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spk14: Ladies and gentlemen, and thank you for standing by, my name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sophia Genetics third quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to redraw your question, again, press the star 1. I would now like to turn the conference over to Catherine Bailon, Head of Investor Relations.
spk04: Please go ahead.
spk01: Good morning, and thank you for joining us on Sophia Genetics' third quarter fiscal 2023 earnings call. My name is Catherine Bailon, and I am the Head of Investor Relations at Sophia Genetics. Joining me today are Dr. Yergi Kamlong, our co-founder and chief executive officer, and Ross Muecken, our chief financial officer and chief operating officer. Before we get started, I'd like to remind you that the management team will make statements during this call that are forward-looking within the meaning of United States federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Cautionary Statement regarding forward-looking statements in the Form 6-K for the third quarter earnings release on file with the SEC. Except as required by law, Sophia Genetics disclaims any intention or obligation to update or revise any financial or product pipeline projections or other forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of its broadcast November 7, 2023. This presentation includes non-IFRS financial measures. These measures are calculated by management and do not have any standardized meaning under IFRS. These non-IFRS measures supplement IFRS measures but should not be viewed as substitutes for IFRS measures. We have included a reconciliation of IFRS measures to non-IFRS measures in our press release issued this morning, which is available on our website. Please note, both the replay of this call and the earnings release will be available on our website in the investor relations section.
spk12: And with that, I'll now turn it over to Yorgi.
spk05: Thank you, Catherine, and good morning, everyone.
spk08: We appreciate you joining us on our call today. I am pleased to share that our third quarter results came in strong with revenue for the quarter growing 37% year over year on a constant currency ex-COVID basis. Moreover, we achieved this growth while delivering meaningful expense reductions from the prior year period. Our operating loss on an adjusted basis was 11.8 million, an improvement of 7.5 million, or 39% from the third quarter of 2022, an improvement of 2.8 million or 19% from the prior quarter. On today's call, I will start by reviewing our progress in the third quarter as it relates to our business execution and the continued growth of our Sophia DDM platform. I will then turn it to Ross Muckin, our Chief Financial Officer and Chief Operating Officer, to share our financial results for the period in more detail. followed by our outlook for 2023. We will then end by taking your questions. Let me start with a review of the third quarter highlights and the execution of our business strategy overall. At Sophia Genetics, we are focused on driving the adoption of our Sophia DDM platform. Sophia DDM is a cloud-based software-as-a-service platform that helps healthcare institutions analyze and generate insights from patient data. Sophia DDM applies artificial intelligence to complex patient data, including genomics and radiomic data, to help customers identify valuable patient insights. Our platform provides insights on a wide range of diseases, with applications spanning across oncology and rare inherited disorders. A key attribute of Sophia DDM platform is that we leverage our network of connected customers to create flywheel effects. As more customers use our platform to generate patient insights, the more powerful our insights become for the next patient. Customers who use SofiaDTM are constantly uploading patient data to the platform and providing inputs as they apply their expertise. As customers upload more data and provide more inputs, the AI algorithms which power SofiaDTM become stronger over time. Ultimately, This allows healthcare institutions to benefit from the expertise and knowledge of one another and contributes to the collective intelligence of Sofia DDM. In the third quarter, we made great strides towards driving further adoption of Sofia DDM. First, we added 18 new logos to our network. These customers join our more than 750 customers worldwide who use Sofia DDM out of which 431 are core genomics customers. As a reminder, core genomic customers are those who generate revenue through our SOFIA DDM platform in the last 12 months through our dry lab bundle and integrated access modes by uploading their patient genomic data to generate insights. We aim to increase the usage of SOFIA DDM by landing new customers and then expanding their usage of the platform. In that regard, Our strong Q3 revenue performance is driven by robust utilization of Sophia DDM across the board. For the third quarter of 2023, analysis volume across our core genomic customers, which can be considered a close proxy for the number of patients analyzed, was 79,784. This represents an all-time high and is up 28% year-over-year. When excluding COVID-19-related analysis, platform analysis volume was 78,709 for the third quarter of 2023, up a very robust 36% year-over-year. As mentioned earlier, customers use SOFIA DDM to generate data-driven insights for patients across two primary disease areas, oncology and rare and inherited disorders. For oncology, we offer Sophia DDM applications for hereditary cancer testing, solid tumor profiling, and hematological malignancy testing. In addition to the newer applications, we added in the market for homologous recombination deficiency, HRD, and liquid biopsy. On that note, the later applications, HRD and liquid biopsy, were the fastest growing in the quarter. while more established applications like hereditary cancer grew in line with our company's overall growth. For rare and hereditary disorders, we offer applications to cover a wide range of diseases. Exome analysis represents the fastest growing applications in this area, and we are expecting to see a shift to larger gene panels over time. Overall, we saw both the oncology and rare and hereditary disorders categories grow in line with our company's overall growth and reflect strong year-over-year performance while COVID analyses were down year-on-year as expected. I will now share some highlights during the quarter across our geographies. In EMEM, I'm excited to highlight three customers from the third quarter who are using Sophia DDM to generate insights for their oncology patients. First, we recently announced two new customers who were attracted to Sofia DDM by the impressive analytical performance of our platform and especially by our new homologous recombination deficiency application. In August, CHU Bordeaux, one of the largest hospitals in France, went live on Sofia DDM and will be using our platform's HRD application capabilities. In addition, Instituto Romagnolo per lo studio dei tumori, IRST, an oncology center in Italy, went live on SOFIA DDM in September and is also using our platform's HRD detection algorithms to help provide personalized treatment for patients with advanced ovarian cancer. In October, we also announced a new logo with OncoMedeor Diagnostics, a German-based hematology oncology clinical lab, who will use SofiaDDM's hematology application capabilities for chronic lymphocytic leukemia, CLL, a common type of blood cancer. We welcome these new customers to the SofiaDDM network and are excited to both serve them for their oncology needs as well as them contribute their data and knowledge to the SofiaDDM community. In the Latin region, we announced that we expanded our relationship with Laboratorio Curie, a laboratory in the capital city of Paraguay. Laboratorio Curie became a Sophia DDM customer in 2022 using the hereditary cancer application of our platform. This quarter, they expanded their use of Sophia DDM by adding our HRR application for solid tumor testing. Laboratorio Curie cited that the Sophia DDM's two-day expected turnaround time for this application will help accelerate reporting and decision-making. In the Asia-Pacific region, analysis volume in the third quarter grew above company average, benefiting from September of 2022 signings when we added two labs in India, Unipath, Speciality Lab, and MedGenome. These labs, in addition to the Tata Institute of Genetics and Society Center at Insterm, have all now completed their onboarding and are using Sophia DDM to run about 12,000 analyses per year. These large volumes in India are notably beyond what we see in other parts of the world and are underpinned by India's large population size, albeit at a price point established to suit the Indian market. In the Asia-Pacific region, we now intend to build on these early successes in India and in Australia with Peter Max, which we discussed in detail last quarter and are looking to push into new territories such as Korea and Japan. We intend to leverage direct and indirect sales. In doing so, expect to add a small number of sales set counts in the region. Next, turning to Noram, we are pleased with the solid progress we are making in the region. Noram revenue growth accelerated sequentially and grew at an impressive 78% year-over-year, well above the company average. Noram benefited from a buff company average analysis volume growth, as well as contributions from biopharma. We continue to be excited with our growth in Noram, which we consider to be a relatively under-penetrated and high-potential market for us. I would like to take this time to highlight three new customers we signed in NoRAM this quarter. In Canada, we signed Create Fertility Center in Toronto, who will be using Sophia DDM for fertility testing. And in the U.S., we signed RedSight in Seattle and BioReference outside of New York City that serves over 19 million patients annually. Both of those reference labs are adopting SOFIA BDM for liquid biopsy applications, which I'm excited to talk about in more detail now. As you know, liquid biopsy technology has the potential to revolutionize the diagnosis and management of cancer. Today, liquid biopsies are being investigated across three main use cases. First, for diagnosis and therapy selection for cases in which obtaining a biopsy of the primary tumor is not feasible, for example, in subset of advanced lung and prostate cancer cases. Second, for the longitudinal monitoring of response after onset of systemic anti-cancer treatment. And third, for early detection of cancer. However, these promising use cases do not come without challenges. Liquid biopsies require highly sophisticated analytical capabilities to overcome a number of signal detection challenges, such as low input material. We believe this is an area in which our algorithmic capabilities may be distinctive. Our analysis of over 1.4 million genomic profiles to date means that we can confidently pick the signal from the noise. we have developed our own proprietary molecular barcoding technology required for liquid biopsy analysis, named CUMIN, which grants us freedom to operate in this important area. Both rare site and bioreference have recognized the analytical performance of our liquid biopsy applications, and we're excited to welcome them to our network. In addition to these U.S. customers, we also recently helped Saint-Léon-Bérard a leading cancer center in France, adopts Sophie Adidien for liquid biopsy testing. Overall, in Q3, our liquid biopsy analysis volumes grew 80% granted of a small base, and we look forward to seeing this trend continue as we bring on new customers. Speaking of expanding our liquid biopsy customers, I would like to take this opportunity to talk about our partnership with Memorandum and Catherine. As previously announced, we recently entered into a partnership with MSK to help them commercialize and deploy their liquid biopsy assay, MSK Access. MSK Access is a liquid biopsy test that MSK developed in 2019 and successfully implemented clinically over the last four years at the New York facilities, performing over 10,000 analyses to date. This has been a resounding achievement for MSK and they are facing a lot of demand for their tests. However, they do not have the capacity to materially ramp up their testing volumes. Earlier this year, they turned to us with the shared vision of working together to decentralize the MSK access test and bring it to the world. The cloud-based nature of the Sophia DGM platform uniquely positions us to help MSK break the data silos created by the centralized on-premise solution and bring their vision of decentralization to reality. We are currently in the process of working with MSK to decentralize and commercialize their liquid biopsy test. MSK access powered by Sofia DDM and make it available to customers across the globe. Customers around the world will be able to use Sofia DDM to run MSK 146 gene panel that analyzes matched tumor and normal samples and pick the signal from the noise. Participants to our early access program will be able to use SOFIA DDM before the end of 2023 with full commercial launch on track for the first half of 2024. In fact, by reference, the New York City lab we announced earlier today is one of the first adopters of MSK access through this early access program. In addition to this initial traction, we also announced ahead of ESMO in October that AstraZeneca will join the collaboration between us and MSK to help bring MSK access to a global scale. AstraZeneca will leverage its global footprint to help accelerate the deployment of MSK access worldwide. In doing so, institutions around the world, including those in under-resourced and under-served areas, access to highly accurate and reliable data and insights. Beyond improving global health equity and enabling proper cancer testing, the network we're building with MSK will also be very important to accelerate standard recruitment of patients for clinical trials, and in partnership with biopharma companies, accelerate the development cycle of new compounds in oncology. Having now covered the opportunity in liquid biopsy, Let me move to a second fast-growing application area, HRD. Identifying patients with homologous recombination deficiency, HRD, means identifying a biomarker that has been shown to be associated with response to PARP inhibitors in advance of brain cancer. Since the launch of HRD detection capabilities on Sophia Didion last year, we have seen sustained, strong growth in analysis volumes. We have now approximately 35 customers in routine usage globally. And in the third quarter, we added Peter Mack in Australia to the list of countries using SOFIA DDM for HRD detection, which includes India, Brazil, Italy, France, and Spain. We recently expanded our HRD offering covering CIBD and RU applications by offering a patented analytical algorithm named GINGER. GINGER is a deep learning algorithm that powers our HRD detection capabilities. This algorithm uses low-pass wall genome analysis in conjunction with our proprietary deep learning algorithm to detect patterns of genomics carrying across the genome and as a result of mutations associated with homologous recombination repair. GINGER is technology agnostic and can be readily deployed on any wet lab ray prep, including third-party CGP panels. Overall, we are very happy with the traction of our HRD application to date. In addition to our positive momentum in the clinical space, Biopharma continues to show interest in SOFIA DDM for HRD and HR testing applications, notably in the context of liquid biopsy testing. Today, I spent a lot of time highlighting the process we have made selling the genomics capabilities offered by Sophia DDM. While the genomics offering you've heard about today, such as our HRD and liquid biopsy applications, continue to be a key focus, we have always intended to complement these genomics capabilities with multimodal analysis. I am pleased to update you on our progress toward this multimodal vision. During the third quarter, we released the multimodal module of the SophiaDVM platform, SophiaCurvePath. SophiaCurvePath provides customers with the ability to perform multimodal and longitudinal analysis of patient data. In order to ensure SophiaCurvePath gets off a strong start in the market, in December of 2021, we initiated a multimodal clinical study called the DeepLung Force. As a reminder, this flagship initiative is a real-world observational study to develop AI-powered multimodal predictive models of response to immunotherapy in the context of stage four non-sponsored lung cancer. Using the study as a springboard, we have now activated SOFIA ClearPath at all 30 of the sites we are participating in the Diplom4 study and have recorded data on the 2,000 patients enrolled to date. Researchers from those 30 institutions are now using Sophia Clear Path to develop new clinical research hypotheses by accessing the study data in a statistical aggregated manner. On that note, we are currently working on a first plan interim analysis of around 600 patient cases, which will be reviewed by the study IDMC an independent external data review committee by end of this year. This will notably be the opportunity to have a first readout regarding the performance of the predictive models being developed, and we are looking forward to updating you on the first results in Q1 2020. The progress that we've made to develop our multimodal capabilities could not have been achieved without the partnership of several key players in the healthcare ecosystem. In order to continue cultivating a community of joint collaboration, we proudly hosted the AI-driven Precision Oncology Summit in New York City in September. Attendees enjoyed two keynotes, one from Michael Berger of Memorial St. Catherine, discussing a precision oncology with decentralized solutions, and the second from David Grue, Chief Medical Officer of Microsoft, who presented opportunities and challenges with AI in healthcare. Then our Chief BioPharma Officer, Peter Casasanto, hosted a panel discussion with distinguished guests from AstraZeneca, Janssen, Henry Ford, Memorial St. Catherine, and Microsoft, with a focus on AI's potential for enhancing treatment decision-making and supporting development of novel therapies. Beyond this event, we attended ESMO, the European Society for Medical Oncology, where our meetings with prospects and customers focused on the excitement surrounding the recent press coverage of our joint announcement with AstraZeneca and Memorandum on Catering to broaden the adoption globally of NGS testing with a focus on patient health equity. Our BioPharma team hosted meetings with most of the top 20 oncology companies to discuss the impact of this Memorandum of Understanding and potential for them to participate in the movement, enabling greater access to testing and eligibility for clinical trials and life-saving therapies. And just this past week, NVIDIA, our partner for rapid and scalable wall genome sequencing data analysis, joined us in Washington, D.C. at ASHG to showcase our joint efforts. We look forward to continue working with all of our partners to advance our shared mission of improving health equities through data-driven medicine. Now, turning to financial priorities. I want to address our recognition of the constraints, environment for capital and rate rate that Sophia Genetics has the ability to reach profitability without additional capital if necessary. We fully expect and will proceed with our forward budgeting under the scenario that will not be available. Our concerted efforts of cost containment are now in the sixth quarter of consecutive improvement at non-recurring items. In the third quarter of 2023, our reported operating loss was reduced by 30% year-over-year and by 17% sequential. On an adjusted basis, our third quarter operating loss was 11.8 million, an improvement of 39% year-over-year, and 19% sequential. I would like to emphasize we do not take this challenging environment lightly. As such, we continually inspect our spending for opportunities and improvement. To that point, I would like to share that we have identified incremental select actions that can further expedite our path to sustainability. We're just underway with these actions and expect benefits to 2024 and onwards. So, to conclude my section, SOFIA technology has been adopted by more than half of the 20 leading global cancer participants. As technology markets have shown us, winning the early adopters can be helpful in longer-term efforts to garner share with the majority. We are in the early days of the movement towards personalized medicine for cancer, and our sense is that our momentum is increasing. And so in closing, I feel as excited today as ever that Sophia Genetics has the elements in place that will enable us to accomplish what we set out to do 12 years ago, to harness data from the global community, to generate actionable insights that contribute meaningfully to patient care and patient outcomes. And now, I will turn the call over to Ross to discuss our financial performance in more detail.
spk10: Thank you, Yurgi, and good morning, everyone. I'm pleased to share that despite the challenging macro environment, Sophia Genetics delivered robust performance in the third quarter, continuing our commitment to sustainable growth. Turning to the financials. Total revenue for the third quarter of 2023 was $16.3 million. compared to $11.6 million for the third quarter of 2022, representing year-over-year growth of 40%. Constant currency revenue growth was 33%, and constant currency revenue growth excluding COVID-19-related revenue was 37%. Platform analysis volume, including volumes from our integrated access customers, was 79,784 for the third quarter of 2023, compared to 62,276 for the third quarter of 2022. The 28% year-over-year growth was attributable to the strength of our core platform analysis volume, offset by the expected continued decline of our COVID-19-related analysis volume. Excluding COVID-related volume, platform analysis grew a healthy 36% year-over-year in the period. Core genomic customers were 431 as of September 30, 2023, up from 424 in the prior year period, but down sequentially by three customers. This is primarily the result of a continued decline in COVID-only customers. Core genomic customer count included 14 new routine customers in the quarter. Annualized revenue churn rate was 3% during the third quarter of 2023, in line with our expectations. Net dollar retention for the quarter improved sequentially on a reported basis to 127%. Constant currency net dollar retention, excluding COVID-related revenue, was 126%. Strong NDR and a healthy level of backlog continued to provide us with a high level of revenue visibility going forward. Gross profit for the third quarter of 2023 was $11.3 million, compared to gross profit of $7.3 million in the third quarter of 2022, representing year-over-year growth of 55%. Gross margin was 69% for the third quarter of 2023, compared with 63% for the third quarter of 2022. Adjusted gross profit was $11.8 million, an increase of 56% compared to adjusted gross profit of $7.6 million in the third quarter of 2022. A trusted gross margin was 73% for the third quarter of 2023, compared to 65% for the third quarter of 2022. Total operating expenses for the third quarter of 2023 were $27.8 million, compared to $30.9 million for the third quarter of 2022. Turning to operating loss, For the third quarter of 2023, it was $16.5 million compared to $23.6 million for the third quarter of 2022. Adjusted operating loss for the third quarter of 2023 was $11.8 million compared to $19.3 million for the third quarter of 2022. Lastly, total cash burn for the quarter was $15.8 million compared to $27.4 million In the prior year quarter, down over 42%. We are quite proud of this achievement and remain committed to sustainable growth moving forward. Cash and cash equivalents were approximately $133 million as of September 30, 2023. Turning to our 2023 outlook. Based on our strong first three quarters of fiscal year 2023, we are reiterating all elements of our annual guidance. We continue to expect reported revenue growth to be at or above 30% in 2023. Constant currency revenue growth excluding COVID-19 related revenue for 2023 is expected to be between 30% and 35% in line with our previously highlighted long-term expectations. Additionally, following on strong cost performance exhibited in the first quarters of 2023, Sophia Genetics continues to expect 2023 operating losses to be below 2022 levels. Furthermore, with respect to the anticipated revenue cadence for the final quarter of 2023, I would note we continue to expect utilization to be up sequentially. However, currency may prove slightly less favorable than previously anticipated based on current rates. Additionally, given the timing of certain revenues recognized in the third quarter, We would anticipate that the step-up in 4Q revenue to be below what was exhibited in the prior year. This is all consistent with what we shared on our last quarterly update. Lastly, I wanted to provide a bit more color on the remarks Yurgi made with respect to our path to profitability and the required cost actions to expedite that goal. We recently decided to take some tactical headcount actions that will further optimize our operations while also continuing to focus our R&D efforts on increasingly high ROI projects. These are difficult decisions, but we have prioritized sustaining medium-term revenue momentum at our previously targeted communicated levels while ensuring a reasonable timeframe to cash flow generation. Additionally, we continue to revisit our discretionary expenditures and have identified potential savings for 2024 in systems, professional services, and certain public company costs. The combined nature of these items will further our path to profitability in 2024 and beyond. We commit to remaining vigilant and responsive to the environment and have attempted to balance our desire to execute against a very large TAM versus the practical reality of becoming self-sustaining. We look forward to providing more color on these matters once we have completed our 2024 planning process. With that, I would like to turn the call back over to Yurgi for the closing remarks before we take your questions.
spk08: Thank you, Ross. We are proud of our performance, which we believe reflects our continued ability to execute on our vision and the opportunity ahead. Sophia's success stands on our ability to delight customers and continue driving more and more usage of our platform. I am encouraged and as confident as ever about the long-term path that we are on. We have a fantastic opportunity to drive compelling returns and shoulder value. In closing, thank you to our SOFIA colleagues, partners, customers, and investors for joining us in our journey. Without you, none of this would be possible. Please note, later this month, we are attending the Evercore Healthcare Conference in Miami. I look forward to continuing to update you on Sophia's future success of democratizing data-driven medicine. With that, operator, you may now open the line to the questions.
spk13: Thank you. The floor is now open for your questions.
spk14: To ask a question this time, please press star, then the number one on your telephone keypad.
spk04: We'll pause for just a moment to compile the Q&A roster.
spk14: Your first question comes from the line of Tejas Savant with Morgan Stanley. Your line is open.
spk02: Hello, this is Yuko on the call for Tejas. Thank you for taking our questions. Could you provide more color on the bioreference lab collaboration? How quickly could it scale and how meaningful could it be in terms of economics, Sophia?
spk08: Yes, good morning, Yuko, and thank you for your question. So before we go to the specifics on bioreference, I would like to remind people that recently we signed an important memorandum of understanding partnership with Memorial Sound Catering and AstraZeneca to basically support decentralization of liquid biopsy testing and comprehensive genomic testing, profiling testing, through the usage of SOFIA DDM. and ultimately give equal access to a proper patient diagnosis around the world, including in the U.S., right? And so in that regard, indeed, we are having a lot of traction, a lot of demand on MSK access, and I will let Ross give you some more color on the announcement of today with BioReference Labs. Thank you.
spk10: So, obviously, as you all know, they are 1 of the largest central and reference laboratories in the US, and they have a great presence in the oncology field and 1, particularly amongst community oncology where we historically have not played necessarily. So this is a tremendous partnership for us. They're a great party to be able to serve their communities with this fantastic application. And for us, it's also really nice validation right of our ability to be able to scale up to other large central and reference laboratories similar to what we've done in other parts. of the world as we've spoken about historically. So unfortunately, I'm not going to give you specifics on the economics, but as you well know, they have very large patient reach, particularly in a number of key geographies like New York and Texas. And Florida, and so we would anticipate this being a really nice contributor later in 2024 and into 2025 and again, 1 of hopefully several updates we'll have for you on the early access program for access, which today is garnering quite a lot of interest. And as you mentioned with. our partnership or MOU as well with MSK and AstraZeneca, I think that will further help on that adoption and really drive access and awareness across the globe with respect to this really unique application.
spk02: Great. Thank you for the color. And then also as a separate follow-up question, with interim for deep lung study readout expected before year-end here, What metrics would be provided to demonstrate model's predictive ability? And what do you think is the bar that you must meet to see strong adoption?
spk08: So, to start with Yuko, deep learning for study was for us a mean to do multiple things. And first was to build multimodal capabilities in SOFIA DDM, right, through the CURPAS module. In that regard, now this has been extremely successful, and we are being able to deploy in the context of DeepLang, CurvePath in 30 centers around the world. So that's something that is extremely important. Second, as we would demonstrate that we had the ability to compute beyond genomics, multimodal data in a real-world, real-time setup, it was important to show that we're not only trusted by the hospitals to manage and compute their data, but as well to demonstrate there was a value for the biopharma. And you may remember that we had announced earlier this year a deal we had signed with AstraZeneca on the data side, where we are leveraging on SOFIA DDM-CurPath and the data that we've gathered in the context of DeepLang to help IG in their development efforts. And last, to your point, which was for us potential cherry on the top of the cake, was to demonstrate that while you do so and you combine multiple sources of data, you may be able to anticipate response to therapies, expensive therapies like immunotherapy, in a better way. So we are in that context today. So we are very proud to have deployed SOFIA CURPAS in 30 centers to have gathered data points, which are 200 clinical radiomics genomics data points on 2,000 patients across those centers. And as it should be now, it's an independent data monitoring committee that is meeting up in December and is going to present the outcome of our predictive algorithms independently in January next year. And so I would say great is already what we have achieved because we have demonstrated there was value of onboarding 30 centers around the world on multimodal capabilities. And when it comes to the predictability of the algorithms, we will speak about that at the time of the report from the Independent Data Monitoring Committee.
spk02: Got it. And you also noted that this predictive multimodal model can be applied to a variety of other cancer types. Do you have a plan to start larger studies to expand that utility of the model over time into other cancer indications? And are you viewing that expansion as a medium-term or a longer-term opportunity for you?
spk08: So, indeed, at JUCO, for many years, we've invested in what we could call today our SOFIA factory, where we've been building algorithmic and workforce capabilities to be able to properly compute sophisticated, challenging genomics data, radiomics data, multimodal data. In the context of the multimodality, we wanted to demonstrate there was a value by doing that in lung cancer, because lung cancer is the cancer that is killing, I think, the most of the people around the world. We focus on non-sponsoring lung cancer and some unmet needs, demonstrated the value of doing that. But our factory and algorithmic capabilities have already proven that similar outcomes could be expected in other cancer types. And in particular, I would like to highlight kidney cancer, glioblastoma, and breast cancer, where we had internal efforts. And indeed, one could expect next year that we speak about our multimodal capabilities beyond lung cancer.
spk13: Great. Thank you very much.
spk05: Thank you, Yuko. Have a good day.
spk13: Our next question comes from the line of Dan Brennan with TD Cohen.
spk14: Your line is open.
spk11: Hey, good morning. This is Kyle. I'm for Dan. Thanks for taking the questions. I had a quick one on biopharma or pharma partnerships. When should we expect these will be broken out in the revenue build? Is this sort of taking longer than expected to become more meaningful revenue contributors? And how should we be thinking about that moving forward
spk08: Yes, thank you Dan and good morning. So before we get into the breakdown of the biopharma revenue, I would like to highlight again our strong performance for this quarter in the top line, right? This has been a 40% year-on-year growth. with gross profit that has as well improved by 55%. So I think this is awesome and tells a lot about the scalability of our technology and the demand for our technology in the market, including the biopharma. Now, regarding the biopharma, we, I think, have been always consistent that we wouldn't speak about the numbers until this reaches a certain scale, but I will let our CFO here, Ross, comment.
spk10: Thanks, Kyle. So I think respectively in terms of disclosure, right, there's rules in IFRS around certain thresholds. So you can assume we haven't broken that threshold as a percentage for a given year, not necessarily for a given quarter. So we're quite happy with biopharma performance this year, and the quarter was up triple digits. And it was a meaningful contributor sequentially as we had kind of guided to and expected. And so we'll obviously have to revisit sort of our revenue disclosures for next year, assuming the current trajectory continues. But overall, we're quite happy with our execution and performance. And it was a nice driver of some of the strong growth in the period. And I think if we look to next year, certainly our activity levels and the breadth of activity we have across our 3Ds of pharma remain quite robust. And we look forward to being able to update you on that going forward. But overall, we're quite happy with biopharma's execution.
spk11: Got it. Thank you. And then maybe it's a bit too early to say, but Starting out in twenty four, you know, should we be sort of in that thirty to thirty five percent constant currency growth rate, you know, in line with your long term range or, you know, could any of these new partnerships being ain't, you know, drive upside to that sort of long term range over the next few years.
spk08: So, as you, you will know, we have a very predictable model right on our forward looking performance, given the nature of our business in the clinical market, which is a consumption based business. where the net dollar retention of our customers is pretty good. And so this already gives us indeed a strong baseline, probably above 30% to grow year on year. And that's just you highlighted as we are now penetrating the biopharma segment. This gives us room to eventually grow at a faster pace.
spk10: Yeah, and just to be clear, so again, we're not giving any formalized guidance today for for 2024, but I think in total, you know, as you mentioned, given the high recurring nature of our business and our, our high levels of visibility, which we've spoken about. before. We obviously feel like we executed well this quarter and have executed well for this year. We've sold strong new logos all of this year, and our net dollar retention has been accelerating. And so you can assume we're set up well as we enter next year. But obviously, we're always mindful of the macro environment and all of the different changes that are happening. And so we're trying to be vigilant. Hence, we did have some cost action. as well that we announced today. But I think in total, we're feeling quite good given the macro challenges around us and feel like we can continue to deliver on what we committed to on a long-term basis. But obviously, we'll update you more formally next year as we report our fourth quarter.
spk04: Got it. Thank you.
spk05: Thank you, Kyle. Have a good day.
spk13: And we do have another question. Comes from the line of Mark Massaro with BTIG.
spk14: Your line is open.
spk06: Hey, guys. Congratulations on the top and bottom line beat in the quarter. It's also nice to see the addition of bioreference labs. Could you just speak... I think you guys alluded to it, but it sounds like they're initially going to use the MSK access product for liquid biopsy, I guess. Can you just give us a sense for... which types of applications by a reference might use over time? Is it the idea that they'll start with one application but perhaps look at some of the other DDM applications as they start with the first one?
spk08: Thank you, Mark. Good morning. And thank you for congratulating us as well on our performance. Indeed, we both beat the top line and the bottom line. And on the bottom line, I think the performance we had with 11.8 million loss this quarter versus 19.3 million loss year on year Q3 2022 demonstrates that definitively our technology can scale. and that with the investments we've been doing over the last year, so we can continue delivering strong results. On specifically bioreference, so as you know, our strategy is a land and expand model. So we like to land first our customer on initial application to build the experience of the platform and the trust. And this opens up often other opportunities. I will leave Ross to give you a sense of what would come eventually later.
spk10: So, thanks, Mark and obviously you, you highlighted sort of what we clearly intend to do with, with bio reference and frankly, other large labs here in the US. And so they saw a really unique opportunity to be able to take on a market leading premier liquid biopsy capability and MSK access. And so that was sort of the initial talking point right with them around adoption. I think. to the degree they get that up and running internally and we'll obviously work with them hand in hand to get that to market in some of their key geographies as quickly as possible. We will continue to discuss other applications within the platform. I think certainly, and I'm not speaking specific to BioReference, but in general with the conversations we're having with some of the large laboratories. You know, we are seeing still quite a lot of interest in CGP, so in the impact product, as well as others that we support on our platform, and so we would expect that conversation to continue. We're also discussing with quite a number of players the ability to use our ginger algorithm for HRD on top of their existing And then I would say as well, there's quite a lot of interest in our my Lloyd capabilities where we are market leading. And so again, you know, we're obviously very excited about this relationship. We view them as a great long-term partner and validation for us. And, you know, this quarter we had nearly 80% growth in the U S business and the Noram business. And obviously this will help set us up well for next year to continue that momentum.
spk06: Excellent. I know in the past you guys have talked about MRD, minimal residual disease. Can you perhaps provide an update on how you're thinking about potentially approaching the market, whether it's initially in heme or solid tumor? And if it is in heme, which application you're targeting and roughly when you think you could roll out?
spk08: Yes, a very good question, Mark. So, as you know, MRD can indeed be many things, right? And in solid tumor testing, it can be quite similar as well to some liquid biopsy applications. So our main focus for next year will be in IMM-ONC, so in AML on MRD. And we will be launching new capabilities before June next year that will enable us to further support our IMM-ONC clients. Today, the number of clients that we support in IMM-ONC is important. uh we have grown our business as well nicely um the last the last quarter and so we see the ability to further grow our impact and our revenue within those customers not only by enabling them to identify why what is driving um and among cancer but beyond that as well enabling them to follow those patients longitudinally with mrd capabilities that they are being treated excellent
spk06: Just maybe my final question, how are you guys thinking about the FDA proposed rule about potentially stepping up oversight of LDTs? Do you view that as an opportunity or potentially a near-term cost? Do you think some of your applications might need to go through the FDA? And how are you thinking about any potential costs or opportunities to your business?
spk08: So, of course, that's something that we are following to some extent, quite similar as well to what have been done in Europe with, and the importance of having solutions, which are compatible with these requirements in our cases means having solutions under design control. So we see that rather as an opportunity. We've always said that, you know, our platform would help scale the industry of precision medicine, industrializing data computing, and we believe that the recent questions, announcements, and decisions are well in line with our strategy.
spk04: Okay. That's it for me. Thank you. Thank you so much, Marc.
spk13: There are no further questions at this time. Mr. Camblon, I turn the call back over to you.
spk05: So thank you all for participating to our earnings.
spk08: I would like to thank all the Sophians as well for their hard work, commitment, and passion in impacting around the world while delivering excellent technologies to hospitals and to biopharma customers. And with that, I would like to leave our investor community reminding you that we will be soon at the Evercore Healthcare Conference in Miami. Have a good day.
spk13: This concludes today's conference call. You may now disconnect. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. you Thank you. Thank you.
spk00: Thank you. you
spk14: Ladies and gentlemen, and thank you for standing by, my name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sophia Genetics third quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to redraw your question, again, press the star 1. I would now like to turn the conference over to Catherine Bailon, Head of Investor Relations.
spk04: Please go ahead.
spk01: Good morning, and thank you for joining us on Sophia Genetics' third quarter fiscal 2023 earnings call. My name is Catherine Bailon, and I am the Head of Investor Relations at Sophia Genetics. Joining me today are Dr. Yurgi Kamlong, our co-founder and chief executive officer, and Ross Muecken, our chief financial officer and chief operating officer. Before we get started, I'd like to remind you that the management team will make statements during this call that are forward-looking within the meaning of United States federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Cautionary Statement regarding forward-looking statements in the Form 6-K for the third quarter earnings release on file with the SEC. Except as required by law, Sophia Genetics disclaims any intention or obligation to update or revise any financial or product pipeline projections or other forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of its broadcast November 7, 2023. This presentation includes non-IFRS financial measures. These measures are calculated by management and do not have any standardized meaning under IFRS. These non-IFRS measures supplement IFRS measures but should not be viewed as substitutes for IFRS measures. We have included a reconciliation of IFRS measures to non-IFRS measures in our press release issued this morning, which is available on our website. Please note, both the replay of this call and the earnings release will be available on our website in the investor relations section.
spk12: And with that, I'll now turn it over to Yorgi.
spk05: Thank you, Catherine, and good morning, everyone.
spk08: We appreciate you joining us on our call today. I am pleased to share that our third quarter results came in strong, with revenue for the quarter growing 37% year-over-year on a constant currency ex-COVID basis. Moreover, we achieved this growth while delivering meaningful expense reductions from the prior year period. Our operating loss on an adjusted basis was 11.8 million, an improvement of 7.5 million, or 39% from the third quarter of 2022, an improvement of 2.8 million or 19% from the prior quarter. On today's call, I will start by reviewing our progress in the third quarter as it relates to our business execution and the continued growth of our Sophia DDM platform. I will then turn it to Ross Muckin, our Chief Financial Officer and Chief Operating Officer, to share our financial results for the period in more detail. followed by our outlook for 2023. We will then end by taking your questions. Let me start with a review of the third quarter highlights and the execution of our business strategy overall. At Sophia Genetics, we are focused on driving the adoption of our Sophia DDM platform. Sophia DDM is a cloud-based software-as-a-service platform that helps healthcare institutions analyze and generate insights from patient data. SOFIA DDM applies artificial intelligence to complex patient data, including genomics and radiomic data, to help customers identify valuable patient insights. Our platform provides insights on a wide range of diseases with applications spanning across oncology and rare inherited disorders. A key attribute of SOFIA DDM platform is that we leverage our network of connected customers to create flywheel effects. As more customers use our platform to generate patient insights, the more powerful our insights become for the next patient. Customers who use SofiaDTM are constantly uploading patient data to the platform and providing inputs as they apply their expertise. As customers upload more data and provide more inputs, the AI algorithms which power SofiaDTM become stronger over time. Ultimately, This allows healthcare institutions to benefit from the expertise and knowledge of one another and contribute to the collective intelligence of Sofia DBM. In the third quarter, we made great strides towards driving further adoption of Sofia DBM. First, we added 18 new logos to our network. These customers join our more than 750 customers worldwide who use Sofia DBM out of which 431 are core genomics customers. As a reminder, core genomic customers are those who generate revenue through our SOFIA DDM platform in the last 12 months through our dry lab bundle and integrated access modes by uploading their patient genomic data to generate insights. We aim to increase the usage of SOFIA DDM by landing new customers and then expanding their usage of the platform. In that regard, Our strong Q3 revenue performance is driven by robust utilization of Sophia DDM across the board. For the third quarter of 2023, analysis volume across our core genomic customers, which can be considered a close proxy for the number of patients analyzed, was 79,784. This represents an all-time high and is up 28% year-over-year. When excluding COVID-19-related analysis, platform analysis volume was 78,709 for the third quarter of 2023, up a very robust 36% year-over-year. As mentioned earlier, customers use SOFIA DDM to generate data-driven insights for patients across two primary disease areas, oncology and rare and inherited disorders. For oncology, we offer SOFIA-DDM applications for hereditary cancer testing, solid tumor profiling, and hematological malignancy testing, in addition to the newer applications we added in the market for homologous recombination deficiency, HRD, and liquid biopsy. On that note, the later applications, HRD and liquid biopsy, were the fastest growing in the quarter. while more established applications like hereditary cancer grew in line with our company's overall growth. For rare and inherited disorders, we offer applications to cover a wide range of diseases. Exome analysis represents the fastest growing applications in this area, and we are expecting to see a shift to larger gene panels over time. Overall, we saw both the oncology and rare and inherited disorders categories grow in line with our company's overall growth and reflect strong year-over-year performance while COVID analyses were down year-on-year as expected. I will now share some highlights during the quarter across our geographies. In EMEM, I'm excited to highlight three customers from the third quarter who are using Sophia DDM to generate insights for their oncology patients. First, we recently announced two new customers who were attracted to Sofia DDM by the impressive analytical performance of our platform and especially by our new homologous recombination deficiency application. In August, CHU Bordeaux, one of the largest hospitals in France, went live on Sofia DDM and will be using our platform's HRD application capabilities. In addition, Instituto Romagnolo per lo studio dei tumori, IRST, an oncology center in Italy, went live on SOFIA DDM in September and is also using our platform's HRD detection algorithms to help provide personalized treatment for patients with advanced or brain cancer. In October, we also announced a new logo with OncoMedeor Diagnostics, a German-based hematology oncology clinical lab, who will use SofiaDDM's hematology application capabilities for chronic lymphocytic leukemia, CLL, a common type of blood cancer. We welcome these new customers to the SofiaDDM network and are excited to both serve them for their oncology needs as well as them contribute their data and knowledge to the SofiaDDM community. In the Latin region, we announced that we expanded our relationship with Laboratorio Curie, a laboratory in the capital city of Paraguay. Laboratorio Curie became a Sophia DDM customer in 2022 using the hereditary cancer application of our platform. This quarter, they expanded their use of Sophia DDM by adding our HRR application for solid tumor testing. Laboratorio Curie cited that the SOFIA DDM's two-day expected turnaround time for this application will help accelerate reporting and decision-making. In the Asia-Pacific region, analysis volume in the third quarter grew above company average, benefiting from September of 2022 signings when we added two labs in India, Unipath, Speciality Lab, and MedGenome. These labs, in addition to the Tata Institute of Genetics and Society Center at Insterm, have all now completed their onboarding and are using Sophia DDM to run about 12,000 analyses per year. These large volumes in India are notably beyond what we see in other parts of the world and are underpinned by India's large population size, albeit at a price point established to suit the Indian market. In the Asia-Pacific region, we now intend to build on these early successes in India and in Australia with Peter Mack, which we discussed in detail last quarter and are looking to push into new territories such as Korea and Japan. We intend to leverage direct and indirect sales. In doing so, expect to add a small number of sales set counts in the region. Next, turning to Noram, we are pleased with the solid progress we are making in the region. Noram revenue growth accelerated sequentially and grew at an impressive 78% year-over-year, well above the company average. Noram benefited from above-company-average analysis volume growth, as well as contributions from biopharma. We continue to be excited with our growth in Noram, which we consider to be a relatively underpenetrated and high-potential market for us. I would like to take this time to highlight three new customers we signed in NoRAM this quarter. In Canada, we signed Create Fertility Center in Toronto, who will be using Sophia DDM for fertility testing. And in the U.S., we signed RedSight in Seattle and BioReference outside of New York City that serves over 19 million patients annually. Both of those reference labs are adopting SOFIA BDM for liquid biopsy applications, which I'm excited to talk about in more detail now. As you know, liquid biopsy technology has the potential to revolutionize the diagnosis and management of cancer. Today, liquid biopsies are being investigated across three main use cases. First, for diagnosis and therapy selection for cases in which obtaining a biopsy of the primary tumor is not feasible, for example, in subset of advanced lung and prostate cancer cases. Second, for the longitudinal monitoring of response after onset of systemic anti-cancer treatment. And third, for early detection of cancer. However, these promising use cases do not come without challenges. Liquid biopsies require highly sophisticated analytical capabilities to overcome a number of signal detection challenges, such as low input material. We believe this is an area in which our algorithmic capabilities may be distinctive. Our analysis of over 1.4 million genomic profiles to date means that we can confidently pick the signal from the noise. we have developed our own proprietary molecular barcoding technology required for liquid biopsy analysis, named CUMIN, which grants us freedom to operate in this important area. Both rare site and bioreference have recognized the analytical performance of our liquid biopsy applications, and we're excited to welcome them to our network. In addition to these U.S. customers, we also recently helped Saint-Leon-Bérard a leading cancer center in France, adopts Sophie Adidien for liquid biopsy testing. Overall, in Q3, our liquid biopsy analysis volumes grew 80%, granted of a small base, and we look forward to seeing this trend continue as we bring on new customers. Speaking of expanding our liquid biopsy customers, I would like to take this opportunity to talk about our partnership with Memorandum & Son Catering. As previously announced, we recently entered into a partnership with MSK to help them commercialize and deploy their liquid biopsy assay, MSK Access. MSK Access is a liquid biopsy test that MSK developed in 2019 and successfully implemented clinically over the last four years at the New York facilities, performing over 10,000 analyses to date. This has been a resounding achievement for MSK and they are facing a lot of demand for their tests. However, they do not have the capacity to materially ramp up their testing volumes. Earlier this year, they turned to us with the shared vision of working together to decentralize the MSK access test and bring it to the world. The cloud-based nature of the Sophia DDM platform uniquely positions us to help MSK break the data silos created by the centralized on-premise solution and bring their vision of decentralization to reality. We are currently in the process of working with MSK to decentralize and commercialize their liquid biopsy test. MSK access powered by Sophia DDM and make it available to customers across the globe. Customers around the world will be able to use Sophia DDM to run MSK 146 gene panel that analyzes matched tumor and normal samples and pick the signal from the noise. Participants to our early access program will be able to use SOFIA DDM before the end of 2023 with full commercial launch on track for the first half of 2024. In fact, by reference, the New York City lab we announced earlier today is one of the first adopters of MSK access through this early access program. In addition to this initial traction, we also announced ahead of ESMO in October that AstraZeneca will join the collaboration between us and MSK to help bring MSK access to a global scale. AstraZeneca will leverage its global footprint to help accelerate the deployment of MSK access worldwide. In doing so, institutions around the world, including those in under-resourced and under-served areas, access to highly accurate and reliable data and insights. Beyond improving global health equity and enabling proper cancer testing, the network we're building with MSK will also be very important to accelerate standard recruitment of patients for clinical trials, and in partnership with biopharma companies, accelerate the development cycle of new compounds in oncology. Having now covered the opportunity in liquid biopsy, Let me move to a second fast-growing application area, HRD. Identifying patients with homologous recombination deficiency, HRD, means identifying a biomarker that has been shown to be associated with response to PARP inhibitors in advance of brain cancer. Since the launch of HRD detection capabilities on Sophia Didion last year, we have seen sustained, strong growth in analysis volumes. We have now approximately 35 customers in routine usage globally. And in the third quarter, we added Peter Mack in Australia to the list of countries using SOFIA DDM for HRD detection, which includes India, Brazil, Italy, France, and Spain. We recently expanded our HRD offering covering CIVD and RU applications by offering a patented analytical algorithm named GINGER. GINGER is a deep learning algorithm that powers our HRD detection capabilities. This algorithm uses low-pass wall genome analysis in conjunction with our proprietary deep learning algorithm to detect patterns of genomics carrying across the genome and as a result of mutations associated with homologous recombination repair. GINGER is technology agnostic and can be readily deployed on any wet lab ray prep, including third-party CGP panels. Overall, we are very happy with the traction of our HRD application to date. In addition to our positive momentum in the clinical space, Biopharma continues to show interest in SOFIA DDM for HRD and HR testing applications, notably in the context of liquid biopsy testing. Today, I spent a lot of time highlighting the process we have made selling the genomics capabilities offered by Sophia DDM. While the genomics offering you've heard about today, such as our HRD and liquid biopsy applications, continue to be a key focus, we have always intended to complement these genomics capabilities with multimodal analysis. I am pleased to update you on our progress toward this multimodal vision. During the third quarter, we released the multimodal module of the SophiaDVM platform, SophiaCurvePath. SophiaCurvePath provides customers with the ability to perform multimodal and longitudinal analysis of patient data. In order to ensure SophiaCurvePath gets off a strong start in the market, in December of 2021, we initiated a multimodal clinical study called the DeepLung Force. As a reminder, this flagship initiative is a real-world observational study to develop AI-powered multimodal predictive models of response to immunotherapy in the context of stage four non-sponsored lung cancer. Using the study as a springboard, we have now activated SOFIA ClearPath at all 30 of the sites we are participating in the Deep Learn for Study and have recorded data on the 2,000 patients enrolled to date. Researchers from those 30 institutions are now using SOFIA CLERPATH to develop new clinical research hypotheses by accessing the study data in a statistical aggregated manner. On that note, we are currently working on a first-plan interim analysis of around 600 patient cases, which will be reviewed by the study IDMC an independent external data review committee by end of this year. This will notably be the opportunity to have a first readout regarding the performance of the predictive models being developed, and we are looking forward to updating you on the first results in Q1 2020. The progress that we've made to develop our multimodal capabilities could not have been achieved without the partnership of several key players in the healthcare ecosystem. In order to continue cultivating a community of joint collaboration, we proudly hosted the AI-Driven Precision Oncology Summit in New York City in September. Attendees enjoyed two keynotes, one from Michael Berger of Memorial St. Catherine discussing a precision oncology with decentralized solutions, and the second from David Grue, Chief Medical Officer of Microsoft, who presented opportunities and challenges with AI in healthcare. Then our Chief BioPharma Officer, Peter Casasanto, hosted a panel discussion with distinguished guests from AstraZeneca, Janssen, Henry Ford, Memorial St. Catherine, and Microsoft, with a focus on AI's potential for enhancing treatment decision-making and supporting development of novel therapies. Beyond this event, we attended ESMO, the European Society for Medical Oncology, where our meetings with prospects and customers focused on the excitement surrounding the recent press coverage of our joint announcement with AstraZeneca and Memorandum on Catering to broaden the adoption globally of NGS testing with a focus on patient health equity. Our biopharma team hosted meetings with most of the top 20 oncology companies to discuss the impact of this memorandum of understanding and potential for them to participate in the movement, enabling greater access to testing and eligibility for clinical trials and life-saving therapies. And just this past week, NVIDIA, our partner for rapid and scalable wall genome sequencing data analysis, joined us in Washington, D.C. at ASHG to showcase our joint efforts. We look forward to continue working with all of our partners to advance our shared mission of improving health equities through data-driven medicine. Now, turning to financial priorities. I want to address our recognition of the constraints, environment for capital and rate rate that Sophia Genetics has the ability to reach profitability without additional capital if necessary. We fully expect and will proceed with our forward budgeting under the scenario that will not be available. Our concerted efforts of cost containment are now in the sixth quarter of consecutive improvement, excellent recurring items. In the third quarter of 2023, our reported operating loss was reduced by 30% year-over-year and by 17% sequential. On an adjusted basis, our third quarter operating loss was $11.8 million, an improvement of 39% year-over-year, and 19% sequential. I would like to emphasize we do not take this challenging environment lightly. As such, we continually inspect our spending for opportunities and improvement. To that point, I would like to share that we have identified incremental select actions that can further expedite our path to sustainability. We're just underway with these actions and expect benefits to 2024 and onwards. So, to conclude my section, SOFIA technology has been adopted by more than half of the 20 leading global cancer participants. As technology markets have shown us, winning the early adopters can be helpful in longer-term efforts to garner share with the majority. We are in the early days of the movement towards personalized medicine for cancer, and our sense is that our momentum is increasing. And so in closing, I feel as excited today as ever that Sophia Genetics has the elements in place that will enable us to accomplish what we set out to do 12 years ago, to harness data from the global community, to generate actionable insights that contribute meaningfully to patient care and patient outcomes. And now, I will turn the call over to Ross to discuss our financial performance in more detail.
spk10: Thank you, Yurgi, and good morning, everyone. I'm pleased to share that despite the challenging macro environment, Sophia Genetics delivered robust performance in the third quarter, continuing our commitment to sustainable growth. Turning to the financials. Total revenue for the third quarter of 2023 was $16.3 million. compared to $11.6 million for the third quarter of 2022, representing year-over-year growth of 40%. Constant currency revenue growth was 33%, and constant currency revenue growth excluding COVID-19-related revenue was 37%. Platform analysis volume, including volumes from our integrated access customers, was 79,784 for the third quarter of 2023, compared to 62,276 for the third quarter of 2022. The 28% year-over-year growth was attributable to the strength of our core platform analysis volume, offset by the expected continued decline of our COVID-19-related analysis volume. Excluding COVID-related volume, platform analysis grew a healthy 36% year-over-year in the period. Core genomic customers were 431 as of September 30, 2023, up from 424 in the prior year period, but down sequentially by three customers. This is primarily the result of a continued decline in COVID-only customers. Core genomic customer count included 14 new routine customers in the quarter. Annualized revenue churn rate was 3% during the third quarter of 2023, in line with our expectations. Net dollar retention for the quarter improved sequentially on a reported basis to 127%. Constant currency net dollar retention, excluding COVID-related revenue, was 126%. Strong NDR and a healthy level of backlog continued to provide us with a high level of revenue visibility going forward. Gross profit for the third quarter of 2023 was $11.3 million, compared to gross profit of $7.3 million in the third quarter of 2022, representing year-over-year growth of 55%. Gross margin was 69% for the third quarter of 2023, compared with 63% for the third quarter of 2022. Adjusted gross profit was $11.8 million, an increase of 56% compared to adjusted gross profit of $7.6 million in the third quarter of 2022. A trusted gross margin was 73% for the third quarter of 2023, compared to 65% for the third quarter of 2022. Total operating expenses for the third quarter of 2023 were $27.8 million, compared to $30.9 million for the third quarter of 2022. Turning to operating loss, For the third quarter of 2023, it was $16.5 million compared to $23.6 million for the third quarter of 2022. Adjusted operating loss for the third quarter of 2023 was $11.8 million compared to $19.3 million for the third quarter of 2022. Lastly, total cash burn for the quarter was $15.8 million compared to $27.4 million In the prior year quarter, down over 42%. We are quite proud of this achievement and remain committed to sustainable growth moving forward. Cash and cash equivalents were approximately $133 million as of September 30, 2023. Turning to our 2023 outlook. Based on our strong first three quarters of fiscal year 2023, we are reiterating all elements of our annual guidance. we continue to expect reported revenue growth to be at or above 30% in 2023. Constant currency revenue growth excluding COVID-19 related revenue for 2023 is expected to be between 30% and 35% in line with our previously highlighted long-term expectations. Additionally, following on strong cost performance exhibited in the first quarters of 2023, Sophia Genetics continues to expect 2023 operating losses to be below 2022 levels. Furthermore, with respect to the anticipated revenue cadence for the final quarter of 2023, I would note we continue to expect utilization to be up sequentially. However, currency may prove slightly less favorable than previously anticipated based on current rates. Additionally, given the timing of certain revenues recognized in the third quarter, We would anticipate that the step-up in 4Q revenue to be below what was exhibited in the prior year. This is all consistent with what we shared on our last quarterly update. Lastly, I wanted to provide a bit more color on the remarks Yurgi made with respect to our path to profitability and the required cost actions to expedite that goal. We recently decided to take some tactical headcount actions that will further optimize our operations while also continuing to focus our R&D efforts on increasingly high ROI projects. These are difficult decisions, but we have prioritized sustaining medium-term revenue momentum at our previously targeted communicated levels while ensuring a reasonable timeframe to cash flow generation. Additionally, we continue to revisit our discretionary expenditures and have identified potential savings for 2024 in systems, professional services, and certain public company costs. The combined nature of these items will further our path to profitability in 2024 and beyond. We commit to remaining vigilant and responsive to the environment and have attempted to balance our desire to execute against a very large TAM versus the practical reality of becoming self-sustaining. We look forward to providing more color on these matters once we have completed our 2024 planning process. With that, I would like to turn the call back over to Yurgi for the closing remarks before we take your questions.
spk08: Thank you, Ross. We are proud of our performance, which we believe reflects our continued ability to execute on our vision and the opportunity ahead. Sophia's success stands on our ability to delight customers and continue driving more and more usage of our platform. I am encouraged and as confident as ever about the long-term path that we are on. We have a fantastic opportunity to drive compelling returns and shoulder value. In closing, thank you to our SOFIA colleagues, partners, customers, and investors for joining us in our journey. Without you, none of this would be possible. Please note, later this month, we are attending the Evercore Healthcare Conference in Miami. I look forward to continuing to update you on Sophia's future success of democratizing data-driven medicine.
spk05: With that, operator, you may now open the line to the questions.
spk13: Thank you.
spk14: The floor is now open for your questions. To ask a question this time, please press star, then the number one on your telephone keypad.
spk04: We'll pause for just a moment to compile the Q&A roster.
spk14: Your first question comes from the line of Tejas Savant with Morgan Stanley. Your line is open.
spk02: Hello, this is Yuko on the call for Tejas. Thank you for taking our questions. Could you provide more color on the bioreference lab collaboration? How quickly could it scale and how meaningful could it be in terms of economics, Sophia?
spk08: Yes, good morning, Yuko, and thank you for your question. So before we go to the specifics on bioreference, I would like to remind people that recently we signed an important memorandum of understanding partnership with Memorial Sound Catering and AstraZeneca to basically support decentralization of liquid biopsy testing and comprehensive genomic testing, profiling testing, through the usage of SOFIA DDM. and ultimately give equal access to a proper patient diagnosis around the world, including in the U.S., right? And so in that regard, indeed, we are having a lot of traction, a lot of demand on MSK access, and I will let Ross give you some more color on the announcement of today with BioReference Labs.
spk10: Thank you. So, obviously, as you all know, they are 1 of the largest central and reference laboratories in the US, and they have a great presence in the oncology field and 1, particularly amongst community oncology where we historically have not played necessarily. So this is a tremendous partnership for us. They're a great party to be able to serve their communities with this fantastic application. And for us, it's also really nice validation right of our ability to be able to scale up to other large central and reference laboratories similar to what we've done in other parts. of the world as we've spoken about historically. So unfortunately, I'm not going to give you specifics on the economics, but as you well know, they have very large patient reach, particularly in a number of key geographies like New York and Texas. And Florida, and so we would anticipate this being a really nice contributor later in 2024 and into 2025 and again, 1 of hopefully several updates we'll have for you on the early access program for. MSK access, which today is garnering quite a lot of interest. And as Yurgi mentioned, you know, with our partnership or MOU as well with MSK and AstraZeneca, you know, I think that will further help on that adoption and really drive access and awareness across the globe with respect to this really unique application.
spk02: Great. Thank you for the color. And then also as a separate follow-up question, With interim for deep lung study readout expected before year end here, what metrics would be provided to demonstrate model's predictive ability? And what do you think is the bar that you must meet to see strong adoption?
spk08: So to start with Yuko, deep learning for study was for us a mean to do multiple things. And first was to build multimodal capabilities in SOFIA DDM, right, through the CRPAS module. In that regard, now this has been extremely successful, and we are being able to deploy in the context of DeepLang, CurvePath in 30 centers around the world. So that's something that is extremely important. Second, as we would demonstrate that we had the ability to compute beyond genomics, multimodal data in a real-world, real-time setup, it was important to show that we're not only trusted by the hospitals to manage and compute their data, but as well to demonstrate there was a value for the biopharma. And you may remember that we had announced earlier this year a deal we had signed with AstraZeneca on the data side, where we are leveraging on SOFIA DDM-CurPath and the data that we've gathered in the context of DeepLang to help IG in their development efforts. And last, to your point, which was for us potential cherry on the top of the cake, was to demonstrate that while you do so, and you combine multiple sources of data, you may be able to anticipate response to therapies, expensive therapies like immunotherapy, in a better way. So we are in that context today. So we are very proud to have deployed SOFIA CURPAS in 30 centers to have gathered data points, which are 200 clinical radiomics genomics data points on 2,000 patients across those centers. And as it should be now, it's an independent data monitoring committee that is meeting up in December and is going to present the outcome of our predictive algorithms independently in January next year. And so I would say great is already what we have achieved because we have demonstrated there was value of onboarding 30 centers around the world on multimodal capabilities. And when it comes to the predictability of the algorithms, we will speak about that at the time of the report from the Independent Data Monitoring Committee.
spk02: Got it. And you also noted that this predictive multimodal model can be applied to a variety of other cancer types. Do you have a plan to start larger studies to expand that utility of the model over time into other cancer indications? And are you viewing that expansion as a medium-term or a longer-term opportunity for you?
spk08: So, indeed, at UCO, for many years, we've invested in what we could call today our SOFIA factory, where we've been building algorithmic and workforce capabilities to be able to properly compute sophisticated, challenging genomics data, radiomics data, multimodal data. In the context of the multimodality, we wanted to demonstrate there was a value by doing that in lung cancer because lung cancer is the cancer that is killing, I think, the most of the people around the world. We focus on non-sponsoring lung cancer and some unmet needs, demonstrated the value of doing that. But our factory and algorithmic capabilities have already proven that similar outcomes could be expected in other cancer types. And in particular, I would like to highlight kidney cancer, glioblastoma, and breast cancer, where we had internal efforts. And indeed, one could expect next year that we speak about our multimodal capabilities beyond lung cancer.
spk13: Great. Thank you very much.
spk05: Thank you, Yuko. Have a good day.
spk13: Our next question comes from the line of Dan Brennan with TD Cohen.
spk14: Your line is open.
spk11: Hey, good morning. This is Kyle on for Dan. Thanks for taking the questions. I had a quick one on biopharma or pharma partnerships. When should we expect these will be broken out in the revenue build? Is this sort of taking longer than expected to become more meaningful revenue contributors? And how should we be thinking about that moving forward?
spk05: Yes, thank you Dan and good morning.
spk08: So before we get into the breakdown of the biopharma revenue, I would like to highlight again our strong performance for this quarter in the top line, right? This has been a 40% year-on-year growth. with gross profit that has as well improved by 55%. So I think this is awesome and tells a lot about the scalability of our technology and the demand for our technology in the market, including the biopharma. Now, regarding the biopharma, we, I think, have been always consistent that we wouldn't speak about the numbers until this reaches a certain scale, but I will let our CFO here, Ross, comment.
spk10: Thanks, Kyle. So I think respectively in terms of disclosure, right, there's rules in IFRS around certain thresholds. So you can assume we haven't broken that threshold as a percentage for a given year, not necessarily for a given quarter. So we're quite happy with biopharma performance this year, and the quarter was up triple digits. And it was a meaningful contributor sequentially as we had kind of guided to and expected. And so we'll obviously have to revisit sort of our revenue disclosures for next year, assuming the current trajectory continues. But overall, we're quite happy with our execution and performance. And it was a nice driver of some of the strong growth in the period. And I think if we look to next year, certainly our activity levels and the breadth of activity we have across our 3Ds of pharma remain quite robust. And we look forward to being able to update you on that going forward. But overall, we're quite happy with biopharma's execution.
spk11: Got it. Thank you. And then maybe it's a bit too early to say, but Starting out in twenty four, you know, should we be sort of in that thirty to thirty five percent constant currency growth rate, you know, in line with your long term range or, you know, could any of these new partnerships being ain't, you know, drive upside to that sort of long term range over the next few years.
spk08: So, as you, you will know, we have a very predictable model right on our forward looking performance, given the nature of our business in the clinical market, which is a consumption based business. where the net dollar retention of our customers is pretty good. And so this already gives us indeed a strong baseline, probably above 30% to grow year-on-year. And that's just you highlighted as we are now penetrating the biopharma segment. This gives us room to eventually grow at a faster pace.
spk10: Yeah, and just to be clear, so again, we're not giving any formalized guidance today for for 2024, but I think in total, you know, as you mentioned, given the high recurring nature of our business and our, our high levels of visibility, which we've spoken about. before. We obviously feel like we executed well this quarter and have executed well for this year. We've sold strong new logos all of this year, and our net dollar retention has been accelerating. And so you can assume we're set up well as we enter next year. But obviously, we're always mindful of the macro environment and all of the different changes that are happening. And so we're trying to be vigilant. Hence, we did have some cost action. as well that we announced today. But I think in total, we're feeling quite good given the macro challenges around us and feel like we can continue to deliver on what we committed to on a long-term basis. But obviously, we'll update you more formally next year as we report our fourth quarter.
spk04: Got it. Thank you.
spk05: Thank you, Kyle. Have a good day.
spk13: And we do have another question.
spk14: It comes from the line of Mark Massaro with BTIG. Your line is open.
spk06: Hey, guys. Congratulations on the top and bottom line beat in the quarter. It's also nice to see the addition of bioreference labs. Could you just speak... I think you guys alluded to it, but it sounds like they're initially going to use the MSK Access product for liquid biopsy, I guess. Can you just give us a sense for... which types of applications by a reference might use over time? Is it the idea that they'll start with one application but perhaps look at some of the other DDM applications as they start with the first one?
spk08: Thank you, Mark. Good morning, and thank you for congratulating us as well on our performance. Indeed, we both beat the top line and the bottom line. And on the bottom line, I think the performance we had with 11.8 million loss this quarter versus 19.3 million loss year on year Q3 2022 demonstrates that definitively our technology can scale. and that with the investments we've been doing over the last year, so we can continue delivering strong results. On specifically bioreference, so as you know, our strategy is a land and expand model. So we like to land first our customer on initial application to build the experience of the platform and the trust. And this opens up often other opportunities. I will leave Ross to give you a sense of what would come eventually later.
spk10: So, thanks, Mark. And obviously, you highlighted sort of what we clearly intend to do with bioreference and, frankly, other large labs here in the U.S. And so they saw a really unique opportunity to be able to take on a market-leading premier liquid biopsy capability in MSK access. And so that was sort of the initial talking point, right, with them around adoption. I think To the degree they get that up and running internally, and we'll obviously work with them hand in hand to get that to market in some of their key geographies as quickly as possible. We will continue to discuss other applications within the platform. I think certainly, and I'm not speaking specific to BioReference, but in general with the conversations we're having with some of the large laboratories. You know, we are seeing still quite a lot of interest in CGP, so in the impact product, as well as others that we support on our platform, and so we would expect that conversation to continue. We're also discussing with quite a number of players the ability to use our ginger algorithm for HRD on top of their existing HRD. And then I would say as well, there's quite a lot of interest in our myloid capabilities where we are market leading. And so again, you know, we're obviously very excited about this relationship. We view them as a great long-term partner and validation for us. And, you know, this quarter, we had nearly 80% growth in the U.S. business and the Noram business. And obviously, this will help set us up well for next year to continue that momentum.
spk06: Excellent. I know in the past you guys have talked about MRD, minimal residual disease. Can you perhaps provide an update on how you're thinking about potentially approaching the market, whether it's initially in heme or solid tumor? And if it is in heme, which application you're targeting and roughly when you think you could roll out?
spk08: Yes, a very good question, Mark. So, as you know, MRD can indeed be many things, right? And in solid tumor testing, it can be quite similar as well to some liquid biopsy applications. So our main focus for next year will be in IMM-ONC, so in AML on MRD. And we will be launching new capabilities before June next year that will enable us to further support our IMM-ONC clients. Today, the number of clients that we support in IMM-ONC is important. We have grown our business as well nicely the last quarter, and so we see the ability to further grow our impact and our revenue within those customers, not only by enabling them to identify what is driving and among cancer, but beyond that as well, enabling them to follow those patients longitudinally with MRD capabilities that they are being treated.
spk06: Excellent. Just maybe my final question, how are you guys thinking about the FDA proposed rule about potentially stepping up oversight of LDTs? Do you view that as an opportunity or potentially a near-term cost? Do you think some of your applications might need to go through the FDA? And how are you thinking about any potential costs or opportunities to your business?
spk08: So, of course, that's something that we are following to some extent, quite similar as well to what have been done in Europe with and the importance of having solutions, which are compatible with these requirements in our cases means having solutions under design control. So we see that rather as an opportunity. We've always said that, you know, our platform would help scale the industry of precision medicine, industrializing data computing, and we believe that the recent questions, announcements, and decisions are well in line with our strategy.
spk04: Okay. That's it for me. Thank you. Thank you so much, Marc.
spk13: There are no further questions at this time. Mr. Camblon, I turn the call back over to you.
spk08: So thank you all for participating to our earnings. I would like to thank all the Sophians as well for their hard work, commitment and passion in impacting around the world while delivering excellent technologies to hospitals and to biopharma customers. And with that, I would like to leave our investor community reminding you that we will be soon at the Evercore Healthcare Conference in Miami. Have a good day.
spk14: This concludes today's conference call. You may now disconnect.
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