Twist Bioscience Corporation

Welcome to the Twist Biosciences fiscal 2022 third quarter financial results conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star one one on your telephone. Please be advised that today's conference is being recorded. I would now like to turn the conference call over to Angela Biden, SVP of Corporate Affairs and Chief ESG Officer.

Thank you, Operator. Good morning, everyone.

I'd like to thank all of you for joining us today for TWIS Biosciences' conference call to review our fiscal 2022 third quarter financial results and business progress. We issued our financial results release this morning, which is available at our website at www.twisbioscience.com. With me on today's call are Dr. Emily Leprous, CEO and co-founder of TWiST, and Jim Thorburn, CFO of TWiST. Emily will begin with a review of our recent progress on TWiST businesses. Jim will report on financial and operational performance. Emily will come back to discuss our upcoming milestones and directions. We will then open the call for questions. We ask that you limit your questions to a maximum of two and then re-queue as a courtesy to others on the call. As a reminder, this call is being recorded. The audio portion will be archived in the investor section of our website and will be available for two weeks. During today's presentation, we will make forward-looking statements within the meaning 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 our 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 will now turn the call over to our chief executive officer and co-founder, Dr. Emily Leproust.

Thank you, Angela, and good morning, everyone. During the third quarter, we continue to benefit from our position as a high-quality, low-cost leader, especially in the midst of a volatile macroeconomic climate. We reported record revenue of $56.1 million and almost $60 million in order, with trends coming from both Symbio and NGS. Beginning with Symbio, We reported strong revenue of $22.1 million, and while we did see some disruption coming both from China lockdown and COVID, we executed well from both a manufacturing and commercial perspective. As a reminder, we make all of our DNA in the United States, which provided an advantage over companies who make genes in China. Orders for the quarter were $20.5 million, but decreased sequentially due primarily to sustainability and a bit of softness from foreign exchange in Europe, and overall consistent with our pattern last year. We have completed the build-out of our additional capacity in the South San Francisco site, which allows us to produce over 200,000 jeans per quarter, enabling us to meet the increasing demand for jeans, in particular, while we bring on the Factory of the Future in Portland. We received temporary certificates of occupancy for the Factory of the Future in late June, and are now in the process of bringing up the site. We will go through the standard process of ITOQPQ, which is instrumentation and qualification, operational qualification, and production qualification. This is a process that we have gone through each time we move locations, so it's a familiar activity we've completed successfully three times. In the past, we physically moved the equipment from one site to another over a short period of time, usually a weekend, which is significantly more difficult than setting up a new FAB with new hardware while running a 24-7 production schedule. this time for the Fracture of the Future, while instilling all new hardware while continuing operations in South San Francisco. We remain on track to generate initial revenue out of the Fracture of the Future in January 2023, and as a reminder, bringing this slide online will allow us to deliver DNA faster. Recall that there is a large market of people who currently make their own DNA because they need it more quickly than is accessible today. With the factor of the future, we have the ability to significantly reduce our turnaround time to address this market opportunity. As a side benefit, we expect we'll be able to cover premium pricing and better margin. We intend to begin operations with our Symbio product suite and work towards introducing jeans with faster turnaround times shortly thereafter. For NGS, we reported revenues of $27.8 million on order of $30.4 million. We forecasted a strong back half of the year for NGS and this quarter is consistent with our guidance. The strength in NGS is driven by many factors, including scale-up of customers developing liquid biopsy as they prepare to launch a commercial test, our success in radiating within existing customers, and new business wins. During the quarter, we launched two new products for cancer research, the Methylol panel and our product to support our customers in developing minimal residual disease tests, or MRDs. These products build out our oncology offering and further differentiate us from our competition. For MRD specifically, we introduce a disruptive product that is customizable and highly cost-effective with a rapid turnaround time. Unlike PCR or implicant-based tests, which capture a few specific sequences, our panel captures up to 500 sequences, is highly scalable, and compatible with all exome and whole genome protocols. To be clear, This product is incorporated into our customer workflow and must go through pilot testing validation and verification before scaling up for commercial use. We expect the revenue round to grow as customers go through this process. We also launched several new controls for monkeypox and the newer variant sublineages of SARS-CoV-2. Importantly, we see continued effect of our circulating tumor DNA oncology controls, which we believe will be less dependent on public health cycles than respiratory controls. This product line has hold as delivered consistent revenue and is a nice entry point into new accounts. This week, together with BioShape, we received expanded emergency use authorization for NGS Assay for the identification and differentiation of SARS-CoV-2 pango lineages, as well as the identification of specific genomic mutations. While we are more than two and a half years into the pandemic, the virus continues to evolve and our customers still need the most robust tools to respond. During the quarter, and specifically at the AGVT conference in June, it was clear that the sequencing wars are back, with new providers entering the market and bringing differentiated solutions. We believe that as the cost of sequencing comes down, it will continue to drive the upward trajectory of sequencing volumes overall. As the trade-edge twists, for our MGS tools and specifically target enrichment, we expect demand to increase, particularly in applications that require deep sequencing like liquid biopsy and MRD. Importantly, our products work with a variety of sequencers for short and long read. We are sequencer agnostic and look forward to the continued growth of this market. For biopharma, we reported $6.2 million in revenue and $8.8 million in order. Revenue increased significantly year over year, but it's down sequentially primarily due to project delays and a few cancellations due primarily to budget constraints at specific customers, but we expect a strong Q4. We announced partnerships with Zillio in the United States and Edong in South Korea. We added six new partners for Twist Biopharma for a total of 53 partners. We initiated 11 new programs with 50 active programs ongoing as of June 30th. We now have a total of 67 completed programs for Swiss Biopharma. Of our 117 total active and completed programs, 55 have milestones and royalties. Swiss Boston, also known at various as 70 projects underway, in the third quarter, Swiss Boston signed seven new partnerships in addition to expanding existing relationships. With the pleasure of hosting an official rebunketing at our Quincy site, a streamlined facility that enables state-of-the-art individual antibody discovery work for partners. Turning to Revela, a company which is a Swiss biopharma with initial COVID-19 antibody assets. Their lead antibody candidates neutralize every then-known variants of concern of the SARS-CoV-2 virus, including Omicron. Unfortunately, recent data shows that it does not neutralize the latest variants, PF1, PF5, though it may pair well with other treatments. At this time, Revalard does not intend to initiate a clinical study for the antibody and will seek a partner to move it forward. In April, we entered in a research exclusive options and license agreement with Astellas for one of our twist bio-pharma discovered antibodies. Under the terms of the agreement, we will work with Astellas to jointly conduct research activities to further identify and optimize proprietary twist antagonist antibodies that they'll get an undisclosed checkpoint inhibitor. Astellas has the exclusive option to license any development candidates generated as part of the collaboration. We are very excited about this partnership, as it is our first out-licensing agreement. Astellas is a leader in Immune Oncology with its CAR-T and Immunosol donor cells, and it's a fantastic validation for the TWIS Bioforma Antibody Discovery and Optimization Platform. Under the terms of the agreement, TWIS received an upfront payment and upon exercise of the licensing option, TWIST will receive an additional grant. We are entitled to receive success-based clinical milestones and royalties on product sales for each product developed under the agreement. This is a nice aside for TWIST and will serve as an initial base to build on as we pursue larger and later stage opportunities. Our biopharma team continues to advance multiple antibodies through the discovery and optimization path, And because we are targeting logistics, we have the capability to move multiple programs forward in parallel. In regard to the overall macro environment in biopharma and the more restrictive funding environment, we continue to find out that our current offerings resonate. We do see some projects pushed out a bit due to budget management, but in large part, we believe those projects are not going away. With differentiated approaches for antibody discovery, we see solid interest and engagement with both partners and potential partners. And with a growing list of buyers and customers, our risk is diversified across a number of accounts and not dependent on just a few. For data storage, we continue to debug our fully integrated CMOS chip with electronic controls at one micron pitch. Our objective is to synthesize up to a gigabyte of data in a single run. Once we are able to achieve this synthesis scale, we will introduce a commercial data storage solution for early access customers. To enable the fastest time to market, our sanctuary archive will be offered as a storage as a service solution. Initially, we will start with a writing service, which will extend into writing, storing, and retrieving with pricing shared as we approach launch. As the technology matures and increasing automation can be realized, respect to introduce an accessible archive solution targeted to our data center environments, which will be located on premises at hyperscaler sites. Earlier this week, we shared a new white paper detailing the enterprise data storage market from further market research. This report highlights the dramatic need for new enterprise storage technologies that can be deployed at massive scale with minimal power consumption. DNA data storage fits these features and has the opportunity to address the coming demand that will not be able to be served by current storage technology. For perspective, the unmet demand could be as large as 27 zettabytes of data in 2030. And as a reminder, a zettabyte is a billion terabytes, and a terabyte is the highest capacity available in an iPhone today. The report estimates that about 75% of all data will be archival data, growing from about 60% today. And key industry executive interviews indicated the need for indefinite storage of data, which means that they do not intend to delay data ever. DNA data storage is well positioned to meet this upcoming demand as a new storage media with the key features of density, permanence, durability, reproducibility, and technology. In parallel with our technology development, we continue to make significant strides in building a market for DNA data storage. Last month, the DNA Data Storage Alliance became a technology affiliate of the Storage Networking Industry Association, known as NIA. This is an important evolution of the Alliance from an educational organization into a group that will also drive standard development that are required to build an interoperable ecosystem for the DNA data storage industry as a whole. And now, I'd like to turn it over to Jim to review our financials.

All right. Thank you, Emily. With another good quarter twist, revenue for quarter three was $56.1 million, which is sequential growth of 17% and year-over-year growth of 60%. This brings our year-to-date revenue to $146.3 million. Orders were $59.7 million for the quarter, a sequential increase of 9% and 53% year-over-year, bringing our year-to-date orders to approximately $164 million. Gross margin for the quarter was 44.8%. We shipped to approximately 1,900 customers for the quarter and now have shipped to approximately 3,000 year-to-date. And we ended the quarter with cash investments of approximately $528 million. Now I'll provide a deeper dive, starting with NGS. As we have highlighted on our previous calls, we anticipated a pickup in our NGS orders this second half, and in the third quarter, orders rose to 30.4 million, an increase of 64% year-over-year, and a sequential growth of 29%. This increase was primarily due to liquid biopsy, as well as other clinical and diagnostic applications. During the quarter, we received orders from approximately 550 NGS customers, which is a decline from 750 in the previous quarter. This is due to fewer customers ordering COVID controls, and as noted in previous calls, that our COVID control revenue has not been material. The top 10 NGS customers placed orders of approximately 14 million, or 48% of our orders, primarily due to pickup in our liquid biopsy customer demand. Our pipeline for larger opportunities continues to scale, and we're now tracking 249 accounts, up from 231 noted in our last earnings call. 114 have adopted twists, an increase from 104 last quarter. The increased orders flowed through, and our NGS revenue for the third quarter increased to $27.8 million, up sequentially 20%, and an increase of approximately 50% year-over-year. with the top 10 customers accounting for 50% of our revenue during the quarter. Now turning to SynBio, SynBio orders, which includes genes, DNA preps, IDG libraries, and oligopoles, declined sequentially to 20.5 million in the third quarter from 23.6 million. This is primarily due to declining clonal genes orders, particularly from Mia Pharma, which we believe is mostly related to seasonality and we had the same slowdown this time last year. Our SYNBio product revenue for the quarter was approximately $22.1 million up from $18.4 million, a 20% sequential increase and approximately 54% increase year over year. Some of the highlights include shipping to approximately 1,500 SYNBio customers. Gene's revenue was strong in the quarter and rose to $17.4 million up from $14.2 million in the second quarter and $11.2 million in the third quarter of fiscal 21. We shipped approximately 163,000 genes in a quarter, and that's up from 124,000 last quarter. All of the pools had a strong quarter, with revenue of 3.3 million, up from 2 million in Q3 FY21, with the increased demand primarily from the healthcare segment. Now to BioPharma. We continued to scale our BioPharma business, and orders rose to 8.8 million from 7.8 million in the second quarter. And REMU for the quarter was 6.2 million, down from 6.6 million in quarter two, primarily due to project timing issues, and five project cancellations, primarily due to budget constraints. For a Twist Biopharma antibody platform, we now have 53 partners, up sequentially from 47, and have 50 active programs with 67 programs completed, and back in the hands of our partners. Of our total programs, 55 include milestones and royalty agreements. Our Averis, our Twitch Boston business, doing well with 54 customer service in the quarter, including 37 projects on the Beacon platform. Please note, orders may not translate into revenue, but provide a trend line for each product group. I'll now cover our revenue breakdown by industry. Healthcare revenue, quarter three was $29.4 million, up from $17.4 million in the third quarter, fiscal 21. Industrial chemical revenue in quarter three was $15.7 million, up from $9.4 million in the third quarter of fiscal 21. Academic revenue in quarter three was $9.5 million, and that's up from $7.7 million in the third quarter of fiscal 21. I will now briefly cover our regional progress. The median third quarter revenue was $15.5 million, as compared to $12.7 million in the third quarter of fiscal 21. APAC continues to deliver robust growth. Revenue is increasing to $4.8 million, and that's up from $3.1 million in the third quarter of fiscal 21. U.S., including Americas, revenue is $35.8 million in quarter three of fiscal 22 versus $19.3 million for the same period of fiscal 21. Now moving down to P&L. Our gross margin for the quarter is approximately $25.2 million, or 44.8% of revenue, as compared to 40% in Q3 FY21, and up from 38.3% in Q2. The increased gross margin reflects the impact of higher revenues, in particular higher NGS revenues, and thus leveraging our fixed costs. Also note the fact that the future start-up costs are recorded in G&A, And COGS includes stock-based compensation of 1.2 million and depreciation of 1.7 million per quarter. Now to operating expenses. Our Q3 operating expenses, which includes R&D, SG&A, and change in fair value and mark-to-market adjustments of acquisitions was approximately 86.3 million as compared to 79.2 million in quarter two. To break it down, R&D for the quarter was 36.8 million an increase from $31.2 million in Q2, and that's primarily due to increased spend associated with biopharma, which includes Averis and Revlar, and also increased data saturation IGG spend. SG&A in Q3 was $53.7 million as compared to $54 million in Q2. Start-up costs for the factory in the future included in G&A expenses were $4 million in Q3, and that's up from $2 million in Q2. Change in fair value of contingent considerations and indemnity holdbacks for the quarter results in a gain of $4 million versus a gain of $6 million in quarter two. Stock-based compensation for quarter three was approximately $20 million. Depreciation was $3.1 million per quarter. And amortization was $1.4 million, primarily associated with acquisition, amortization, and intangibles. Our net loss before tax was approximately $51.2 million as compared to $6.8 million for quarter two. CapEx for the quarter was $40 million, including approximately $30 million for the factory of the future. And this now brings our factory of the future CapEx investment to approximately $73 million. Given the global supply chain challenges, we've been strategic about investing in our inventory, which remains at approximately $43 million compared to $45 million at the end of quarter two. We ended the quarter with cash investments of close to $528 million, and I'll now provide updated financial guidance for fiscal 22. We enjoyed strong bookings in the quarter, however, due to seasonality, and as more SARS-CoV-2 variants continue to emerge, we're projecting our Q4 revenue to be approximately $56.5 million, which brings our revenue to the year to be approximately $203 million, and that's up from previous guidance in the range of $191 to $199. SINBIO revenue in Q4 is estimated to be $21 million, sequentially down from Q3, which we noted earlier is particularly strong, combined with lower Q4 revenue expectations in the year. Our SINBIO guidance for the year is now $80 million, which is up from previous guidance of $71 to $73 million. NGS revenue is estimated to be $27 million in Q4. and our total revenue is now projected to be approximately $97 million for NGS, and that's up from our previous guidance of $94 to $96 million. Biopharma revenue, including Twist Boston, is estimated to be $8.5 million, and our biopharma revenue guidance for the fiscal year is expected to be $26 million as compared to our previous guidance of $26 to $30 million. Our FY22 gross margin is projected to be approximately 40%, Operating expense, which includes R&D, SG&A, and mark-to-market, are expected to be approximately $330 million for the year, including $125 million in R&D expenses. And that's down from our previous guidance of $130. Mark-to-market for the year is projected to be $12 million favorable. Factually, future startup costs included in SG&A are projected to be $12 million for the year. Our net loss guidance for tax for the year will be approximately $250 million, which includes stock-based comp, approximately $80 million. Depreciation of $14 million. Amortization of intangibles is projected to be $5 million. CapEx for FY10-2 is projected to be in the range of $95 to $100 million. And as we highlighted on our last column, we're focused on managing our cash and scaling our core business to $300 million in annual revenue and adjusted to be able to break even. We have lightness fight and scaling our biopharma business to just be able to break even the 80 million in annual revenue and believe we have the cash runway to achieve both. And with that, I'll turn the call back to Emily.

Thank you, Jim. To echo Jim's comments, we remain focused on driving to our profitability. Specifically for Symbio, we are focused on bringing in the factor of the future outside of Portland, Oregon, with initial revenue generated from this facility in January 2023. For NGS, Moving into our fourth quarter, with $30 million in order, sets the stage to finish the second half strong. We will continue to focus on radiating within existing customers, offering differentiated products, and expanding our market share, as we seek to own the market between the sample and the sequencer, particularly in the areas of liquid velocity, MRD, and RNA. In biopharma, we expect to add partnerships, programs, and move up the value chain, both for service offering and for internally generated antibodies. As we get closer to the on-out for the Boston team, we are planning an integrated portfolio of antibody discovery and optimization offerings, capitalizing on efficiencies and showing that 1 plus 1 equals more than 2. The combined solution fully differentiates TWIST from the rest of the pack, and we look forward to cross-selling as well as broadening our reach following the on-out period. In data storage, we have a roadmap to reach the terabyte scale, where 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 will continue to drive market awareness while actively participating in the development of interoperability standards for the industry. Overall, while we cannot control the overarching macro environment, we have a differentiated platform technology in our silicon-based DNA synthesis process. We have an exceptional team who comes to work every day to be the best, We have a plan to reach adjusted EBITDA break-even for the core business without accessing the capital market again. And we have tremendous opportunities ahead to grow our market share in each area, to introduce new products, and to truly disrupt markets. With that, let's open up the call for questions. Operator?

Thank you. As a reminder, to ask a question, you'll need to press star 11 on your telephone. Please stand by while we compile the Q&A roster.

Our first question comes from Matt Sykes with Goldman Sachs. Your line is open.

Hi. Good morning, Emily and Jim. Thanks for taking my questions. Maybe the first question just on the biopharma business. I know the full year guide is coming at the low end of your kind of previous guidance you guys talked about. some project cancellations due to budget constraints, but also about trying to shift into later stage programs. Could you talk about sort of your mix of, you know, potential emerging biotech targets and their funding issues? And do you expect additional project cancellations? And then secondly, you know, what is the strategy to kind of move into later stage biopharma? And how do you think that plays out from a timing standpoint?

Thank you, Matt, for the question. So as you're aware, there is a little bit of macroeconomic headwinds where the funding for a private company in biotech is a little bit more difficult now than it was a few quarters ago. And so we are seeing a little bit of that. However, we have a very strong and differentiated offering. And we have a large number of partners, so we are not as sensitive as if we only had a few partners that had issues. So the combination of our offering and the breadth of the people we are looking to insulate us a little bit, and as a reminder, We are the high quality low-cost leader. We are the leading edge of antibody discovery. So the offering that we have still resonates quite a bit. As far as your second point, what we have seen on the biopharma side, so the historical twist antibody discovery that we have been able to secure my sonorities, and which means that we're able to participate a little bit more into a later stage value add. We have not done that yet with the adverse in the Twist Boston that we brought in. Historically, that's not what their business was doing. And so now we can apply some of the learnings of how to approach commercialization of our services from the Twist biopharma, the original one, we can apply those learnings to the Twist Boston and participate more in the downstream economics. So like you said, there'd be some timing to it, but it's on the side that we'd like to start capturing.

Great. Thanks for that, Emily. And then kind of like a similar version of the first question, but taking the other side of it, and you kind of mentioned a little bit, just given your scale and cost advantage, not just in biopharma, but probably more importantly in SynBio. And given the kind of cost containment environment that we're in, how do you feel Twist is competitively, you know, advantaged in this space, given the fact that you can probably provide your customers cheaper materials at a larger scale? Do you think that will resonate if this, you know, cost conservation environment continues into 23? And do you feel like you're well positioned in that area?

Absolutely. On the SINDA side, that is definitely a strong selling point. We've always been significantly less expensive than our competitors with exceptionally high quality, same or higher than the competition. And so there were some segments where that resonated really well. If you look at the Ginkgos of the world where the approach is to try more data points, to get an advantage. There, having a lower, having a vendor twist, a partner with a lower price per gene, and that is extremely advantageous to that business model. So there we were already being strong. On the biopharma side, frankly, in our interactions in the past with some biopharma company, they were telling us, oh, your budget's not an issue. And now budget is an issue for them. And so for that segment, the bioformat segment, where they buy our tools, so the analytical tools, libraries, IGG, the everyday products that we've already had are definitely resonating. So definitely much bigger impedance match than on the Bioforma services. Services are a little bit more expensive. They are somewhat premium pricing. But on the Bioforma services, services are a little bit more expensive. They are somewhat premium pricing. But on the Symbio side, they're definitely a perfect match. between what the researchers are feeling on their pinches on their budget or the perception of future pinches on their budget and the product that we have that really stretches their dollars and enables them to get more and better data for a fixed budget.

Great. Thanks for taking my question.

We have a question from Vijay Kumar with Evercore ISI. Your line is open.

Hey, guys. Thanks for taking my question. Congrats on the CQ beef here. Maybe, Jim, one on the guidance here. The look at gross margin of the Q, really strong, but the guide implies Q4, a step down. Your book to bill came in a little low. You implied Q4 revenues, you know, implies flattish Q on Q. Was there any timing of revenues that benefit in 3Q? Or maybe just explain what drove the strength in the Q from the revenue and gross margin perspective?

Yeah, so good question, Vijay. We had a really strong quarter. Revenue was strong, particularly in NGS. And the overall symbiotic revenue was also good. We do have seasonality primarily driven by EMEA You saw the same step down last year in orders. So when we're putting together the plan based on the view in terms of where we see some of the European countries in terms of the vacation period, so we're prudent in terms of our forecast for the quarter and also we're also very mindful of what's happening with the new COVID variants. So as we As we thought about our guidance, we thought we'd give prudent guidance for the quarter. Overall, NGS continues to do well. The pipeline continues to grow. As we highlighted, overall NGS, the orders for the first nine months are now 76 million, so very strong. We saw a very strong pickup in orders in Q3. Some of that translated I mean, our view is that we will see a good solid Q4 and we put together prudent guidance just based on the seasonality.

That's extremely helpful, Jim. And Emily, one for you on data storage. If I just understood you, you know, we're now at the alpha chip stage, is that right? And what are the... I guess hurdle is going from alpha to beta. Is that a technological hurdle or maybe just laid out to us on what needs to be done and how much risk is there in this project?

Thank you, Vijay. Great question. So on the data storage, the way I look at it, there's three components. One is the bottom side of the silicon chip, so the CMOS logic. Then there's the top layer of the silicon chip where the DNA is made. And then there's the chemistry that we are going to deploy. And then we have to get all of those three components to work together. And so the CMOS section, which is very complicated, very advanced silicon technology is very similar from the alpha chip to the beta chip so getting it to work gives us massive confidence for the beta chip and then what has to mostly get developed from the alpha to the beta chip is the top layer of the silicon chip which from our analysis as substantially less risk. And then one, now that we have been able to get the chip working at 5 microns, we are in the final stages of debugging a 1-micron chip. We believe it would be relatively straightforward. It still takes some time, but there's not a lot of um miracles that need to happen is just serious engineering to go from the alpha to beta so then just to put things in perspective um the chip we have is at one micron pitch and we have 256 million features as a silicon chip and uh just uh in the recent past uh one of our competitor DNScript released a paper about their progress on data storage, and their silicon chip has 256 features. We have 256 million features, and their feature size is 100 microns, and our feature size is 1 micron. So hopefully it gives you the perspective of the leaps and bounds how we are leaps and bounds away from what others are doing.

That's helpful. Thank you, guys. One moment.

Our next question comes from Luke Sergat with Barclays. Your line is open.

Hey, this is Jake Putman in for Luke today. Thanks for the question. So on Factory of the Future, can you give a sense of the backlog that you're seeing there and how quickly the new capacity is going to fill and contribute to revenues? Will it be all at once or in steps?

Sure. So I can start. Thanks for the question. If I see the future, we're going through qualification right now, and we anticipate over the rest of this year, We'll start to do the initial debugging and testing and running initial runs. So we don't start shipping revenue until early next year. You know, this quarter, we had a really solid quarter in terms of orders. NGS and SynBio, we've increased our capacity in San Francisco. So we're well poised to grow the business, and we're really well positioned.

next year as we start to to record revenues in January of 23 that's really helpful thank you and just one more if you don't mind could you update us on what's going on in China and what's happening there from a share dynamic how big the business is and what the mix is like yeah so for China we had a

As we go to the earnings call, we have another strong quarter in Asia. Our actual China business with revenue is about $1.7 million, slightly. I think it was flat with last quarter. Last year, last fiscal year, revenue for China was $4 million. This year, we're anticipating revenue for $7 million. Although, obviously, the Chinese market has been impacted, we've done an exceptionally good job of being able to service our customers, and we're We continue to be optimistic about our opportunities in China and Asia. We're doing extremely well in terms of gaining customers in Korea, Japan, and other countries.

That's perfect. Thank you so much.

We have a question from Puneet Sauda with SVB Securities.

Your line is open.

Hi, Emily, and Jim, thanks for taking the question. So just a couple for me. In biopharma, given the cancellations that you're seeing and maybe fewer customers given the smaller biotechs, do you think this pushes out timeline to get a product into the clinic or into the phase one? And then more importantly, what are you doing in that business now to ensure that you strengthen the funnel the incoming funnel for projects again, because I assume that, you know, the guidance reduction that you have is related to that, but there were a number of other smaller biotechs that are under pressure that could potentially cancel those projects as well. So just wondering, you know, what are you doing in that business to ensure that you have a stronger funnel for 2023?

Thank you. Great question. So the first question, delays in the clinic. As a reminder, once we are done with our work, we give the antibody to the preclinical development, and then it goes into the clinic. So as a reminder, we don't have really any impact at all on the timing of those programs. And we don't have a lot of visibility to that. However, we do know that some trees DNA is very close from going into the clinic and we look forward to celebrating that milestone when it happens. And it is possible that some of the partners to whom we've given back antibodies and that we're planning, that we're in the process of doing IND, it is possible that some of those programs have been rationalized. But again, we have absolutely no visibility to that. And then on your second question in terms of what are we doing, actually, we have a very nimble and bleeding edge R&D team both in BioPharma in South San Francisco as well as in Twist Boston in Boston and based on the recent dynamics in the market they actually have developed a slightly different product offering that leverage all of the infrastructure that we have, but that are slightly more in tune with what researchers are looking for at the moment, and especially with Boston. We have new offerings where maybe the cost of what we're offering is a little bit lower to the customer, Interestingly, when we look into the process, it's actually a better margin for us, and early indications are that that is also resonating with customers. So there's an opportunity to maybe get a little bit less revenue per project, but have some product line in addition to what we already had that is potentially resonating for a market that is newly price sensitive. So we are definitely continuing to innovate, to be very close to what the customer needs, understand their needs, and be able to respond with best-in-class services that respond to their scientific needs, and that fits their budget. and that fits our financial milestones in terms of the margin profiles that we want to achieve.

Got it. That makes sense. And then for Jim, I mean, Jim on gross margin came in strong this quarter. You're guiding to a number that is higher than what we had for the year. So, I mean, when we think about Factory of the Future coming online, shouldn't that impact gross margins at least initially in 2023? And how should we start to think about gross margin cadence here over the next couple of quarters?

Yeah, so good question, Puneet. Yeah, I mean, as we launch the factory future, we're going to have underutilized capacity that will impact gross margin. Our line of sight is to scale the factory future as quickly as possible. And when we're targeting $300 million revenue adjusted EBITDA break-even, our gross margin target there is about 51%. And as we continue to scale the business, we're looking at a gross margin range of 55% to 60%. I think it's notable this quarter that we achieved gross margin of 45%. And when you look at adding back depreciation, stock-based comp, you can figure out the math for the cash gross margin. So the setup is extremely strong for us. I mean, our goal is to scale factory to future as quickly as possible. We haven't broken out the guidance for next year yet, and we'll do that on our earnings call, our next earnings call.

Got it. And then on the EBITDA guidance, that's for $300 million. Does that include only, just to be clear, that includes only NGS and SynBio?

Yeah. So as we said in the call, that's for NGS and SynBio. That's a core business, the $300 million. And also we're targeting adjusted EBITDA break even at $80 million for a biopharma business as well.

Got it. Okay. All right. Thank you. Thanks, Jason.

Our next question comes from Matt LaRue with William Blair. Your line is open.

Hi, Jim. Hi, Emily. This is Max. I'm from Matt. Appreciate you taking our questions. I wanted to follow up on BJ's first question, specifically asked about the massive gene shipments number this quarter. Is there anything that we should be aware of there in terms of large one-time orders? And then In terms of the guidance for SynBio revenue in 2023, your updated guidance for this year, I think, calls for over 50% growth. And you've been pretty clear that you had the potential to grow twice as fast as the market. So is it fair to think about SynBio growth potentially being up, you know, close to another 50% next year? Or just in general, how are you thinking about the outlook for SynBio moving forward?

Yeah, so on you go, Am I?

Maybe I'll take the first part. You'll take the second part. So on the first part, on the volume, if you recall, we talked about capacity in two access. One is total capacity, and then the second is surge capacity. And as management, what we have to do is predict volume, and we could see a few quarters ago not only the total demand was growing, but also the surge demand, where there were big orders once in a while coming, were happening. And so that's why we decided a few quarters ago to increase capacity in South San Francisco before we had the fact that it was true, because we knew that if we didn't do that, there could be a point where we may not have the capacity to say yes to those big orders coming in. And so that's what I think we do well as a management team, is anticipate the need and execute really well. And so that's what we did. The team built that extra capacity. And indeed, that's what happened. There have been a few big orders coming in. And those are very lumpy, very big, great for our for amortizing the fixed cost. And we're able to take them, book them, ship them in greater time. And so the expectation is that this will continue. It's hard to predict. Are they going to come in this week or three weeks from now? multiple customers that come in regularly with very big orders. So that's one of the things we have to plan for. Again, not just the total capacity, but the search capacity. Maybe I'll turn it to you for the second part of the question.

Yeah, so Max, if you just step back, I mean, we're the low-cost provider in the market. You know, when we bring on Fact of the Future, we're going to have a very fast turnaround. So this macroeconomic environment is a great setup for us. You know, SynBio, you know, it's interesting, SynBio orders here today are 66 million. And, you know, as Emily highlighted, we have increased capacity in San Francisco, and we're excited about the potential opportunities to continue to scale up in Fact of the Future and really bring a tremendous platform to the market. So you're right, we're growing twice as fast as the market, and our view is that we're going to continue to aggressively expand.

Got it. Thank you both for the call. That's very helpful. I wanted to turn to NGS. Jim, I think you mentioned during the call that the strength in NGS was driven by pickup and liquid biopsy revenue, and last quarter you had mentioned that you're working with more than 20 companies developing liquid biopsy tests. As a first part, do you have any update on this figure in terms of how many companies you're working with today? And then any detail you can share around how many of these customers are actually in production versus pilot and validation? And what have you learned about how volumes from these liquid biopsy developers scale over time as they move towards commercialization?

Yeah, so very strong quarter. And as we highlighted, the second half of this year, we're going to see a step up in NGS. That happened in Q3. And that is driven primarily by liquid biopsy. Number of customers we're dealing with is roughly around the same. And the overall setup is we continue to expand the large customers we're dealing with. The number of adopted continues to scale. And we're seeing tremendous opportunities. You've got all these new platforms coming in the marketplace. What that means is there's more opportunities for twist. So I think the setup for us on NGS, whether it's liquid biopsy or other applications, is really looking good. I mean, we've got great product and we've got a great team, and it's really nice to see that orders this last quarter are at $30 million. And we're very optimistic in terms of where this business is going. Got it.

Thanks again for taking our questions.

We have a question from Catherine Schulte with Baird. Your line is open.

Hi, thanks for the questions. I guess first on NGS, great to see the orders ticking up there. Were there any one-timers in that order book or in revenue for the quarter? And then guidance assumes that revenue there is down slightly quarter to quarter despite that uptick in orders. And Jim, it sounds like you said some of those orders turned into 3Q revenue, but any color on the moving pieces there sequentially?

No, there was no, I mean, there was a pickup in terms of the business, but we, by customer, we did see some large orders come in, but that's driven by liquid biopsy and that's driven by the nature of the demand from those customers. The small sequential decline in Q4 from Q3, I mean, that's really driven by seasonality and driven by seasonality and our guidance there. We did see a big jump up from Q2 to Q3 in business, and the pipeline continues to scale, and at the same time, we're being prudent in our forecasting.

Okay, great. And then I was hoping you could give some more color on the Stella's outlicing agreement. What are the next steps there, and any key steps in the timeline that we should expect to hear updates on how that's progressing?

Maybe I'll jump in. So the business terms have been agreed to and announced. So now we are doing biology, basically. So we're doing the work that we do at UIST. The path to the next step from a scientific point of view is extremely well-defined and has been extensively agreed to in the contract. And so it's all about going through those scientific steps and delivering the milestones that we agreed to to STLS and then start booking some of the more downstream milestones. So we're very, very excited about it. It's a great template for what we want to do more of.

Great. Thank you.

We have a question from Steven Ma with Cowan. Your line is open.

Oh, great. Thanks for taking the question. A lot of ground already covered, so I'll keep it quick. But yeah, maybe just to continue on the ASTELLAS license agreement, just wondering how, you know, how has your pipeline discussions evolved post-ASTELLAS, given that it was a validating partnership in a hot area in oncology? Has that increased the number of inbound you guys have been getting?

Yeah, so we've had a very robust business development team and approach to adding more deals like Astellas. If you follow some of the industry conferences for the first time, Last year in 2021, we had a significant presence at BIO. We did that again this year. And so, as you probably know, BIO is where a lot of those business discussions around deals happen. And we can definitely see that the level of engagement gets more and more robust over time. And definitely, that is a great win in ourselves to engage further with other partners on other targets that we have.

Okay, great. That's helpful. And then my second question is, you know, given this macro environment where people are trying to conserve cash, Has that impacted the calculus on new partner deal structures? That is, you know, are you seeing less upfront payments, for instance, and then, you know, more back-end economic weighting? What kind of trends are you guys seeing there?

So that's not our business model. We're not in the business of subsidizing someone else's work. So, so far, we... We have been very steady in the pricing and actually the pricing increased from last year to this year. And so we haven't been trading gross margin for down for more downstream data. We have not been doing that. And I don't think we have any plans to do that.

Okay, that's really helpful. Thanks for the questions.

Thank you, and there are no other questions in the queue. I'd like to turn the call back to management for any closing remarks.

Thank you very much for joining us today. Our team continues to execute across the board, and we have a task to adjust the EBITDA breakeven with significant opportunities in Symbio, NGS, Bioformat, and data storage. We look forward to seeing some of you in person at the UBS conference in Southern California. and the Baird Conference in New York. With that, we close the call. Thank you so much.

Thank you for participating. You may now disconnect.