SomaLogic, Inc.

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.

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.

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.