This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk05: Ladies and gentlemen, thank you for standing by and welcome to the Twist Biosciences Fiscal 2022 Second Quarter Financial Results Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to turn the call over to your host, Angela Bidding, SVP of Corporate Affairs and Chief ESG Officer.
spk03: Thank you, Operator. Good afternoon, everyone. I would like to thank all of you for joining us today for Twist Bioscience's conference call to review our fiscal 2022 second quarter financial results and business progress. We issued our financial results release this afternoon, which is available at our website at www.twistbioscience.com. With me on today's call are Dr. Emily LaProuste, CEO and co-founder of Twist, and Jim Thorburn, CFO of Twist. Emily will begin with a review of our recent progress on TWIS businesses. Jim will report on our financial and operational performance. Emily will come back to discuss our upcoming milestones and directions, and we will then open a call for questions. We would ask that you limit your questions to a maximum of two and then review as a courtesy to others on the call. As a reminder, this call is being recorded. The audio portion will be archived in the Investors section of our website and will be available for two weeks. During today's presentation, we will make forward-looking statements within the meanings of the U.S. federal securities laws. Forward-looking statements generally relate to future events or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize, and actual results in financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth in the press release we issued earlier today, as well as those more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on information available to us as of the date hereof, and we cannot at this time predict the full extent of the ongoing impact of the COVID-19 pandemic and any resulting business or economic impact. We disclaim any obligation to update any forward-looking statements except as required by law. With that, I'll now turn the call over to our Chief Executive Officer and Co-Founder, Dr. Emily Leproust.
spk07: Thank you, Angela, and good afternoon, everyone. During the second quarter, we continued to serve a growing list of customers, delivering record revenue of $48.1 million and $55 million in orders. Of note, Our revenue for the first half of fiscal 2022 is equal to our revenue in all of fiscal 2020 at $90.1 million, illustrating our rapid growth and continued commitment to executing quarter over quarter. We have increased our revenue and customer base in the face of micron, supply chain description, and market uncertainty, and have expanded our employee base with our lowest turnover rate even in the midst of the great wedding nation. We have been successful to date, We believe we will be successful moving forward because of our employee and unique culture, where we use our grit to make an impact each day in service and trust of our customers and each other. During the quarter, we added to our balance sheet in the midst of a difficult market where growth stocks are out of favor. We see a robust opportunity and potential ROI that can result from investing in vertical market segments, At the same time, we are allocating resources in a fiscally responsible manner. We are working diligently to balance the drive to profitability with significant upside from new product and new market, including data storage. We remain committed to achieving adjusted EBITDA break-even for the core business at $300 million in revenue, with the core business being defined as Symbio and MGS. When we reach that point, we expect to have options for data storage specifically that could further mitigate our spend. We understand that, particularly in this market environment, it is critical to both execute quarter-over-quarter to drive revenue growth and manage expenses to have a demonstrable path to profitability. We are doing both. And we are finding that our value proposition resonates in an environment where the funding for our customers is more difficult since we are the high-quality, low-cost leader. To review the second quarter, source and bio, we reported revenues of $18.4 million with a strong order of $23.6 million, indicating continued growth ahead. We achieved several milestones in April to increase our gene capacity, which will allow us to accommodate both the ongoing and surge demand as we bring up the Factor of the Future schedule for the beginning of July, with shipping from this facility starting in January 2023. We announced a new four-year supply grant with Ginkgo that includes a minimum of $58 million in diverse product purchases over the lifetime of the contract. Over and above this minimum commitment, Ginkgo has the capability to access significantly more products from Twist to meet their needs moving forward. As the SynBio industry evolves, we continue to increase our revenue and expand both our customer base and market share, and therefore we do not anticipate Ginkgo revenue would become material to us. Last week, we launched commercially our Twist high-throughput antibody production, or HiDG product. This is an exciting gene-to-antibody production platform that enables customers to turn candidate DNA sequences into purified antibodies for therapeutic discovery and screening applications, and a product we believe has tremendous potential with a select group of customers. To facilitate our continued growth, the Factory of the Future remains on track, and we expect to begin shipping products from this site in January of 2023. We stand ready to meet the needs of Ginkgo, as well as many additional customers. In parallel, We are advancing our enzymatic synthesis approach, and one of TWIST's early patent applications in this space, published in April. Recall that we are developing a low-cost, scarless enzymatic process to synthesize DNA that we expect to use for enterprise data storage offerings. We expect to continue to use phosphorylated chemistry as our primary method of DNA synthesis for the immediate and near term, and once we develop, we will have we will add applications that are animable to enzymatic synthesis. This could be a decentralized OEM option, or cell-free creation of DNA, or other markets we are not serving today. For NGS, we reported revenue of $23.1 million and orders of $23.6 million. Last quarter, we talked about liquid biopsy and minimal residual disease. And during the quarter, we signed a partnership with C2I Genomics to develop reference materials for whole genome cancer detections for minimal residual disease. While we are not able to announce every customer, as some didn't want to share that we are part of their secret sauce, this is a great example of how we enable innovative workflows to ultimately benefit patients with cancer. We continue to work with many liquid biopsy companies, we are developing new diagnostic tests for a wide range of cancers. As a whole, the industry has been slower to run commercially, though traction is building. As Jim will share, we continue to expand the number of customers we serve in NGS, with the top 10 accounts resulting in about a third of our revenues for the quarter. Our expanding customer base has decreased our reliance on anyone customers, while positioning us to scale with the organizations as they commercialize and thus scale their volume significantly. Ultimately, no matter the application, we are focused on dominating the workflow between the sample and the sequencer. This includes library prep, target enrichment, beads buffer, blocker adapters, and all reagents for DNA and RNA workflows. We can customize panels quickly, We offer off-the-shelf solutions for a wide variety of applications, and we are well positioned to capture the market share moving forward. Moving to Biopharma, we reported $6.6 million in revenue and $7.8 million in order, a great quarter. We announced partnerships with Medisix and CREA. In the second quarter, we added five new partners for Swiss Biopharma, with 47 partners in total. We initiated 15 new programs, with 47 active programs ongoing at the end of the second quarter. We completed 21 programs during the quarter, for a total of 60 completed programs or trees by a farmer. Of our 107 total active and completed programs, 52 have milestones and oralities. I'd like to note that several of our new partners are focused on optimization projects, which typically do not include milestones and oralities. However, They are very good gateway projects that allow our bioformat team to demonstrate their expertise and can lead to larger agreements. SwissBoston, also known as Adveris, has eight new projects underway, which, as a reminder, are fee-for-service and typically take three to six months to complete. During the second quarter, SwissBoston signed nine new partnerships accounting for 56 new discovery projects, and we continue to be impressed with the team. We added two new beacon machines in Boston. And as a reminder, the Boston team is a power user of the beacon, which reduces the cycle time and increases capacity, enabling significant revenue per machine. Turning to data storage, you will recall that in December, we demonstrated DNA synthesis on a one-macron pitch array. Now, we have a fully integrated CMOS chip with electronic control at one-macron pitch. The next step is to debug the system to achieve synthesis up to a gigabyte of data in a single run, and we remain encouraged by the technical progress that we are making, as DNA synthesis on this chip will translate into an aerial density capability of 100 million oligos per square centimeter. It's an entity that is significantly higher than any competitors. We expect this chip, once functioning at production scale, to enable limited early access customer engagement, and we look forward to sharing details in the near future. In parallel, we continue to work on the design of our next chip, designated alpha, which will enable a cost density inflection point that we believe will accelerate growth in early access markets. As we previously said, we expect our first offering to be a century archive solution, where customers can store data for 100 years or more without migration, maintenance, or energy. As the technology matures and increasing automation can be realized, we expect to introduce an accessible archive solution targeted towards data center environments. With the technology moving forward, we are building the ecosystem and relationships that we believe will serve Twist well as we enter the market. In February, We became a supporter of the Digital Preservation Coalition, a membership-based organization enabling its customers to deliver resilient, long-term access to digital content and services. Engaging with the Digital Preservation Coalition provides access to archivists with precious data to store and will help us navigate this important initial market. In addition, in April, We announce that we are now a voting member of the Storage Networking Industry Association, known as SNEA. SNEA is made up of member companies spanning the storage market and is globally recognized as the trusted authority for storage leadership, standards, and technology expertise. We are already engaged as an active member of the organization and believe our involvement will be critical to our ecosystem activities and will help inform our product roadmap. Finally, the DNA Data Storage Alliance is gaining momentum, as evidenced by over 50 member organizations at this time. The ecosystem is building nicely, and it's come a long way from the four funding companies in just 18 months. I'd like to point out that in every aspect of our approach to data storage, we have built novel technologies and extended our engineering sophistications. We have augmented our team with experts from the data storage field, and we remain committed to introducing our initial solution at the right time. Data storage is a very large market opportunity spanning from individual and small businesses to enterprise and ultimately hyperscale customers, all seeking to address their anticipated archive storage needs. We believe the early access market for DNA storage includes media and entertainment, digital preservation, healthcare, as well as big science, and we are building those relationships today. On the ESG front, SNP Global recently issued a report on TWIST, which we encourage you to review. It evaluates TWIST not only from a single point in time, but takes into consideration our ongoing activities. As a reminder, we released our inaugural ESG report in January, and I encourage you to review it to glean a better understanding of our culture and sustainability initiatives, which are so important to do work with at TWIST. And now, I'd like to turn it over to Jim to review our financials.
spk06: All right. Thank you, Emily. We have another good quarter at TWIST. Revenue was $48.1 million, sequential growth of 15%, and year-over-year growth of 54%. Orders were $55 million, a sequential increase of 11%, and 32% year over year. And our gross margin for the second quarter was 38.3%. We shipped to approximately 2,000 customers for the quarter, growing from approximately 1,800 in the first quarter of fiscal 22. And we ended the quarter with cash and investments of approximately $604 million. Now I'll provide more color and orders. NGS orders for the second quarter were $23.6 million, which is an increase of 27% year over year, and up sequentially from 21.8 million. And during the quarter, we received orders from approximately 750 NGS customers. And the top 10 accounts placed orders of approximately 8 million, confirming that we're seeing continued diversification of our customer footprint. Our pipeline for larger opportunities continues to scale. We're now tracking 231 accounts up from 225 noted in our last earnings call, and 104 have adopted twists. an increase from 96 last quarter. Now turning to SynBio, we saw robust growth in our SynBio orders, which includes genes, DNA preps, IgG, libraries, and oligopolons, which rose to 23.6 million in the second quarter. That is sequential growth of approximately 6% and year-over-year growth of 16%. The major contributors to growth this quarter include healthcare and industrial chemicals. Now to Biopharma, We continue to scale our biopharma business as orders rose to 7.8 million for the second quarter, and that includes Twist Boston, and up from 5.6 million in quarter one and 2.6 million in the second quarter of last year. As Emily mentioned, for our Twist Biopharma antibody platform, we have 47 partners with 47 active programs and have 52 milestone and royalty programs. Before moving to revenue, Please note orders may not translate into revenue, but provide a trend line for each product group. NGS product revenue was $23.1 million in the second quarter, a 36% growth year-over-year and sequential growth of 20%. This brings our first half fiscal 2022 revenue to $42.3 million from NGS. With the continued growth in our pipeline and bookings, We believe we're well positioned to achieve our NGS revenue guidance of 94 million to 96 million per fiscal 22. And in quarter two, the top 10 accounts accounted for approximately 33% of our revenue. Our SynBio product revenue for the quarter was approximately 18.4, a 3% sequential increase, and a 42% increase year-over-year. Some of the highlights include shipping to approximately 1,400 SynBio customers, and that's up from 1,330 in the last quarter. Genes revenue was 14.2 million, up from 13.5 million in the first quarter, and 9 million in the second quarter of fiscal 21. We shipped approximately 124,000 genes in the quarter. Now, to buy a farmer, our revenue per quarter was approximately $6.6 million, as compared to $1.3 million in the second quarter of fiscal 21, and we served 79 customers, including 55 through Twist Boston. In terms of revenue breakdown by industry, healthcare in quarter two was $24.1 million, up from $16.6 million in the second quarter of fiscal 21. Industrial chemical revenue is 14.1 million versus 8.7 million in the second quarter of fiscal 21. Even though we're operating in a pandemic, where many academic labs were impacted globally, our academic revenue was 9.5 million versus 5.6 million in the second quarter of fiscal 21, reflecting our continued focus on growing the long tail of the market. I will now briefly cover our regional progress for fiscal 22. Our investment in building out our global commercial organization is reflected in strong international growth. EMEA's second quarter revenue was $15.2 million versus $10 million in the second quarter of fiscal 21. APAC continues to deliver strong growth, with revenue increasing to $4.5 million, up from $2.7 million in the second quarter of fiscal 21. And the U.S., including America's, revenue was $28.5 million, the second quarter versus 18.6 million for the same period of fiscal 21. Now moving down the P&L, our gross margin for the quarter was approximately 18.5 million or 38.3% of revenue as compared to 35.5% in quarter one fiscal 22. Now to operating expense, our Q2 operating expense, which includes R&D, SG&A, and change in fair value and mark-to-market adjustments of acquisitions was approximately 79.2 million as compared to 70.9 million in the first fiscal quarter of 22. To break it down further, R&D for the quarter was 31.2 million, an increase from 22.6 million in quarter one, primarily due to increased spend associated with biopharma, including Averis and Revela, IGG and data storage. SG&A in the second quarter was 54 million, as compared to $51 million in the first quarter, and the increase is due to approximately $3 million of stock-based comp. Staffed-up costs for the factory of the future in G&A were $2 million, including facility lease expense of approximately $1.1 million. Change in fair value of contingent considerations and indemnity holdbacks for the quarter resulted in a gain of $6 million versus a gain of $2.8 million in quarter one. Stock-based compensation for the quarter was $22.2 million. Depreciation was $2.5 million for the second quarter. And amortization was $1.5 million, primarily associated with acquisition amortization of intangibles. Our net loss before tax was approximately $60.8 million as compared to $56 million for quarter one, primarily due to increased investment in R&D and higher stock-based compensation offset by higher gross margin CapEx for the quarter is $22 million, mostly associated with our factory of the future investment. Given the global supply chain challenges, we have strategically increased our inventory to $45 million compared to $40 million at the end of quarter one. I'll now provide updated financial guidance for fiscal 2022. We enjoyed strong bookings in quarter two. Our customer base continues to expand and our Twist Boston team that joined us through the acquisition of Veris is doing very well. We negotiated another four-year contract with Genco, and we're optimistic about opportunities. At the same time, more SARS-CoV-2 variants continue to emerge. For the year, we're increasing our revenue guidance, which is now expected to be in the range of $191 to $199 million, up from the previous guidance range of $189 to $198. So my revenue is estimated to be approximately $71 to $72. and that's up from previous guidance of 70 to 72 million. NGS revenue is estimated to be in the range of 94 to 96 million, consistent with our previous guidance. Biopharma revenue, including Twist Boston, is estimated to be in the range of approximately 26 million to 30 million. Our gross margin for the year is projected to be approximately 37%, which reflects costs associated with our Portland ramp-up for our factory of the future. Operating expenses, which includes R&D, SG&A, and mark-to-market adjustments, are expected to be approximately $335 million for the year, including $130 million in R&D expenses, as we previously guided, including approximately $40 million of DNA data storage spend. Mark-to-market adjustments for the year is projected to be $9 million favorable. Our net loss guidance report taxes for the year will be approximately $260 million to $265 million, which includes stock-based compensation of approximately $85 million, and this is an increase from our last projection of $74 million. Depreciations projected to be $13 million. Amortization of intangibles projected to be $5 million, reflecting the cost of amortizing embarrassing intangibles. Projected CapEx for fiscal 2022 is expected to be in the range of $90 million, to $100 million associated with increased investment in our biopharma business. We ended the quarter with approximately $604 million in cash investments in the balance sheet. We'd like to thank all our investors for their recent support. We believe fiscal year 2022 is the high-water mark for cash usage, and as we continue to execute, we believe we have the cash runway to achieve adjusted EBITDA break-even for the core business at $300 million revenue per year. And with that, I'll turn the call back to Emily.
spk07: Thank you, Jim. As we move through the second half of our fiscal year, we intend to continue to focus on execution and revenue generation while pursuing opportunities to disrupt markets. We will also focus on controlling expenses and driving towards profitability for the core business. In July... We expect to begin our production qualification in the factor of the future, an exciting and important step to serve our customers as well as tap into the DNA makers market. And we remain focused on reducing overall turnaround time, especially for jeans, while exploring new product offerings. For NGS, we expect a strong second half driven by continued customer growth and commercial execution. We expect to add more tools, that enable our customers to perform groundbreaking research while we leverage our sales team to expand our market share and own the market between the sample and the sequencer, particularly in the area of liquid biopsy, MRD, and RNA. In Biopharma, we will continue to add partnerships and programs and move up the value chain both for our service offerings and for our internally generated antibodies. We are planning an integrated portfolio of antibody discovery and optimization offerings as we integrate the Twist Boston team with our Bioforma group. The combined solution truly differentiates Twist from the rest of the pack, and we look forward to cross-selling as well as broadening our reach as soon as the earn-out is achieved. In-design storage, we have a roadmap to reach terabyte scale. We have our first fully integrated CMOS chip with electronic control in-house and are actively debugging the system to achieve synthesis up to one gigabyte of data in a single run. We believe we will be able to generate initial revenue from this chip once fully optimized through a central archive solution. In parallel, we're working on the alpha chip and increasing the density per square centimeter to drive down the cost significantly with an eye towards an accessible archive solution. With that, Let's open the call for questions. Operator?
spk05: Ladies and gentlemen, if you have a question or a comment at this time, please press the star, then the one key on your touchtone telephone. If your question has been answered, or you wish to move yourself from the view, please press the pound key. Our first question comes from Matt Sykes with Goldman Sachs.
spk01: Hi, good afternoon, Emily and Jim. Thanks for taking my questions. Maybe the first one just on FinBio, and a bit longer term, but how should we think about the fact that you're coming online next year in terms of accelerating that syn-bio growth? Are there certain capacity constraints that you're dealing with right now that can be alleviated, or the speed of the turnaround time? Either one of those factors could help accelerate that syn-bio growth as we look into 23.
spk07: Thank you very much, Matt. That's a great question. So we do not have today capacity issues. We have extended a little bit of capacity in South San Francisco, so when there are surge demand, we're able to catch it. And with the factor of the future, we'll have even more capacity, so as we're successful in grabbing market share, we'll continue to, whenever the orders are there, be able to catch them and produce them. In addition to that, like you suggested in your question, The fact that we will have a faster turnaround time will give us an opportunity to really expand to new markets where we don't really serve today and at the market that is very time-sensitive. And especially in the makers' market, we believe there is a significant portion of that makers' market that is time-sensitive that we'll be able to convert. So again, two objectives for the future in SYNBio. One is as we are more successful, take more market share, continue to make sure we have the capacity, and two, expand into the rapid market. I will add in addition to that, we have a robust roadmap of products we want to launch around DNA, around protein, around RNA. They all start from making DNA. And so the factor of the future will also be a great foundation for us to expand into those additional markets.
spk01: Great. Thanks for that, Emily. And then just a second question on biopharma. Assuming you're generating a gross margin on the upfront fees and the fee-for-service, therefore, should we really look at, in terms of initial success of this program, adding just more and more programs? Obviously, the larger economic award comes with the commercial success with drug and the royalties, but how should we think about sort of your building of the initial programs and the potential revenue growth rate of those programs as they add?
spk07: Yeah, so we're very much focused on the upfront first. As you mentioned, there's some good margin there. and that enables us to pay the bill. So we're definitely not subsidizing anybody else's drug discovery. And so if we just get upfront payment, it's great. And, you know, we've guided significant revenue growth this year just on the upfront. But in addition to that, indeed, we are accumulating, stacking up a bunch of milestones or royalties which should provide some significant economic return in the future. However, because those are difficult to anticipate in terms of exact timing and amount, at this point, we are not guiding on those. And so any maximum priority we would get above and beyond upfront payments would be upside. Got it. Thanks, Emily. I appreciate it.
spk05: Thank you. Our next question comes from Luke Sergant with Barclays.
spk08: Hey, guys. Thanks for the question here. Can you just update us on what your cash burn was on an organic basis x the raise? I'm just trying to get a sense there of how you guys are thinking about that and through the rest of the year.
spk06: Yeah, for the total year, you just step back and look at the loss we're projecting. The loss is about $2.60. That does include approximately $84 million for stock-based comp. It does include about $30 million for depreciation. And then for amortizations, about $5 million for amortization. In terms of CapEx, we're projecting approximately $90 to $100 million for CapEx. So that should help you frame the cash burn, so you just step back and look at that, it's approximately around about $260 million for the year. I mean, obviously, a good chunk of that's been invested in ramping up R&D for biopharma, reinvesting in core business, we're investing about $40 million in data storage, and obviously for For overall CapEx, the bulk of the CapEx investment, approximately $75 million of the $100 million this year is for Factory of the Future.
spk08: All right, that's great. That's helpful. On the Factory of the Future, you're talking about the break-even for your base business at $300 million. Can you give us the assumptions by segment from a revenue and margin perspective?
spk06: Sure. Yeah, I mean, overall, we're forecasting approximately 50-50 split between NGS and bio, and we're targeting gross margin about 50% to 52%. Okay. All right.
spk08: And then last one from me on the TWIST high-throughput antibody production or the SWAP program. How integrated is that with the TAL program? And on the new customers into that program, how many are new to twist customers versus just coming from the TAO program?
spk07: Yeah, thanks for the question. So it's two different products then. So what you're describing one is TAO where someone comes to us where they have a an antibody. And using TAO, we will design more sequences, make more sequences, make those variants in-house, screen them in-house, and then give them an answer for a better antibody for whichever improvement they want. It could be improvement in expression, improvement in binding, whatever. And so that is basically a service. the new project we've launched, which is an antibody synthesis offering, customers go on the website, they choose which variant they want, then they upload those variants, we just synthesize them, and then the customer will do all the work of screening out for the function they want. So, basically, it serves a very similar purpose. It is very complementary. But in one case, with TaoTwist does all the work. And with the case of Synthesis from the website, the customer does all the work. So in the end, it's all the same customers that we are reaching out. We were trying to offer them as broad a menu as possible. If you want to do the work yourself, go on the website, help yourself, no problem. If you don't have enough capacity, we think we have an advantage in being faster and Let us do Taro, and we'll do the whole thing for you as a service.
spk05: Okay, thanks. Our next question comes from Rachel with JPMorgan.
spk11: Hi, guys. This is Casey on for Rachel. First one, how should we model the cadence of gross margins following the opening of the factory in the future, understanding that there's going to be some underutilized capacity at the open? you know, how long will it take to ramp to those gross margins that you just called out, the 50 to 52%? And then again, you know, when do you think you can get to 60% gross margin for the total company?
spk06: Yeah, so in terms of modeling at gross margins, for this year, I mean, gross margin guidance, we gave it 37%. We will give updated guidance for next year as we continue to ramp the factory in the future. I mean, overall, we're targeting... For Factory of the Future, 300 million revenue, about 50-52% gross margin, and just leave it to break even, and that's for the core business, and that's for NGS and SynBio. As we continue to scale towards 500 million, we're projecting gross margins in the range of 55% to 60%, and that's based on a 50-50 split in terms of revenue between SynBio and NGS. Okay.
spk11: And then, you know, you've previously mentioned for enzymatic that the error rate there will be equal or lower to that of the standard chemical approach. So just wondering what are the technical milestones that you'll need to hit to achieve that, and then what is ultimately giving you confidence that you can meet or beat those error rates? Thank you.
spk07: Thank you. That's a great question. There's a few things that we're trying to optimize. Error rate is definitely one of them. And linked to our rate is the length of the DNA. Another parameter that we want to optimize as well is the speed of the different reaction steps. And then last but not least, and probably most important, is the overall cost of the the reactions to synthesize an oligo. So it's a multivariable optimization. In terms of the milestones, we have to optimize the enzymes. We have to optimize the linkers and the buffers for the chemistry and the deblicking. So there's a lot of factors. and to really help us in optimizing all of those factors, we've developed an NGS-based platform. And so that NGS-based platform is greatly accelerating the speed at which we can try all of those different conditions. So instead of testing one condition and one return at the same time, We're able to test thousands or even hundreds of thousands of different mutants. And so right now we are cranking through all those experiments to optimize the condition. So absolutely, you're correct that the error rate and length is important, but so too are the speed of the reactions as well as the overall cost. And we're quite encouraged with our progress so far. And of note, A few weeks ago, our first patent got published. That patent shows one of the avenues that we're following to get a very innovative linker that provides a scarless DNA at a very low cost.
spk05: Thank you. Our next question comes from Puni Sada with SBB Securities.
spk09: Hi, you have Michael on for Kunit. Congrats on the quarter. I just wanted to ask one quick question regarding pricing. So obviously it's an important lever for twist, but with the inflationary environment, we were wondering if you could get any thoughts on how you're thinking about potential price lists.
spk07: Yeah, no, that's a great, great question. It's definitely a topic that we spend a lot of time on. Historically, we have been the high-quality price leader, and that has been selling us really well in making sure that we are growing faster than the market. and so we're looking at all the opportunities to differentiate ourselves. So one is the price, the other is the throughput that we have, the other is the user experience that we provide. At the same time, we are seeing price increases all around. Fortunately, our variable cost is quite small, as you know. That's one of the advantages that we have. So when our own supplier increases prices, the effect is mitigated. But we also understand that a great way to boost revenue and boost margin is to raise prices. So we are definitely studying the market, looking at what we can do. And our goal is definitely to deliver continued revenue growth, margin growth, market share growth, and pricing is a key element of that. So I can assure you that we're spending a lot of time on it.
spk09: Got it. Thanks. And then when it comes to liquid biopsy, I was wondering if you could provide any updates on the number of customers you're serving and how much you see liquid biopsy contributing to the overall NGS guide. Thank you.
spk06: Yeah, so overall, I mean, as I highlighted, the pipeline of our overall larger NGS customers continues to scale. Number of adopted increased. In terms of liquid biopsy, approximately we're tracking about 20 key liquid biopsy customers and I mean, we've obviously been adopted in a number of their tests. So as their test volume increases, our volume increases. But what's exciting for us is just the huge opportunity we see in NGS based on the value of our product. And, you know, in terms of guidance for this year, we've always said the second half is going to be stronger. And we feel good about our position for the 94 to 96 moving for NGS. And you saw our bookings increase sequentially this last quarter. Saw the pipeline increase sequentially. And the number of liquid biopsy customers we're tracking, as I said earlier, is about 20. Thank you.
spk05: Our next question comes from Catherine Schulte with Baird.
spk10: Hi, guys. This is Tom. I'm for Catherine. Thanks for taking the questions. Maybe you wanted to touch on academic markets. Jim, you think you touched on your prepared remarks, but any impact from Omicron in the quarter and how are research activities, activity levels trending and kind of what are your expectations here for the remainder of the year?
spk06: Yeah, it's a good question. The quarter was interesting. It started off actually from an ordering point of view. January was very was low. However, as we saw the quarter proceed, activity picked up in February and we had a really strong march. Overall, from an academic point of view, we continue to add a number of customers overall for the business, but also academic has held up extremely well. In terms of outlook, as we expand our portfolio and as we As we continue to expand the customer base, we believe that we're well positioned to continue growing aggressively in this space. Particularly when the factory of the future comes on, we'll be able to offer much faster turnaround time. And that really addresses the long tail of the market, the $1.4 billion opportunity. And we're going to start seeing revenue for factory of the future in January next year.
spk10: Okay, great. That's helpful. And then switching over to BioPharma, are you still expecting Revlar to submit an IND for its COVID antibody in the first half of this calendar year?
spk07: Yeah, thank you for the question. Revlar is an independent company, so we let them make their own announcements, but The objective of submitting for an AMD in the first half of this year is still the objective.
spk05: Okay, great. Thank you. Our next question comes from Matt LaRue with William Blair.
spk02: Hey, good afternoon. Just from the time that the effective future sort of opens in July to when you start shipping in January of 23. So what are the key steps and hurdles that you need to clear from a validation, quality control standpoint?
spk07: Well, thank you. Great question. So we're following the classic industrial steps of IQ or QPQ. So IQ is inflation qualification. So you can think of it as is the instrument plugged OQ is operational qualification, and so that is, you know, is the robot moving the way you expect it to move? And then PQ is performance qualification. Do you get the DNA that you expect out of it? So that's the broad framework that we follow. It's a lot more complicated because it's a system, and so there are multiple piece of equipment with very sophisticated software to track all the orders and direct the flow of orders through the different instruments, but basically that's the framework. We are very experienced in doing it. We have moved the fab within the Bay Area multiple times, so that's something that we've done multiple times. Here there is a additional complication of one, it's in a different state, but it's only a day trip away for engineers. And then two, we also are bringing on board a number of new employees that we have to train. And to help in that way, we actually had a number of twisters days in San Francisco that I volunteered to relocate. and be the initial nucleus of employees in Portland. So those are the metrics, IQ, QPQ, and then hiring of people. And then once we've done that, the next step is wrapping. uh ramping up of capacity ramping down of turnaround time uh as the uh the number of practice runs uh increase and then um at some point uh we'll um could be ready and we'll flip a switch on on the software uh that will do load balancing between the the different fabs and so some others will come in and some of them will be treated in South San Francisco, some will be treated in Portland, and then we'll be off to the races.
spk02: Okay, that's great. And on biopharma, you know, you've talked about sort of the conversation with customers becoming easier, sort of building a brand. I think in the past you've sort of referenced being the drug discoverer of last resort. I'm just curious if, you know, given funding dynamics, market dynamics, if that quote-unquote last resort might be happening a little earlier in the process, and given the focus on cash for some small biotechs, how open are you to discussions around the balance between the fee-for-service rate and the downstream economics?
spk07: That's a great question. So the drawing score of last result is still a great door opener for us. So we're definitely maintaining or leveraging that brand as much as we can. And then, as you know, as we've discussed in the past, once people try to, once they've had experience with the speed and quality of the antibodies that they get at the end, the next projects, we get the easy stuff and people are willing to pay more. In terms of our ability or our willingness to be flexible on economic terms, we are very flexible. But there's definitely a red line where any deal has to pay for our cost. So at the bare minimum, we're not going to do a deal that's not a gross margin positive. We're not in the business of subsidizing our customers' research. However, pay now, pay later. If there's an opportunity to be flexible and maybe get more of the downstream economy instead of all up front, I think we'll definitely be flexible and open to negotiations.
spk05: Okay. Thanks, Emily. Our next question comes from Vijay Kumar with Evercore ISI.
spk04: Hi, this is Alexandra on for VJ. Thanks for taking the question. I just wanted to start on R&D expense. You guys broke out that $40 million for DNA data storage, and I was wondering if we could expect to see a revenue contribution this year?
spk06: For DNA data storage? No. We're still in development in DNA data storage, as Emily highlighted. So this year, next year is development. We are seeing a lot of interest in the product. The alliance continues to scale. Technology development is going well. The more research we do in the market, particularly archival, we announced the 100-year archival product solution. So we feel good about where we are from a development point of view. And over the next few years or next year, we'll be able to give you updates in terms of how we're progressing. But our goal is to monetize data storage as quickly as we can.
spk04: Okay, and if I could just follow up on the alpha chip, could you give some color around that and the cost metric on it, as well as when we can expect further generation chips?
spk07: That's a great question. So we have seen that we're in the design of the alpha chip, so that's the first part of the design, production, and then debug cycle. In terms of cost, I think you referred to the cost of storing data. The ultimate goal of the alpha chip would be to be in the terabyte scale. So we'll be able to sell terabytes of storage to our customers. And we're in the process of doing a market discovery in terms of the price that we'll be able to achieve. So I don't want to signal too soon what the price will be. However, what we can say is that we'll definitely be competitive when looking at the total cost of ownership versus technologies that are available today. Today, we are competing for, again, tape, hard drive, and flash memory. And when you store data for 100 years, the total cost of ownership increases substantially over time because data needs to be migrated, maintained, and energy needs to be spent over that 100-year period. And so with DNA we have an opportunity to be very competitive against that total cost of ownership. So that is the zip code in which will be for the price of storage terabytes of data.
spk05: And I'm not showing any further questions at this time. I'd like to turn the call back to Emily for any closing remarks.
spk07: Thank you, Operator. Thanks for joining us today. We look forward to seeing you, or at least seeing some of you in person at the UBS conference in New York and the William Blair conference in Chicago and the Goldman Sachs conference in Southern California. Until then, thank you so much for attending today.
spk05: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Disclaimer