there were several million dollars in business that was in contracting in this second quarter that got pushed into next quarter because of this apparent slowing of contracting with our customers.
spk03: Got it. And maybe a second one, just on the commercial team, you're obviously cutting SG&A and R&D to be more prudent. The plan was to double the number of commercial individuals, I believe, from like 60 up to, I guess, 120 by year end, 22. Where are you in that, and how much is that being impacted by the more conservative cost outlook?
spk08: Well, we certainly don't plan to cut any investment in growth of our commercial team or supporting structure around it. We're going to be full speed ahead on that, regardless of trimming spending in other areas. We had a plan to be at about 125 total commercial team members at the end of this year, and we're likely going to push that total number up moving into next year. Our plan also requires that we go from our existing 35 sales field team to something around 70, and we need to more than double our current contingent in EMEA and APAC. We've got about 11 individuals combined in EMEA and APAC, and we'd like to hire at least 15 more combined in those two regions. So the total number of 125 is likely to be pushed up some, you know, moving into the first half of 2023. And, you know, we initially had great success in hiring, but it has slowed for sure. And most notably, it has slowed
spk03: Got it. And maybe the final one on the queue would just be, you know, the original guidance is your call for 29% to 35% growth. Obviously, you have two big investors impacting that today. Could you just speak to how we should think about, you know, we don't know what 23 will look like, you know, at this point in terms of, you know, both supply chain and macro. But in terms of the confidence level in a 30% plus type growth rate, as things normalize, And related to that, any comment on the competitive landscape? Obviously, it's really early for what you're doing. And there's, you know, other kind of high-plus approaches out there as well that are in the marketplace a little bit ahead of you. But maybe just if you can comment on the confidence in that 30-plus percent type growth. And do you think any of the impact on the kind of customers pausing here is related to anything from a competitive landscape factor? Thank you.
spk08: Sure. Well, we certainly aren't ready to comment on projections for 2023 in large part, as you noted, without knowing what's going to happen with the macroeconomic or supply chain issues moving into next year. We do believe that, you know, our performance will improve over the coming year for sure, and we'll be talking more about, you know, 2023 guidance on an appropriate timeline. As far as competitive issues, we have not seen competitive issues actually being that big of a factor here. We are very close with our existing customers. We have been talking to them over the last two quarters, and we really feel like this is more of an issue of, again, those factors I mentioned earlier around the impact of macros and supply chain on our business, our primarily service orientation, and then the size of our team. If you're going to make comparisons, it would be important to note that our business model is primarily a service business model, and there are others in the market that have their business model sort of more evenly split between service in a distributed set of solutions. And obviously, a distributed set of solutions would be less sensitive to supply chain factors impacting delivery of samples into a service business orientation. So again, we haven't seen significant competitive factors involved here. Don't believe that's part of this. And I'd also like to comment that we also don't believe this is a zero sum game. Only a few percentage points of the massive proteomics total addressable market have been captured by anyone. So we don't believe this is a zero-sum game and this is one company or companies taking away from others. We believe the opportunity is still very large for the sector.
spk03: All right, Roy. Thanks. Great. I'll get back to you.
spk10: Thank you. One moment, please, for our next question. Our next question will come from Brandon Collier of Jefferies. Your line is open.
spk04: Hey, thanks. Good afternoon. Maybe for Sean, how do I square the 2Q revenues being down year over year with the number of active customers growing over 2X year over year? Has there been any change in pricing? And then I believe your top three customers were about 44% of the revenue base last year. Did you see a big drop in that cohort of kind of your top three large customers? I'd be curious, you know, how much they contributed in the quarter and what that looked like on a year-over-year basis.
spk08: We haven't talked specifically about what each customer is contributing to the bottom or to the top line revenue base. Brandon, but there are a couple of important comments to make here. One is that I would say due to a combination of factors, both the macroeconomic and frankly the small size of our team and our focus thus far on new customer acquisition rather than same store sales, that that combination has had an impact on active customers spending more on our platform. We have not fully built out the competencies or the structures that we need to encourage our active customers to move into spending more with us on our platform. And that's obviously an energy expending requirement. Those customers don't call you and tell you that they'd like to spend more money. You have to go out and get that. So we believe that that will be abrogated a great deal by just growing the team and putting those same-store sales competencies and structures in place. We have seen, obviously, as I mentioned earlier, a slowing in spend from our active customers. I think that it's no secret to anyone that some very large biopharma companies have announced significant disruptions to their own internal operations over this last year. Some are laying employees off. that has, you know, had an impact on the slowing of spend. But it's really those two things together, the macroeconomics and the fact that we still need to fully build out those competencies. What we have not seen are active customers leaving our platform. And the enthusiasm of our existing customer relationships has not been attenuated.
spk06: And I would just add, you know, related to your question regarding ASPs, that it's in no way a result of ASPs being degraded. In fact, our ASPs have fully improved throughout the year. So on a transactional basis, our margins by customer actually are getting stronger. Again, what you're seeing both in terms of the revenue and the margin, as I mentioned, are more of an impact in terms of just the volume of samples coming through in the quarter.
spk04: Gotcha. And then, Sean, in terms of the guidance for the back half, I mean, would imply the top line bounces back to a little over 20 million a quarter in the second half what exactly in terms of the the factors that negatively impacted 2q are you assuming get better in the second half whether it's sample delivery variability normalizing or supply chain issues kind of abating somewhat and then I think you had talked about on the OpEx line about 70% growth for the year. What does the revised outlook contemplate for just OpEx growth this year?
spk06: Yeah, sure. You know, I would say actually, you know, to get to the lower end of our guidance, we're not actually assuming any significant improvement in the macro environment or something improving with, you know, contracting time. It really is just, you know, based on a matter of, you know, our known pipeline and factoring in, you know, right, the new behavior and timelines and contracting that we're seeing. And, you know, again, you know, as Rory and I have mentioned in the past, right, This is a variable business, and we also know, you know, where we are with several, you know, large agreements. And just, again, assessing the magnitude of those coming in. So, to answer your question, you know, to get to the low end, we actually don't expect an improvement. You know, Q2 had some, you know, some unique aspects that led to the disappointing results. You know, but to get to the second half, you know, we're not assuming that any magic has to happen. You know, it's more so to get to the upper end. have to have some kind of modest improvement in what we're seeing in the macro environment with our customer uptake, and specifically with our biopharma customers, specifically with their past Q4 behavior, which we're leaving muted in our guidance.
spk04: Okay, that's helpful. And then last one for me, Roy, on the Palamedrics acquisition, you just talked about the timing of commercial launch and magnitude of incremental investment that might be needed to get that product to commercial stage? Sure.
spk08: I guess the first comment I would make is that we believe that this acquisition was an extremely good deal based on the price that we paid in exchange for the competencies, technology, and talent that we have acquired. And the operational spend over the next couple of years is actually relatively low in comparison to what might be anticipated. As far as definitive statements about when we will begin to see revenue generated from this acquisition, this is a development acquisition. We felt like it will be two to three years before products are created and are marketed and sold. However, we expect to accrue benefits from having this group, you know, people like Paul Rothamund, who's a MacArthur Fellow, under the tent with us, and their work on all aspects of our technology platform. So we will accrue benefits on the way to, you know, launching new products based on DNA nanotechnology and chip-based approaches. that will be important for us even before those products are launched.
spk09: Thank you.
spk10: Thank you. One moment, please, for our next question. And our next question will come from Dan Arias of Stifel. Your line is open.
spk05: Good afternoon, guys. Thanks. Roy, on the manufacturing options that you're considering, what kind of timelines would the moves to internalize some of that production or those production processes be on? And can you just sort of talk to the risk around doing something like that as you're trying to scale elsewhere and within a choppy environment?
spk08: Dan, we haven't made a decision whether or not we actually need to bring some of that manufacturing in-house. We are pleased with You know, the results that we anticipate will accrue over the next few quarters just from changing out some of our vendors for some of those hardware components. Definitely have not made a decision whether or not to bring any of the manufacturing into house. And obviously, because that is, you know, that will require capital and time and effort, we'll likely try to avoid that if possible. But I think, you know, the message I was trying to transmit is that Simply changing out vendors has already made an impact on this. If we have to bring some aspects of manufacturing in the house, we will, but actually hoping not to have to do that.
spk05: Okay. Okay, maybe just two quick follow-ups. On the new customers that you've taken on this year, I'm just curious about the split, roughly speaking, between biopharma versus academic, and then just on the 10,000 protein kit that you're working on. I know it's still set for 2023. I'm just wondering whether there's been any push off within 2023, whether we should think about the timeline just being farther down, but still captured in the air.
spk08: Thanks. As far as the split between biopharma and research customers, from this new contingent of customers that we've been fortunate enough to add over the last year, and as I mentioned, This last quarter was our largest new customer success story over the last 12 months. We haven't talked about the split. What I can say is that we have grown both new biopharma customers and research customers. We have grown research, as we've previously mentioned, at a faster clip than biopharma, but that's not surprising. because, you know, we were certainly slanted more to big biopharma two years ago, and that percentage, it's healthy for that percentage to shift a bit to encourage more research customers to come onto the platform. So we haven't talked about the split, but we have grown in both contingents. It's a good time to just mention that remember that when these customers first come onto the platform, whether they're research or biopharma, the first deal that we ink with them is usually in the tens of thousands of dollars, rather than the hundreds of thousands or millions of dollars. It really requires us to move them into the next step for the larger revenue opportunity. And characteristically or historically, we've been very successful And doing that, that's why we say that this huge new customer growth should bear significant dividends over time. As far as the launch of the 10,000 Plex, what we've talked about is that we plan to have all the reagents in hand by the end of this fiscal year to create the product. We're on a path to do that. Development has been successful so far. and that we will launch the product sometime in 2023. I would be surprised if we launched that in the first half of 2023. It's more likely to be in the second half just based on the usual needs to productize this, to take the data from a 7,000 flex and port it over to a 10,000 flex for some of our customers. So I would anticipate it would be in the latter half of the year. But we'll talk more about that as the project progresses.
spk05: Okay, thanks very much.
spk10: Thank you. And again, one moment for our next question.
spk02: Our next question will come from Kyle Mixon of Ken Accord.
spk10: Your line is open.
spk07: Hey, thanks. Roy and Sean, could you talk about how much business has been delayed to future quarters? Maybe quantify that in dollars or at least qualitatively. And then related to that, how much revenue from Epic and Mesa sample processing was recognized during the second quarter? Thanks.
spk08: As I mentioned, Kyle, there were several million dollars that were delayed. at the end of the second quarter because of slowing of of contracting of existing deals and i would characterize that in the high single digits of millions of dollars that were delayed and will be you know will be pushed forward and and hopefully most of that will come into the fourth quarter um there's a chance that some of that will will be pushed even further and that remains to be seen as far as revenue from epic and mesa just to remind you and others, as we've talked about previously, Epic and Mesa were investments. They are not top line revenue generating deals. The Mesa deal was an investment and a modest number of samples to run on our platform was an investment and a modest number of samples to run on our platform to be able to take our existing cardiovascular risk models, and again, just to remind you, we published a seminal study in a major journal just recently on cardiovascular risk in science translational medicine that got a fair bit of attention, to take those existing models and to sort of harden them for multi-ethnicities. But we plan to sell these tests all over the world. And for them to be useful all over the world, we need to make sure that we are making any dispensations for ethnicities that are required. The EPIC set of samples was a larger set of samples. It comes out of the UK in combination with the WHO. And these samples are being run to create our suite of cancer-predicted tests Again, groundbreaking products once launched that will tell you what your risk of developing cancer in the future is. Not early detection, but something a bit more compelling than that that could obviously sit in front of early detection platforms globally. So these are both investments. Revenue is not being recognized from either one of these sample sets. And we've been clear over the last couple of years that on occasion we will be doing this. We'll be making investments in sample sets for product development. And also to remind you that for most of these samples, once they're run, that data goes into our database, which also has downstream product development capabilities and benefits.
spk07: Okay. That was great. Thanks for that. And maybe just a follow-up. Could you clarify if the high single-digit millions that you just talked about being kind of pushed out, is that included in the guidance or is that not included? And then maybe just like another follow-up. How material is the delay of the, you know, potential delay, I guess, of the kits rollout? Is that even delayed? Thanks.
spk08: So, we have accounted for, you know, those contracts being pushed forward in our second half revised guidance. And again, as we have a better understanding of how those deals will be closed, and again, we're quite confident that they will be because they're in contracting, we'll talk more about that. I'm sorry, the second part of your question again?
spk07: Just the extent of this kind of slowdown, it seems, of the kit rollout, yeah.
spk08: I would say it's been relatively significant. It's really been significant in two ways. The first is that, obviously, it's a way for us to expand top-line revenue. There are some customers that would rather have distributed solutions than service solutions. We're fully aware of that. And the second impact is the consequences of supply chain issues. If if one of the difficulties the customer has in sending us samples is related to their inability to do acquire the infrastructure or again things as mundane as the sample tubes they need to send those that actually is important that obviously has an impact so it's impacted not only top line revenue but also it's impacted our sensitivity to supply chain issues and that's why as i mentioned in the transcript We are working diligently on a three-pronged approach to turn what I would term right now a challenge for us, not having, you know, a number of distributed solutions into what I believe over the next couple of years will be a differentiated strength for us. And you consider lots of our own array kits. I mean, Illumina's launch of our co-branded products into the market, which will be, again, transformational, I believe, for the proteomics industry. And third, our development of follow-on chip-based products with our acquisition of palimedrics.
spk06: I would just add regarding the guidance, again, that It does not contemplate a market improvement in the macro environment. So, although to Roy's point, as we look at our pipeline and where we are in the known contracting process, which is how we're building this and adding on more conservative assumptions based on what we've actually been seen as of late in the market. that we're not expecting to give you that number. We're not expecting, you know, that all of a sudden everything comes back in one quarter. We assume we're going to continue to see modest issues quarter going forward.
spk07: Okay. That was great. Thanks, guys. Just one last question for me. Given this run rate revenue kind of exiting 22, you know, over $20 million, could the original guidance range, you know, the 105 to 110, could that be a good way to think about revenue in 23?
spk08: I will know a lot more about 2023 as the year progresses and we continue to grow our commercial team and build our pipeline as a result of that. So we'll be talking, you know, obviously be talking about 2023 as soon as that makes good sense.
spk06: Okay. Thanks, Roy. Appreciate it.
spk10: Thank you. And this will end our Q&A session. I would now like to turn the conference back to Roy's mic.
spk02: for closing remarks.
spk08: So I want to thank you for joining our quarterly earnings call this afternoon. And thanks to Sean for his comments and our operator for assistance as well. We look forward to giving you additional updates about our business at several upcoming investor events, including participation in the Morgan Stanley Conference in New York in September. We've made significant progress at Semilogic over a relatively short period of time, and have already put in place incredibly important foundational elements to create a differentiated, scalable, and durable proteomics enterprise. And importantly, a number of compelling initiatives that will contribute to that eventuality are also now well underway. We're both excited and confident about the future here. As a result of our hard work and your support, we will unlock the power of the human proteome to enable our customers to make increasingly important discoveries in lives that relieve human suffering and extend meaningful life.
spk09: Thanks so much.
spk10: This will conclude today's conference call. Thank you all for participating. You may now disconnect, and have a pleasant day.
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