PTC Therapeutics Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 17, 2023

There are 12 speakers on the call.

Operator

Welcome to Twist Biosciences Fiscal 2023 4th Quarter Financial Results Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. Please be advised that this call is being recorded. I would now like to turn the conference call over to Angela Bidding, Senior Vice President of Corporate Affairs and Chief ESG Officer.

Speaker 1

Thank you, operator. Good morning, everyone. I'd like to thank all of you for joining us today for Twist Biosciences' Conference call to review our fiscal 2023 4th quarter and full year financial results and business progress. We issued our financial results release this morning, which is available at our Web .com. With me on today's call are Doctor.

Speaker 1

Emily LaProust, CEO and Co Founder of Twist And Jim Sorburn, Acting CFO of Twist. Emily will begin with a review of our recent progress, and Jim will report on our financial and operational performance. Emily will come back to discuss our upcoming milestones and direction. We will then open the call for questions. We would ask that you limit your questions to only one As a reminder, this call is being recorded.

Speaker 1

The audio portion will be archived in the Investors section of our website and will be available for 2 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 Our expectations and beliefs regarding these matters may not materialize and actual results and financial periods are subject to risks And uncertainties that could cause actual results to differ materially from those projected.

Speaker 1

These risks could include those set forth in the press release we issued Based on information available to us as of the date hereof, and 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, Doctor. Emily Leprouss.

Speaker 2

Thank you, Angela, And good morning, everyone. Fiscal 2023 was a year of growth and strong execution for Twist. We grew our business with revenues increasing 20% year over year. We completed internal integration of our biopharma group and we implemented strategic action to align our cost structure End at optimizing our operations with a clear focus on increasing gross margin along our accelerated path to profitability. We invested in our best in class innovation to set the stage for near and long term success.

Speaker 2

And now, we are focused on profitable and scalable growth Moving to fiscal 2024 and beyond. Getting into the specifics for the Q4, we grew revenue to 16 $6,900,000 $245,100,000 for the full year, exceeding our updated guidance for the quarter Our gross margin was approximately 37% for both the quarter and the year, and we ended the year with approximately $236,000,000 of cash, cash equivalents and investments. Across the business, our efforts took over the last 3 and 4 months in building the Williston facility, Extending our production lines and streamlining workflows are now benefiting both our synbio and NGS product lines To allow us to deliver what our customers need. Within our factory in Wilsonville, we have analyzed each Process in the Syn Bio workflows remove excess time and our production data shows that we are able to turn genes around in 6 business days consistently. This is an incredible feat and one that requires all hands on deck to optimize every process and procedure.

Speaker 2

This robust workflow now allows us to make more Cymbal products in less than half the time we could even 1 year ago. On Tuesday, we launched XpressGene, what we previously called FastGene. This is the first product that will directly benefit from And as been made possible by the time and infrastructure investment in our Wilsonville facility, with Express Gene, we have the opportunity to increase contribution margins for the Syn Bio I'd like to note 4 important things about how the launch of Express Genes impacts Our business. 1st, this is our clonal gene service, our bread and butter of the Syndio products, but As of our ClonalGenes order qualify for this Express Gene service today, we have an eye towards expanding to the majority of ClonalGenes orders moving forward. Genes that do not qualify for Express service will continue to be ordered at standard speed and will be priced starting at $0.09 per base pair.

Speaker 2

For Xpresse jeans, it is the same great product delivered faster, and so we charge a premium price for that speed. The price will be dynamic based on how full the fab is. 2nd, all genes, whether standard or express, will be manufactured on the same manufacturing line. This is a streamlined, highly automated process where all genes go through the same steps. Standard genes will either wait before or after synthesis As we will use standard engines to maximize cheap utilization, this is similar to our airlines use standby passengers to run planes that are as full as possible.

Speaker 2

3rd, with higher revenues through premium pricing for Expressgene, we expect to see margin improve. Our objective with pricing is to expand our market opportunity significantly into the makers market as well as capturing additional customers within the buyers market. This means that our offering must resonate as a cost effective alternative to customers making and cloning the genes themselves. Working with pricing experts, our initial dynamic price range is designed to optimize our pricing in a way that will not alienate Existing customers. At the same time, we expect to increase our margin from this differentiated product line while serving a large unmet need for our current and future customers.

Speaker 2

4th, because we are making all genes at extra speed, our genes Capacity for our Wilson Village site is now close to double compared to the 10 days turnaround time production timeline. That's a strategic and key point that allows us to continue to scale. Also note that we have implemented the improvement in turnaround time throughout the synbio So our gene fragments can now be delivered in ASH US2 business days and oligopoly in ASH US3 business days. For Framat and Allego Pools, we are pleased to offer this product at competitive pricing without a premium. The enhanced speed and efficiency of our operations have With the successful launch of Xfinity Gene, our aim is twofold: to scale up our gene volume with existing customers and to attract new customers, thereby expanding our market reach.

Speaker 2

In the initial phase of launch, we are directing our efforts towards our current customer base. Once we know the workflow is tried and true, we will end up our marketing efforts, targeting customers' conversions from competitors as well as new customers who have not yet used Twist for their clonology needs. As we run Express Jeans, We expect the book to bill ratio will essentially approach 1, as there are so few days between order and delivery. As such, orders for synbio becomes less informative. The trend to watch will be revenue growth in synbio.

Speaker 2

Importantly, the speed of X-ray genes unlocks additional applications, including long genes, complex genes, additional IgG antibodies, as well as mRNA Production. So not only are Express Genius an opportunity to increase margin and take market share, but they also laid a foundation for growth into the future. Moving to AGS, over the course of the year and particularly in the 4th quarters, we saw the work we have done with Customers to optimize their workflow over time begin to pay off. Several key customers are now scaling production for validation and commercialization. In addition, we see strength driving into the middle of the market.

Speaker 2

We see an increasing number of customers using our RNA Seq workflow And several customers are implementing our minimal residual disease or MRT workflow. We believe both of these product At a high level, Our life sciences, bio and NGS products grew at more than 23% year over year. Production is reaping. As we think about our trajectory towards profitability, We believe we have set ourselves up for success. We have momentum going into fiscal year with the launch of Express genes and the ability to unlock future product lines.

Speaker 2

We have NGS tractions with the top and middle of the market as well as initial R and A seek and MRV uptake And an energized team that is committed to driving the business forward towards profitability and scalable growth. As a management team, we have a strong track record for executing against our strategy, growing our customer base and driving best in class product innovation. We are now laser focused on increasing our gross margin and driving towards profitability. Turning to biopharma. We have effectively addressed our internal integration challenges and as of early October, our commercial team was fully staffed With all territories covered, we've shared that it typically takes about 6 months for a new representative to come up to speed and orders for biopharma directly translate into revenue In the 3 to 6 months time frame.

Speaker 2

For the Q4, orders increased quarter over quarter for the first time this fiscal year. We see this uptick As a positive sign of help for the overarching biopharma services business. Of note, the majority of our orders came from large pharma. The last few months, we announced agreements with Ono Pharmaceuticals, Bayer and more, and we are cautiously optimistic that the Q4 of 2023 We represent the low point for biopharma revenue as the spectrum for synbio all the way through biopharma services is gaining traction. The Biocenteric Group continues to provide a strategic advantage, allowing us to utilize our synbio products, including genes, fragments, oeuvapools, libraries and IgG antibodies, All the way through to antibody discovery optimization and humanization services, differentiating us from our competition and providing upside Our acquisition of Advairis broadened our offering beyond synthetic laboratories And enabled in vivo discovery through animal models.

Speaker 2

This has been integral in extending our comprehensive offering. Now fully integrated biopharma provides a full menu of in vivo, in vitro and in silico services to our customers. This means that we have a powerful comprehensive offering that is able to meet varying customer needs under one roof. For example, Our large pharma and biotech customers often pick and choose from a broad menu based on their needs, whereas smaller companies often benefit from a full end to end offering. Finally, our in situ services enable us to provide more sequences and hits for our customers in vivo and in vivo projects, which maximizes their chances of success.

Speaker 2

For data storage, we have made progress in our approach to enzymatic synthesis for this application. We're working to implement an industrial grade codec, the encoding and decoding algorithm with a large industry partner. We remain on track with our plan to demonstrate an end to end Gigabyte Century Archive workflow by the end of December, with the early access Launch of a terabyte Sentry Alcar solution expected in calendar 2025. On the corporate side, We added a key operational leader in Mark Buck as our SVP of Operations. He brings a military background as well as deep expertise In supply chain, quality and production, at his prior company, he was responsible for 21 production facilities And we look forward to the perspective he brings with respect to optimizing our operations further for scale and improving gross margin.

Speaker 2

With that, I'll turn it over to Jim.

Speaker 3

All right. Thank you, Emily. We're happy to report we hit another record in orders and revenue For our Q4 and full fiscal year 2023, I want to thank all our Twister customers and partners who made this possible. Revenue for quarter 4 grew to $66,900,000 which brings our revenue for fiscal year ending September 30 $245,100,000 as compared to $203,600,000 in fiscal 2022, And that's year over year growth of approximately 20%. Orders increased to $71,100,000 for the quarter, Bringing orders for the year to approximately $264,000,000 and that's year over year growth of 17% and gross margin for the quarter increased to 30 6.6% and was 36.6% for the year.

Speaker 3

We also increased our customer base to approximately 3,450 and that's up from 3,300 in fiscal 2022 and we ended the year with cash investments of approximately 336,400,000 Now I'll provide a deeper dive starting with NGS. NGS revenue for the 4th quarter grew to approximately $37,100,000 Compared to $29,200,000 in the Q4 of fiscal 2022 and that's an increase of 27% year over year. And for the full year, revenue increased to $123,700,000 for fiscal 2023 as compared to $99,300,000 in fiscal 2022 And that's year over year growth of 25%. The record revenue for fiscal 2023 was due primarily to an increase in revenue from our top 10 customers, Which accounted for approximately 37% of revenue for the year. We served approximately 10 20 NGS customers in fiscal 2023, And we believe our NGS products have a compelling competitive advantage and save our customers' downstream sequencing costs.

Speaker 3

And this advantage reflected in our orders Q4 of $39,100,000 $131,500,000 for the year and that's 26% year over year growth. As we've noted in our previous calls, we track the larger account opportunities, that is accounts we believe have potential to be larger than $250,000 per year And overall count remains at 279 with 131 adopted, which is the same as last quarter. At this stage, we believe we identified the vast Majority of players in this market will be focused on landing and expanding these accounts. Now turning to Syn Bio Products, which includes genes, DNA preps, IgG, DNA libraries and all of your goals. We had another strong year and excited about leveraging our investments in our Wilsonville facility.

Speaker 3

Synbio revenue for the quarter was 26,500,000 Bringing revenue for fiscal 2023 to $98,200,000 up from $80,000,000 in fiscal 2022 as we continue to expand our customer base and product offering. Synbio orders for quarter 4 were $26,200,000 which brings our fiscal 2023 orders to $110,900,000 up from 90 7,000,000 in fiscal 2022, and that's 22% year over year growth. Some of the highlights include growing our customer base to approximately 2,700 Syn Bio Customers in fiscal 2023 as compared to 2,300 in fiscal 2022, we increased our jeans revenue to $73,500,000 versus $61,500,000 which is year over year growth of approximately 20%. And we shipped 634,000 genes in fiscal 2023 as Compared to $558,000 in fiscal 2022, all good pools revenue grew to $14,500,000 And that's up from $12,400,000 in fiscal 2022, mainly due to strong growth in academic and large pharma customers. And library's revenue was $10,200,000 and that's up from $6,100,000 predominantly due to growth in large pharma and industrial biotech.

Speaker 3

For biopharma revenue for the Q4, it was $3,400,000 bringing the total revenue for biopharma to $23,200,000 in fiscal 2023 and that's a decline from $24,200,000 in fiscal 2022. Importantly, orders for the quarter rose sequentially to $5,800,000 to $3,500,000 in quarter 3 and the number of active programs declined from 82 to 69. Revenue projects started in the quarter increased from 34 in quarter 3 to 44 in the 4th quarter and that's associated with the recovery in orders And the total number of completed programs as of September 30 was 806, with 68 including milestones and or royalties. I'll now briefly cover our revenue breakdown by industry and give you provide a regional update. Healthcare revenue rose to $137,100,000 for fiscal 2020 3 compared to $106,400,000 in fiscal 2022 Industrial Chemical revenue rose to $59,300,000 And that's up from $57,900,000 in fiscal 2022.

Speaker 3

And academic revenue was $45,800,000 and that's up from $57,100,000 in fiscal 2022. On a regional basis, EMEA revenue rose to $71,400,000 versus $62,100,000 in fiscal 2022. APAC increased to $22,500,000 compared to $19,100,000 in fiscal 2022, including China revenue of $7,000,000 which is flat with the previous fiscal year. U. S, including Americas revenue increased to $151,300,000 in fiscal 2023 versus $122,500,000 for fiscal 2022.

Speaker 3

Now moving down to P and L, our gross margin for the 4th quarter increased to 30 $119,300,000 in the prior year to $155,400,000 in the year ended September 30, 2023. The major factors contributing to the increase in cost of sales were a $14,700,000 increase in material costs due to higher volume, $9,900,000 payroll and approximately $12,000,000 depreciation and amortization costs. Our operating expenses for fiscal 2023, which includes R and D, SG and A and change in fair value and mark to market adjustments Acquisitions decreased to approximately $306,800,000 as compared to approximately $319,000,000 in fiscal 2022. To break it down, R and D for the year was $106,900,000 a decline from $120,300,000 in the previous fiscal year, primarily due to the conclusion of Revilar. Depreciation included in R and D was $4,000,000 for fiscal 2023.

Speaker 3

SG and A for the year was $190,000,000 and that's a decline from $212,900,000 which includes a 43,000,000 Dollar reduction in stock based compensation expense, offset by increases in pre commercialization costs, Facilities, payroll and IT related service costs. OpEx includes approximately $38,000,000 for data storage spend in FY 2023. Change in fair value of contingent considerations and identity holdbacks for the year resulted in a gain of $6,000,000 versus a gain of $14,000,000 in fiscal 2020. For restructuring and other costs, we invested approximately $16,200,000 for the strategic initiatives we announced in May, With $9,400,000 to support our valued employees, the severance packages as well as assets impairment charges of $6,800,000 Stock based compensation for the year was approximately $30,300,000 as compared to $80,000,000 in fiscal 2022. Depreciation and amortization costs were $29,000,000 for fiscal 2023 and loss from operations was approximately $217,200,000 $23,000,000 as compared to $234,800,000 in fiscal 2022.

Speaker 3

Other income and expense was a gain of $14,300,000 Associated with interest income, CapEx for the year declined significantly to approximately $28,000,000 from $101,900,000 in fiscal 2022 And we exited the year with $32,100,000 in the range of $39,000,000 at the end of fiscal 2022 and concluded the year with cash investments I will now provide updated financial guidance for fiscal 2024. We enjoyed record bookings in quarter 4 and are excited about launch of our Express Jeans. Our Wilson Mill facility is doing well And we took actions during the year to manage our cost structure as we transition Syn Bio activities to Wilsonville. For fiscal 2024, We expect total revenues to increase in the range of approximately $285,000,000 to $290,000,000 Syn Bio revenue of approximately 100 and $13,000,000 to $116,000,000 NGS revenue of $147,000,000 to $149,000,000 And biopharma revenue approximately $25,000,000 gross margin of approximately 39% to 40% Operating expense of approximately $294,000,000 to $298,000,000 which includes $100,000,000 to $102,000,000 R and D expenses, 194,000,000 to 196,000,000 SG and A expenses. Loss from operations guidance were taxes approximately 180,000,000 to 188,000,000 Stock based compensation of $58,000,000 to $60,000,000 depreciation and amortization of approximately 40,000,000 Data storage operating expense is approximately $37,000,000 to $39,000,000 CapEx for FY 2024 is projected to be approximately 20,000,000 Ending cash of approximately $245,000,000 For the Q1 of fiscal 2024, we expect overall revenue of 67 $268,000,000 Syn Bio revenue of $27,000,000 NGS revenue of $36,000,000 to $37,000,000 biopharma revenue of $4,000,000 gross margin of 38% to 39%, OpEx of 73,000,000 And loss from operations of $47,000,000 to $48,000,000 In summary, we continue to maintain financial discipline throughout the organization and make progress in reducing our operating We expect to exit the Q4 of fiscal 2024 at $78,000,000 revenue and our Estimated loss from operations to be $38,000,000 to $40,000,000 which excludes any one time adjustments and includes stock based compensation of $15,000,000 depreciation of $10,000,000 and data storage cash operating expense of 8,000,000 We continue to make decisive and proactive actions to achieve profitable growth.

Speaker 3

To achieve this, we're focused on scaling Express Jeans, Offering and leveraging our investments in the Wilsonville facility, managing our costs and continue to execute by growing revenue, expanding our gross We're incredibly excited about the future and confident that the year ahead will bring many exciting milestones achievements. With that, I'll turn the call back to Emily.

Speaker 2

Thank you, Tim. I'd like to take a minute to thank all of the Twisters for their dedication, commitment And excellent through the last fiscal year. The year requires perseverance and discipline across the board, and our financial results Reflect the hard work of the team. Our Cinbio and NGS groups are stronger than ever, demonstrating consistent and sustained growth in revenue, Customers and market share. We expect our strategic investments in these areas will fuel our next leg of growth and pass profitability.

Speaker 2

In the months ahead, we look forward to reporting on the uptake of our Xpresse Jeans launch and the resulting impact on gross margin. We've given guidance for fiscal 2024 and in that guidance, we assume that Express Gene will grow over time with some current customers transitioning to these new products, but primarily new opportunities moving forward as we leverage our digital marketing infrastructure and tools To reach new customers and the long tail of the DNA makers, the biopharma service groups booked increasing orders in the 4th quarter, We expect the positive momentum to continue. In addition, we continue to advance our solutions for DNA data storage that has the potential to be a valuable asset Longer term, in summary, we exited fiscal 2023 with a solid cash position, growing revenues, reduced cost structure An incredible opportunity is ahead. We have built a diversified and complementary portfolio of products, services and future opportunities that puts the company in a And this is an area of our current and future focus. In May, we implemented strategic adjustments aimed at optimizing our operations with a clear focus on enhancing gross margins.

Speaker 2

Our objective is to set a positive trajectory to our financial performance, moving towards profitability as a business. Looking at the financials, we can exceed this target if we grow the same rate as the market, and we believe we are positioned to take market share exceeding market CAGR. We look forward to delivering increasing value to each of our shareholders as we continue to work in service of our customers who inspire us each and every day With that, let's open the call for questions. Operator?

Operator

Thank you. Our first question comes from Luke Serhgad with Barclays, your line is open.

Speaker 4

Barclays?

Speaker 5

Hey, guys. Thanks again for the time here. I guess when I look at the guide, can you talk about how much The guidance implies or bakes in the fast genes. You see the margin step up here from 38% in 1Q and ending the year At $39,000,000 $40,000,000 kind of give us a sense of the cadence there and how the fast genes or how much of your guide bakes in This business in the revenue and margins.

Speaker 2

You want to take it, Jim?

Speaker 3

Yes, I'll start. Luke, thanks for the question. Yes, so in terms of Express Genes, excited the launch this week. As Emily highlighted in the call, we're going through the price discovery. Factory's Future is going well.

Speaker 3

I think we're excited about the endpoints in terms of exiting this year in margins. Revenue increased sequentially from Quarter 3 to quarter 4 by roughly $3,000,000 and our gross margin dollars increased by $3,000,000 So that highlights the leverage In Q3 to Q4, as we're thinking about next year, fiscal year 2024, which we're now in, we've got some macroeconomic Environment issues that we're taking into account. We're seeing and Emily can talk about the early days of ExpressTunes. We're seeing good feedback from the marketplace. And as usual, as we look out into the future, We're prudent in terms of forecast.

Speaker 3

NGS is going well. Syn Bio is going well. We've got the adipose from And we want to be thoughtful in terms of the guidance we're giving. You saw biopharma Last quarter, we saw pickup in biopharma. So we feel that as we look next year, good solid growth in gross margin.

Speaker 3

As we continue to scale the factory, we're going to see upside in terms of that gross margin as we execute. We're very focused on having strong cash position I'm very focused on operational excellence, and I'll turn it across to Emily to talk a little bit more about the Express Genes.

Speaker 2

Yes. Thank you, Jamie. So we're 1 week In for Express Gene, we have nice orders. So far, we've We've tested premium pricing of starting Monday of 50%, Tuesday 60%, And then we dropped to 40%, went back to 40% and then today we are at 20%. So we are in that Question on the price range and it's great to see that we're getting orders and on Monday, We should have the 1st shipment of XpresCE gene.

Speaker 2

So it's early days, but quite optimistic in the uptake.

Speaker 5

Great. And then can you talk about the feedback you're getting for Express Jeans now, I guess? And where this is coming from and from the maker's market? Are you getting most interest from pharma or is it pretty broad based? And then like within that makers market, a lot of these A lot of these companies and businesses had internal teams there.

Speaker 5

So talk about like The conversations that you're having with them and what their plans are, and some of the How they're thinking about ramping on the Expressgene platform?

Speaker 2

Yes. So maybe a quick clarification. So, so far, we've turned on Fasgene on the website and we can go and look at it. And then We only did a press release, so it's a little bit of a muted launch on purpose. We right now, we want to focus on existing customers.

Speaker 2

We want to give existing customer a choice when they order to upgrade too fast. Right now, we are not Yes, trying to beat up all the drums and send the balloons and do the marketing launch that will early in calendar year 2025. And the reason is, again, we want to make sure that the process is fully baked. And for any net new customer, we want it to be undeniably an amazing performance the first time. So we want to Back it in a little bit.

Speaker 2

So far, the process is going great, but we've learned that it's always better to try new product with existing And so we are not yet trying to reach out to the net new DNA buyer. That being said, in the order so far, we have a great mix of The spectrum of the customers we expect from big pharmasmall pharma, even academic, we know the speed.

Operator

Thank you. Our next question comes from Matt Sykes with Goldman Sachs. Your line is open.

Speaker 6

Great. Good morning. Thanks for taking my questions. Maybe just to follow-up on the Express Genes. Just one point of clarification, Emily, you said that you're going to do the marketing launch In calendar year 2025, did you mean 2024?

Speaker 6

And then just

Speaker 2

Thank you, Matt. Thank you so much.

Speaker 6

And then just on your current penetration of the makers market with your standard genes, can you give us a reminder of where you are today And what's the potential white space is to expand into that market? I think just giving that context of sizing would be helpful in terms of what the opportunity is.

Speaker 2

Yes. Thank you. And thank you for doing the proofreading on the flyer. I appreciate it. So our analysis shows that the makers market, so people that do cloning themselves, That is a $1,400,000,000 market of people that buy enzymes and PCR primers and mutation kits and competent cells and agar plates and so on.

Speaker 2

So that is the bogie that we think we can convert to The DNA BioSight, so far, we have a very, very tiny slice of the DNA makers. So the one slice we have are people that need to make very long genes. So they are makers of very long genes. And what they do is they buy shorter genes, so 1.8, 3, 5 kilobytes from us. So they are buyer of those genes, small genes and then they assemble the small ones into B01s themselves.

Speaker 2

So that is the small Slice of the pie we have and the opportunity is to Really go after the bulk of the DNA makers market and that bulk are people that do need short genes. They need a 5 kilobytes 3 kilobytes 1 kilobytes gene, but they need them fast. And right now, the only choice is to go clone it yourself. And with our Express Gene launch, I think we have an opportunity to go after them.

Speaker 6

Got it. And then just to follow-up on Expressgene's, I think it would be helpful just for us to understand how you are going to communicate The Express Gene, either revenue or margin contribution over the course of next year, just to give us a sense of how that's going. I think Following up on Luke's question about the gross margins, I guess, would have expected there to be a little bit more gross margin expansion given the premium pricing. How should we kind of think about tracking that? And what's your kind of level of disclosure on a quarterly basis for that business specifically?

Speaker 3

Yes, Matt, I could touch on that. If you look at our Q and you look at the K, You'll see that we do cover the gene revenue and gene shipments. And if you look over the last few years, You will see that our gene pricing has in fact increased over the last 2, 3 years. And so every quarter you'll be able to see, right, what's the gene revenue and how many genes we shipped and what's the average price per gene. So you'll be able to track it that way.

Speaker 3

Great. Thank you very much. And we'll start giving more insight on that in our earnings call as we go forward.

Speaker 6

Got it. Thank you very much.

Operator

Thank you. Our next question comes from Vijay Kumar with Evercore ISI. Your line is Open.

Speaker 4

Hey, guys. Thanks for taking my question. I had 2 both related on guidance here. Q1, So pretty solid front loaded guidance. I think guide implies mid-20s kind of growth.

Speaker 4

If you look at the components here, I think NGS is up like 50% implied by the guide, symbio perhaps A little bit softer, and I think the guide the annual guide implies Leximbio to growth rates to further decel. So maybe if you can just talk about The assumptions here between those segments and what you're seeing from end markets?

Speaker 3

Yes. I mean, I can start, Vijay. Thanks for the question. So NGS, we're doing extremely well. We ended the year Very strong NGS orders, just under $40,000,000 making great progress on NGS.

Speaker 3

Obviously, some of that's driven by some of our liquid biopsy customers, MRT customers. So we feel well positioned. In terms of synbio, we have another strong year of growth. The overall business, You step back and look at it, like excluding biopharma, I think everybody was familiar with the biopharma issues and it's good to see biopharma recurring. The year over year NGS products, Syn Bio products, I mean, orders and revenue are 24%, 25%.

Speaker 3

We feel good about where we are at Express Jeans. The guide for this quarter reflects the fact that we get vacation and it's year end for some of our customers. So we ended the year in good solid position, doing well in terms of both NGS and Bio. And at the same time, when we're looking at the guide as in previous years, there's always some macroeconomic environment issues that we need to comprehend. I was thrilled to see that in terms of margins, if you look sequentially, we've gone from low 30s up towards 37%.

Speaker 3

You look at the revenue growth last quarter, almost 100% of that fell through the margins. So that gets back to the point in terms of leverage We're going to manage our cost structure going forward. We're very focused on profitability. We're excited about the opportunity Express Jeans brings in terms of margin enrichment. As I highlighted to Matt, we'll be giving an update On a quarterly basis in terms of pricing for genes, so, Factor is doing well.

Speaker 3

We're well positioned. And at the same time, when we're building our forecast, we want to take comprehend any potential macroeconomic impact.

Speaker 4

Understood. And one, Jim, maybe on that operating leverage you brought up. When you look at the cadence here, gross margin, it seems like A more modest ramp puts your Q1 versus Q4 exit rate, I think implied numbers. Your OpEx is going to step down While your revenues are up from Q1 to Q2 Q4, I think are up like $10,000,000 OpEx is down. So Is there some incremental cost actions coming in?

Speaker 4

What is driving that OpEx? And why are we assuming a more muted gross margin ramp?

Speaker 3

Yes. So in terms of gross margin ramp, if you look at the revenue on a go forward basis, The revenue is almost flat with Q4. The gross margin ramp will come later in the year as we continue to leverage The fixed costs and the fact to the future, I think what's interesting is you would do take a look at Our forward guidance, the loss from operations this coming quarter is about $47,000,000 $48,000,000 and revenue $67,000,000 to $68,000,000 If you look at the guidance we gave for Q4, We're projecting revenue of roughly $78,000,000 The loss from operations is $78,000,000 to $40,000,000 So Revenue is up by roughly $10,000,000 loss from operations is down by roughly $8,000,000 or $9,000,000 So Our focus is as we scale, reduce the loss and that loss from operations also includes stock based comp of 15 And depreciation of $10,000,000 And as we continue to scale, you'll see that loss from operations decline, So cash loss declines. This year, the numbers are fairly noisy, but there's been a step up in stock based comps. So the thing to focus on next year is what is our cash operating loss as we go forward, and that's going to decline sequentially Throughout the year.

Speaker 4

Thanks guys.

Operator

Thank you. Our next question comes from Puneet Tsuda with Leerink Partners, your line is open.

Speaker 7

Yes. Hi, Emily, Jim. Thanks for taking the question. So Maybe, Emily, I'll start with one sort of high level question for you. I mean, you're seeing NGS Growth here, your orders are up on NGS.

Speaker 7

Your top end of your fiscal 2024 guide is just Sort of slightly shy of where Street was in revenue and you just delivered 20% growth. You're Expecting what implies this somewhere around 17% to 18% next year, mid-twenty percent for 4Q December ending quarter. So again, all of this looks like you're doing better versus what the backdrop is. You're expecting significant pickup from Express Jeans. I mean, it seems like you're production ready.

Speaker 7

So I think the question is really The demand in the market, which according to most of the life science tools peers is weak, to put it briefly. So maybe just help us understand how Twist is seeing the market sort of differently versus other NGS Oligo peers and overall what we're hearing from the broader market, just help us contextualize where you think You're going to continue to win, and despite the market backdrop.

Speaker 2

Yes. No, thank you. That's a very thoughtful question. And I think it at the end of the day, it all comes down to the platform. We've always Said that the success that we have comes from 2 things.

Speaker 2

1 is the innovation and the silicon The silicon technology that we have and the second is the very violent commercial execution that we have. And I think you see it in our guide for next year. I can see that I agree with you that when you look at our peers, it seems like the demand is weak. However, we Just have very, very differentiated product. And I think in a difficult environment, our platform just Shnees, if you think about NGS, our big customers in NGS are dynamic customers.

Speaker 2

What they need as their own funding environment is difficult, as their own reimbursement is difficult, they need Really improved margin and that's what we sell it in NGS is if you switch to Twist, Because of the quality of the product that we provide, because we have all the regions from A to Z, We're able to provide a comprehensive solution that expands margins for our customers Because of the lower cost of sequencing, so that resonates really well now. And as some of our customers that we've been Working with 4 years finally going to commercialization as those panels and tests Start to run commercially. We benefit because we for every patient, there is some DNA that is being burned In pharma, on the Syn Bio side, there's definitely some funding pressure. And at the same time, That means that researchers, they are under another pressure to get the latest and greatest technologies To get to discover and develop their therapies and that is exactly what we provide is more short term goal. And now with our huge investment in improving the speed, we're able to enable them to Again, do that work not only better because they can get access to margins, but they slow faster, which is very useful for them.

Speaker 2

So I think what you're saying is just a combination of the great work that the Twisters have done And leveraging the technology where it's a real differentiator based on technology. We've heard competitors trying To emulate our marketing, but at the end of the day, it's not about marketing, it's about Real product capabilities and I think we just shine, thanks to the platform.

Speaker 7

Got it. That's helpful. And then, if I can touch on biopharma, I mean, you're implying a High single digit growth here. Could you maybe outline how much of that is from services or any other Sort of milestone payments that you're expecting here, because when we look at some of the antibody discovery Fears, obviously, the market is pressured by the emerging biotechs pulled back meaningfully. Maybe can you talk a little bit about How much of the mix is large pharma versus those emerging biotechs?

Speaker 7

And what does that mean for the source of new projects That you expect to receive in BioPharma in 2024 I mean, fiscal 2024?

Speaker 2

Yes, maybe I'll start. So The guide implies no milestones or royalties. It's all a fee for service guide. And I agree with you that if you look year over year, the growth looks not very big. However, Actually, if you look at the low point of biopharma in 2023 compared to the higher point To Q4 2024, we're going to see some substantial growth.

Speaker 2

We had a stumble in commercial education. And so We had a few quarters of biopharma services going down, but now we've rebuilt the commercial team. We had sequential growth in our order. As we say inside the company, we've done it 1 quarter in a row And now we have to just go do it again. And I expect to see some significant growth when you look from the low point to Q4 and that's the directions we want to see.

Speaker 7

Okay, got it. And then if I could ask one brief one to Jim. What are you expecting for to And on data storage in fiscal 2024. And then maybe if you can provide how should we think about the cash burn as we go into sort of over the next 2 years.

Speaker 3

Yes. So overall, operating Expense for Data Storage is going to be in the range of $37,000,000 to $39,000,000 for This year, in terms of cash burn, approximately about $30,000,000 $32,000,000 in terms of cash burn.

Operator

Thank you. Our next question comes from Catherine Schulte with Baird, your line is open.

Speaker 8

Hi, thanks for the questions. Maybe first, it looks like you are, but can you just confirm that you're still Expecting to achieve adjusted EBITDA breakeven for NGS and Syn Bio in the Q4. And thanks for parsing out the DNA data storage Ben, but how should we be thinking about adjusted EBITDA loss for biopharma for the year?

Speaker 3

Yes. So we as we highlighted, I mean, our focus is getting to adjusted EBITDA breakeven for biopharma, NGS and As soon as quickly as possible, you look at the guidance we've given, loss from operations in Q4 next year, Roughly 38 to 40 that comprehends stock based comp 15 depreciation of 10 and area data storage Cash cost in Q4 were approximately $8,000,000 So you can see from those numbers that we're within striking points of getting to breakeven from a cash position. And as we continue to scale, I mean, our focus is, As Emily highlighted, the call is to get profitability as fast as possible and having a very solid balance sheet to support the growth going into 2025.

Speaker 8

Okay. And then, Emily, just to your point on the ramp for biopharma throughout fiscal 2024, Yes. Just how much visibility do you have in that $25,000,000 number? Maybe how much it's already accounted for in current programs versus assumptions around winning new products? Because it does imply a pretty steep ramp throughout the year.

Speaker 8

And is there any way to quantify the impact of the new Bayer partnership?

Speaker 2

Yes. So great question. As we've mentioned previously in biopharma for services, We get orders and we can convert those orders into revenue in 2 to 3 quarters. And so the great quarter that we had in Q4 will be converted From an order point of view, we will be converting in revenue in the coming two quarters. So in terms of visibility, We have the visibility of the order.

Speaker 2

This is pretty much as much as we have. And then to get to that We have definitely a funnel. And so we do measure the strength of the funnel. And now that we have Commercial team in every territory, we can track and push each of those business managers to make sure that they achieve their

Operator

Question comes from Steven Ma with TD Cowen. Your line is open.

Speaker 9

Great. Thanks for taking the questions. I've got a 3 part follow-up question on 1 on the existing customers, are you doing a dynamic pricing model with them? And then if so, what's been the early reaction to that pricing model? Is that something that's new to them?

Speaker 9

And then second, how long do you expect to be in this early launch And then 3rd, given that ex Fresh Genes, the turnaround time seems to be a little bit faster, is there a new annual revenue capacity Thank

Speaker 2

you. Yes. Thank you, Steve. So the way the dynamic pricing works, we've designed our e commerce to be To have 2 characteristics, one is very subtle, but at the same time, Which means that as people order the jeans the regular way, it's subtle that there is an option to get fast gene. However, At the point of ordering, it is a very strong in your face and very clear Differentiation in terms of for that extra dollar, you can get that extra benefit and customers have to make a yes or no decision.

Speaker 2

And so on the one hand, yes, we've done it separately, but customers have to make a decision. And so as far as the early reaction that you were asking, we can look at 20% Customer chose the Express gene option as a function of different prices. So that's ongoing. In terms of your second question, how long will we be in that early launch phase? It will be until early calendar 2024.

Speaker 2

Matt won't have to correct me this time. So early 'twenty four, that's when we'll do the full launch to all the customers. And then what was your third question? I think there was a first question that I don't remember.

Speaker 9

Faster you could factor the future given the turnaround times faster for Express Jeans?

Speaker 2

Yes, yes. Thank you, Steve. Sorry about that. Yes, in terms of capacity, yes. We because now if all the orders were order fast, Yes.

Speaker 2

We've basically doubled the capacity that we have in our fab. So We have not quantified that with the dollar at this point, but we will over time. Thank you.

Operator

Thank you. Our next question comes from Sung Ji Nam with Scotiabank. Your line is open.

Speaker 10

Hi. Thanks for taking the question. Just to pile on one more question on biopharma. Just for that customer base, Kind of curious whether you're seeing any signs of improvement. Obviously, there are definitely macro factors that everyone is talking about.

Speaker 10

But do you think the growth next year is largely due to Twist's own integration efforts and restructuring efforts that are bearing fruit? Or are Are you kind of seeing any signs of improvement whether from a repowering patient standpoint from large pharma or even smaller biotech at this point? Thank you.

Speaker 2

Yes. Thanks for your question. I know that definitely there is a funding pressure in biopharma. The few quarters that we had done, Our analysis was that it was a self inflicting wound. It was we were not suffering from market headwinds.

Speaker 2

It was more From a commercial execution headwind, we have a very, very strong offering with InviVo, In vitro and Silico. We are, I think, the only company that offers That's very wide breadth of opportunity. And so we think that we can If we execute commercially, we can be very successful in the current market. And lately, we've been focusing on larger companies and That has been working quite well. So, of course, we're open for business for all customers, but we have Especially focused effort on larger pharma companies.

Speaker 10

Great. We'll get back into queue. Thank you.

Operator

Thank you. Our next question comes from Matthew Larew with William Blair. Your line

Speaker 2

is open.

Speaker 11

Hi. This is Madeleine on for Matt. Just a quick one for me on the Express Jeans. I know it's early stages now, but I was just wondering if there was sort of an optimum proportional breakdown between expressed genes and the more standard clonal genes That you're targeting long term or that allows the factory of the future to be at its maximum efficiency, if there is sort of

Speaker 1

an ideal breakdown between the two Pricing points?

Speaker 2

No, Madeline, that's a great question. So as a point of clarification, what We have with Sargine something that is actually quite unique because it's the same production line for Express and Standard, Meaning that if all our customer decided to pick Express genes, We will be able to make them all express. And that is very different from what All the competitors can do. Maybe they can do a few gene fast Cutting the queue and skipping ahead and managing their backlog. But for us, No, we don't have to do that.

Speaker 2

We've built something that is intrinsically fast for 100% of the genes. And so Go back to your question around optimum pricing. For us, our goal will be to maximize our gross margin dollars. And so Making sure that the fab is fully utilized and find the pricing That maximizes the penetration into the DNA makers And ultimately, really delight our customers, enable them to do They are science faster and I think that would be a win win because they'll get fast And we'll get more orders and we think we'll be able to take very significant market share. So the intrinsic Technology really enables us to be very flexible on what the ultimate price is going to be.

Speaker 2

And If need be, we can make all of our orders express, and that is hugely differentiating.

Speaker 8

Great. Thank you.

Operator

Thank you. There are no further questions at this time. I'd like to turn Call back over to Emily for any closing remarks.

Speaker 2

As we've shared today, it is a very exciting time for Twist. We've launched Xpresigene this week That is further differentiating our synbio product offering, and we have taken steps to position the company for enduring and consistent growth. In fiscal 2024, we have the opportunity for expanded margin, and we look forward to keeping you appraised of our progress. Thank you.

Operator

Thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a great day.

Powered by Quartr
Earnings Conference Call
PTC Therapeutics Q4 2023
00:00 / 00:00