Telesis Bio, Inc.

Welcome to the Telesys IO's first quarter of 2023 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentations, there will be a question and answer session. To ask the question at that time, please press star 1-1 on your telephone. Please be advised today's call is being recorded. I would now like to turn the call over to Jen Carroll, Telebiases, Vice President of Investor Relations. Please go ahead.

Thank you. Good afternoon, and thanks for joining us for TELUS's BIO's first quarter 2023 earnings call. With me on the call today are TELUS's BIO founder and chief executive officer, Todd Nelson, president and chief operating officer, Eric Esser, and Decky Goodrich, senior vice president of corporate development. Our first quarter 2023 financial results press release is now available on the investor section of our website. Before we begin, I would like to inform you that certain statements we make during the call will be forward-looking statements that involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied. Such factors include those referenced in the Safe Harbor Statement included in our earnings release and in our filings with the SEC. This conference call contains time-sensitive information and is accurate only as of the live broadcast on May 11, 2023. Finally, any percentage changes we discuss will be on a year-over-year basis unless otherwise noted. And with that, I will hand the call over to our CEO, Todd Nelson, and we can get started.

Thanks, Jen. Welcome, everyone. Thank you for joining today's call. We're very pleased with our company's execution this quarter, and we thank our team for their continued focus on smart growth. As you will see in this quarter's results, we continue to grow both our revenue and install base. We delivered three BioXP kits to the market under the new Select brand and kept a steady hand on our operating expenses. Throughout the remainder of the year, we will continue to make strategic and measured investments to drive long-term sustainable growth by expanding our BioXP customer base and our customers' ability to more broadly use our products and services in their research and development efforts. We will also stay laser-focused on watching operating expenses as we move towards a time where we can become a profitable company. Also of note during the quarter, we successfully moved into our new headquarters. It's exciting to have so much of our team together in one location. In our new headquarters, we have a space and in-house talent to do many of the things that we plan to do related to improvements in our supply chain, quality, and our gross margins, which we'll cover in more detail toward the end of today's call. Since our company began, our vision has been to provide researchers with the tools to build biology in their laboratory without any constraints. Our product's unique ability to rapidly create novel synthetic biology products such as long pieces of DNA, mRNA, and eventually proteins at the benchtop allows us to continue to address large unmet needs in our targeted markets and workflows. As a reminder, the Q1 BioXP Select Kit launches were a significant strategic achievement that add to the value proposition offered by our de novo gene synthesis kits because it is the first time that scientists can use their own DNA as a starting point in experiments on our BioXP systems. By doing so, we now have the ability to offer our customers a complete solution for many DNA and RNA syn-bio applications. We believe these make-to-stock kits will allow our current and future customers to use their BioXP systems more frequently, thus driving up recurring revenue growth rates. These kits should help us to unlock the remainder of the SynBio TAM of approximately $2.6 billion, which is estimated to be growing at a rate of 27%. Now, moving on to our first quarter results. Our detailed financial results for the first quarter are included in today's press release. Total revenue for the first quarter was 6.3 million, representing growth of 12% over last year's same period. Notably, our core BioXP revenue, which consists of instruments and kits, grew at 28.5% year-over-year for the first quarter. This revenue growth reflects strong continued demand across our BioXP product portfolio. Gross margins came in at 55.6% for the first quarter compared to 49.3% for the same period in the prior year, reflecting positive mid-shift in revenue from recently launched products, including the BioXP 9600 system, as well as new kits for mRNA, long fragment builds, and cell-free DNA scale-up. Operating expenses were approximately 14.5 million for the first quarter of 2023 compared to 15.6 million for the same period in the prior year. This decrease is primarily the result of prudent cost-cutting decisions made about a year ago in the second quarter to focus the team on our most profitable and near-term opportunities. Net loss was $11.1 million for the first quarter compared to $13.2 million in the same period the prior year. Net loss per share was $0.37 for the first quarter of 2023 compared to $0.45 for the corresponding prior period. Cash and cash equivalents were $32.2 million as of March 31, 2023. On our earnings call in March, we shared our expectation that revenue will be back in weighted in the second half of the year, reflecting the timing of the launch of multiple new BioXP kits and the continued commercial ramp of our recently launched 9600 system. Against that backdrop, I'd like to acknowledge the broader economic impact we're seeing within our space. I'd like to note that we have seen some scale back in demand from customers who are reducing spend to conserve capital and longer capital purchasing cycles due to macroeconomic caution. We expect that to continue in the first half of the year, but anticipate improvement in the second half as biotech and pharma budgets are released. We remain confident in the vitality of our end markets, and our core franchise pipeline remains healthy. Moving on to our product pipeline update. Our product launches are on track. During Q1, we launched three BioXP kits under our new Select brand. These new products not only allow us to offer a complete SynBio customer solution for DNA and mRNA applications, it has the advantage of allowing researchers the first time to start with their own DNA to perform automated downstream workflows. In February, we launched the BioXV Select mRNA Synthesis Kit, which allows customers to synthesize mRNA in just hours using DNA that they bring to the system. This new kit will enable greater flexibility for our customers, empowering them to streamline and accelerate discovery workflows in mRNA therapeutics, vaccines, and precision medicine. With this new kit, customers can automate and accelerate their research, ensure high quality and consistency, and generate transfection-ready mRNA with the push of a button. And in March, we delivered the BioXP Select DNA Cloning and Amplification Kit and the BioXP Select Plasmid Amplification Kit, which enable our customers to start experiments with their own plasmid or linear DNA fragments and perform automated cell-free DNA amplification and scale-up. We believe this can accelerate discovery, particularly in antibody and protein engineering, as well as within cellular immunotherapy workflows. As a reminder, we anticipate launching several additional BioXP kits and two new BioXP systems before the end of the year. The first system we anticipate launching is focused on next-gen sequencing library prep, which gives us access to an additional TAM of $1.6 billion, growing at 25%. This launch remains on track for Q3. The second system uses our proprietary SOLA enzymatic DNA synthesis reagents, and we will target our early efforts within the CRISPR market, enabling for the first time same-day turnaround for these important reagents. This, too, is a new market for us and represents a new opportunity of greater than $1.5 billion growing at 25%. We remain enthusiastic about the future growth, which will be driven in part by our continued focus on expanding the portfolio of applications and workflows enabled on our BioXP system. We believe we are still in the early stages of our targeted workflows, and our value proposition to researchers will continue to increase. Moving on to gross margin. During the quarter, our team achieved important milestones which set us up to successfully expand gross margin throughout the year. As a reminder, we have a three-point plan for achieving these targets. Number one, there will be contributions from a favorable mix of higher margin products like the 9600 and the Select kits. Number two, we have insourcing initiatives related to raw materials manufacturing. And number three, we will be integrating our instrument manufacturing for both the 3250 and 9600 instruments. We've made significant progress on the establishment of our proprietary oligo production operation. During the first quarter, we brought the first of five oligosynthesis systems online and began commercial delivery of BioXP kits incorporating these oligos. We are confident that we remain on a path to internally produce efficient oligo volumes by the end of 2023 to substantially replace our existing supply from outside vendors while also improving quality and cost of goods. We are also on track to internalize the production of both the 3250 and 9600 BioXP instruments. We anticipate shipping our first internally manufactured BioXP system in the third quarter of this year. Our expectation is that these insourcing efforts will be substantially completed by year end and that full-year benefit will be realized in 2024. In closing, we're pleased with our performance this quarter, and we're proud of the products that we're delivering to our customers. And as a reminder, we remain focused on achieving our near-term commercial goals, launching new products, improving our profit margins, controlling our costs, and furthering new and existing partnerships. And with that, I will ask the operator to open the call for questions. Thank you.