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Edited Transcript of TWST.OQ earnings conference call or presentation 4-Feb-21 9:30pm GMT

·49 min read

Q1 2021 Twist Bioscience Corp Earnings Call SAN FRANCISCO Feb 5, 2021 (Thomson StreetEvents) -- Edited Transcript of Twist Bioscience Corp earnings conference call or presentation Thursday, February 4, 2021 at 9:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Emily Marine Leproust Twist Bioscience Corporation - Co-Founder, Chairman, President & CEO * James M. Thorburn Twist Bioscience Corporation - CFO ================================================================================ Conference Call Participants ================================================================================ * Catherine Walden Ramsey Schulte Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst * Doug Schenkel Cowen and Company, LLC, Research Division - MD & Senior Research Analyst * Eleni Maria Apostolatos JPMorgan Chase & Co, Research Division - Research Analyst * Puneet Souda SVB Leerink LLC, Research Division - MD of Life Science Tools & Diagnostics and Senior Research Analyst * Vijay Muniyappa Kumar Evercore ISI Institutional Equities, Research Division - MD ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Welcome to Twist Bioscience's Fiscal 2021 First Quarter Financial Results Conference Call. (Operator Instructions) Please be advised that today's conference may be recorded. I would now like to turn the conference over to Jim Thorburn, Chief Financial Officer. -------------------------------------------------------------------------------- James M. Thorburn, Twist Bioscience Corporation - CFO [2] -------------------------------------------------------------------------------- All right. Thank you, operator. Good afternoon, everyone. I'd like to thank all of you for joining us today for Twist Bioscience conference call to review our fiscal 2021 first quarter financial results and business progress. We did issue our financial results released this afternoon, which is available at our website at www.twistbioscience.com. With me on today's call is Dr. Emily Leproust, CEO and Co-Founder of Twist. Emily will begin with a review of our recent progress, and I will report on our financial and operational performance. And Emily will discuss our upcoming milestones and direction. We will then open the call for questions. As a reminder, this call is being recorded. The audio portion will be archived in the Investors section of our website and will be available for one week. During today's presentation, we'll 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, financial results in the financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth in the press release we issued earlier today as well as those more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on information available to us to date hereof, and we can at a this time, predict the full extent of the 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. -------------------------------------------------------------------------------- Emily Marine Leproust, Twist Bioscience Corporation - Co-Founder, Chairman, President & CEO [3] -------------------------------------------------------------------------------- Thank you, Jim, and good afternoon, everyone. In the first quarter of fiscal 2021, we'll continue to innovate and execute across each of our business areas, including synthetic biology, NGS, biopharma and the data storage. We beat our first quarter guidance of $25 million to $26 million with a reported revenue of $28.2 million and showed significant growth of 64% over the first quarter of fiscal 2020 when we reported $17.2 million. That said, this is the first time in 16 quarters that we have not shown quarter-over-quarter growth. This is due primarily to a very large $9 million order last quarter that included about $6 million that came in early according to our expectations. I want to acknowledge that my streak is broken, but for a very good reason, and the business remains strong. Importantly, with the revenue for the quarter, we met a significant milestone and now have a trailing 4-quarter run rate of $100 million. We also received strong orders for the quarter of $33.6 million. Now I'd like to dive into the details of each of our 4 business segments. Beginning with synthetic biology, we reported $11.5 million in revenue and a very strong quarter. We see strength across the board for our genes and gene fragments. In addition, over the course of fiscal 2020, we enhanced our product offering specific to 2 groups of customers, pharmaceutical and biotech companies, and the long sale of the market, customers will order a small number of genes or fragments. For pharma and biotech customers, we introduced large preparation of DNA, something we call (inaudible) and the commercial launch of this product is wrapping nicely. We expect additional customers to add up these products into the drug discovery and a acquisition pipeline moving forward. In addition, we have several customers using our early access IgG protein, an extension of our [FERC] line that also serve pharma and biotech company. Initial feedback has been very positive, and we are working to increase production and roll the solution out more broadly, as we believe it is an innovative and differentiated offering for our customers that are conducting drug growing and development. We launched our Clonal-Ready Gene Fragments in December 2020 with initial revenue building for this product line. This product will be used for the long tail, specifically for those customers who need a few gene at a time. Often, these are academic customers who make their own genes instead of buying them. Our revenue growth for synbio is particularly noteworthy in light of Ginkgo being down about $1 million below average. This again, showcases the resilience of our diversified product portfolio to deliver financial results. And equally important, we expect Ginkgo to meet their (inaudible). To further gain market share and help scale our revenue to $500 million, we announced that we are building a Factory of the Future just outside of Portland, Oregon. The state of the outside will be the next evolution of our platform, which we expect to produce (inaudible) DNA products beginning in 2022. We expect our Factory of the Future doing additional differentiation, including a faster turnaround time for all of our products, to double our current capacity and to serve as a secondary manufacturing site outside of the Bay Area. Importantly, when it becomes operational, this factory will allow us to pursue just enough that we cannot serve today, those who make their own DNA due to timing requirements. In parallel, we are building capabilities with our e-commerce systems that facilitate business-to-business interaction. We believe this will expedite other placements and enable us as an approved vendor with the purchasing system. We have been working with several institutions to understand the system that they use to generate order, and we have a strategy in place to implement solutions for these systems. While it will take time to develop and deploy within all of our customers' institutions, we believe the resulting impact would be substantive. Turning to Genomics and targeted NGS, we reported $16.6 million in revenue for the quarter, with NGS revenue exceeding synbio revenue for the first time. Going forward, we expect these businesses to be about equal with lumpiness expected quarter-to-quarter in NGS. Revenue in NGS includes customers in the liquid biopsy space, accounting for a portion of our current revenue and these customers represent significant potential upside once these products complete clinical trials and are broadly commercialized. This quarter, for example, we received and shipped a $4.5 million order for liquid biopsy customers, conducting studies in preparation for commercial launch. We expect further scaling of their orders when they officially launch their commercial product. We expect the full launch of our methylation solution in the near future, which directly facilitates liquid biopsy customers, and we believe this will continue to be an area of growth industry-wide and for Twist. In addition, some of our customers are also pursuing liquid biopsy for minimal residual disease detection or MRD (inaudible), which we believe will be a large and growing area for the industry as well. We also see significant revenue coming from customers who convert from SNP microarray to using Twist technology called gene therapy, either for direct-to-consumer or population-generated property. Last quarter, we shared that we had a $9 million order from a single customer in a SNP microarray conversion. We can now share that this customer is genome, giving our NGS solution technology, the genome was able to move away from the defined set of Single Nucleotide Polymorphism as so-called SNP, for its domestic center to conduct genotyping by sequencing. Regeneron has put together a comprehensive, diverse global set of SNPs, which is more efficient and yet more broadly captures genetic diversity globally. The traditional SNP microarray, the content is fixed, and approximately 80% of those SNPs are specific to the Caucasian population. The challenge therefore is that using genotyping by sequencing, enabled by Twist, enables the ability to search for business targets in diverse population, not just in Caucasian and could truly change the target (inaudible). It's critical to remember that while public health need is dominated by COVID-19 right now, there are other diseases that require attention, and this is an (inaudible) example of how we partner with our customers to improve health. Turning to COVID-19, we announced that the CDC included our SARS-CoV-2 control in their Flu SC2 test, which screens for influenza A, B and COVID-19 in one test. As you know, new trends in virus have emerged. We continue to (inaudible) the landscape and the breadth of the science in order to quickly respond to the needs of researcher and diagnostic test providers. For instance, on a very short time line, we launched Synthetic RNA Controls called the B.1.1.7 variant with other variant (inaudible). These controls continue to assist researchers and allow test makers to confirm their test of (inaudible) and capturing all cases of COVID-19. With the emergence of the variant, there is a renewed focus on sequencing SARS-CoV-2, the virus that caused COVID-19. We anticipated that need back in March when we launched our Targeted Enrichment tip for SARS-CoV-2. We believe we can be part of the solution to identify variants (inaudible) and then tracking of viral evolution and surveillance will be key to public health globally. Turning to biopharma, we continue to advance work through our partnerships as well as antibodies against internal targets. In addition, we signed 2 technology agreements in January 2021, which we believe will support work for our partners as well as our internal antibody discovery efforts. For serotonin, we expect to provide custom DNA libraries to include Chimeric Antigen Receptor (inaudible) and intend to explore novel combination of receptor domain. (inaudible), we engineer and characterized (inaudible) to screen for receptor design with improved therapeutic products that may be applicable to a wide range of (inaudible). We add the [rinsing] technology resulting from the collaboration. In concert with applied (inaudible), we will add a target short cell lines to screen, select and characterize modern antibodies for both our partners and internal programs, bolstering our in-vivo capabilities. We pushed really hard to find partnership agreements by the end of our fiscal year in September 2020. And the first quarter of fiscal 2021 was light on orders for biopharma. However, our funnels remain very full with several agreements beyond the term (inaudible). As you know, some of those partnerships may not be disclosed due to partner confidentiality but we look forward to sharing our progress as we engage in additional collaboration. To complement our work with partners, we pursued the development of several antibodies to specific therapeutic targets to bolster our data package, demonstrating the value of our platform against a wide range of (inaudible). We share at the recent conference that we'll identify the important antibody (inaudible) against (inaudible), on immuno-oncology (inaudible) in the adrenaline pathway that we believe could be an important complement to checkpoint inhibitor. The (inaudible) master checkpoint in a tumor microenvironment and (inaudible) is highly (inaudible), colorectal and prostate tumor. We believe our antibody candidate has the potential to be highly potent specific, offer improved dosing and low central nervous system permeability compared to the small molecules currently in clinical trial. We are pursuing (inaudible) opportunities for (inaudible) and while early, we look forward to keeping you apprised of our efforts on this front. We have identified 7 key targets for antibody discovery, where we believe our biopharma platform can generate differentiated antibodies. We intend to advance development of these targets through our discovery and optimization platform, continuously moving up the value chain and will be pursuing our (inaudible) opportunities for these antibodies over the next 18 months. Moving to data storage. We continue to advance along our engineering and commercial road map. On the engineering side, we are making progress. But as we have previously disclosed the (inaudible) cycles are long. And we look forward to providing an update when available. For the DNA data storage alliance side, it continues to gain traction with several more organization joining, including Quantum. On Slide 8 of the presentation, we felt it would be useful to talk through a case study of the total cost of ownership for data storage. The total cost of tape or cloud storage increases with time because of required data migration on the 5- to 7-year time frame. And this is due to media failure and hardware of obsoletion. For data stored in DNA, the total cost at all times remains relatively flat due to its inherent long lifetime. Additionally, any copy of tape or cloud storage directly multiplies the cost while additional copies of DNA are almost free due to the PCR distribution focus. What you see on the right side of the slide is the graph showing the total cost of storage of 1 petabyte over time creating -- created using cost information from the [Fuji Film] and Amazon website. The cost of DNA remains relatively flat over time, while the cost of tape or cloud storage increases over time. Looking at the time (inaudible). Lowering the prices of DNA (inaudible) $100 per terabyte, which is a solid light green line, makes DNA the clear choice for long-term storage. Currently, we are working to reduce the price, and we are now below $1,000 megabyte with aggressive [work] ongoing. At this time, I'd like to turn the call over to Jim to review our financial results for the quarter. -------------------------------------------------------------------------------- James M. Thorburn, Twist Bioscience Corporation - CFO [4] -------------------------------------------------------------------------------- Okay. Thank you, Emily. As Emily noted, we have delivered another very strong quarter in what continues to be an uncertain environment due to the COVID pandemic disruption. We would like to thank all our investors who supported our recent equity rates as we strengthened our balance sheet to support our growth investments. Revenue for the quarter was $28.2 million as compared to our guidance of $25 million to $26 million. Additional highlights for the quarter include $33.6 million in orders, with another strong quarter in NGS, including $4.5 million in revenue from one liquid biopsy customer. Our biopharma business continues to develop strongly with an additional $1 million in revenue-generating agreements in the first quarter. Gross margin for the first quarter was positive 35.5% and we grew our customer base to approximately 1,500 customers. We also signed a lease for our Oregon Factory of the Future and stepped up our investment in DNA storage. We ended the quarter with cash and short-term investments of approximately $587 million. Now I will provide more details on orders for the first quarter. NGS orders for the first quarter were $17 million, and that is growth of 44% year-over-year. This quarter, we also had $4.5 million order from liquid biopsy customer and we believe we are very well positioned and excited about the future of population genotyping, liquid biopsy and the MRD opportunities for Twist. During the December 2020 quarter, we received orders from approximately 570 NGS customers with the top 10 accounts placing orders of approximately $10 million. As we noticed -- as we noted in previous calls, the RNA positive controls are not a material component of our revenue. However, they have contributed to our customer growth, and we're seeing these customers return to purchase other NGS and synbio products. Our pipeline for our larger opportunities continues to scale, and we're now tracking 160 accounts, which is up from 150 accounts we noted in our last earnings call, 59 have adopted our platform, and that's an increase from 55 last quarter. Now turning to synbio. Just as a note, synbio includes Ginkgo, our genes, DNA preps, IgG, libraries and oligo pool products. Our synbio orders increased to $15.6 million in our December 2020 quarter, and that's compared to $12.3 million for the December 2019 quarter. Ginkgo orders increased from about $2.6 million to approximately $3.5 million in the first quarter of fiscal 2021. Our genes business is doing well, and total genes grew from approximately $9.5 million in quarter 1 fiscal '20 million to $12.2 million in our current quarter. Non-Ginkgo genes orders for the quarter were $8.6 million, and the year-on-year growth was approximately 26% with growth in all segments. Oligo pool orders rose in the quarter to $1.9 million with strong demand, largely coming from gene therapy applications. Biopharma orders in the quarter were $1 million for our antibody discovery activities. We now have a total of 10 partnership agreements, which also includes milestones and/or royalties, and that's an increase from 8 last quarter. Please note, we provide orders not to directly translate into revenue, we're more to provide a trend line for each product group. We also anticipate both NGS and Ginkgo orders will fluctuate quarter-to-quarter. Now moving from orders to revenue. Revenue for the quarter was $28.2 million, which is growth of 64% year-over-year and a quarterly sequential decline of 13%. As Emily noted, last quarter, Regeneron placed a $9 million order with $6 million coming earlier than we anticipated. Having said that, we delivered another outstanding quarter as our NGS products revenue for the quarter climbed to $15.6 million. In the December quarter, we received orders from liquid biopsy customers, including a single $4.5 million order, which we also built during the quarter. As we noted in our previous calls, our NGS revenue can fluctuate significantly from quarter-to-quarter based on timing of customer orders and deliveries. Our synbio product revenue for the first quarter of fiscal '21 was $11.5 million, up sequentially from $11 million last quarter and an increase from $10.1 million in quarter 1 fiscal '20. This includes Ginkgo, which declined from $2.1 million to $1.4 million sequentially, which we believe was mainly due to the timing of the projects. Our outlook for Ginkgo remains the same as our previous guidance of $11 million to $12 million for the fiscal year. Q1 genes revenue was $8.1 million as compared to $7.8 million in Q1 '20 and although Ginkgo revenue was down. We shipped approximately 84,000 genes in the quarter versus 80,000 genes in the same quarter last year. Our non-Ginkgo growth highlights, we continue to make progress in scaling our gene business in pharma and industrial biotech and less reliance on Ginkgo, which accounted for approximately 5% for Q1 revenue. Now to biopharma. Our biopharma revenue for the quarter was $1 million, and that's in upfront services on our antibody discovery projects, including panning, screening and high throughput IgG purification. I'll now briefly talk about the regions. All regions recorded year-on-year growth in revenue. U.S. revenue was $17.3 million versus $10 million in the same period last year. EMEA revenue grew to $9.1 million versus $5.9 million in the same period last year and now accounts for approximately 30% of our worldwide business. APAC Q1 revenue was $1.8 million versus $1.2 million for the same period last year. Now for Industrial segment revenue summary, health care is now our largest contributor and accounts for more than 50% of our business, with revenue of $15.9 million, and that's up from $5.8 million in the same quarter last year. Even though Ginkgo revenue was down this quarter, our industrial biotech revenue rose to $7.1 million in Q1 '21 versus $6.1 million for the same period last year. Academic revenue in the first quarter was $4.9 million, which is flat with Q1 '20. Agriculture revenue was $2 million, the same as the prior year. Now moving down to P&L. Our gross margin for the quarter was $10 million or 35.5% of revenue as compared to 20% in quarter 1 of '20. This increase in margin reflects the impact of skilling our revenue, leveraging our fixed costs and the benefit of higher mix of NGS products early in the year than anticipated and also reflects great execution by our organization. Operating expenses, including cost of revenue for the first quarter increased to approximately $42.8 million. In terms of year-on-year comparison, R&D for the quarter was $14 million compared to $10 million -- $10.3 million in the first quarter of FY '20 due to investments in biopharma, data storage as well, continued investments in synbio and NGS. Our R&D spend in the quarter is net of $0.3 million received from the Georgia Institute of Technology related to the DNA synthesis portion of the [Miss Program] and $0.8 million build on a confidential project. SG&A increased to $28.8 million compared to $26.4 million, primarily due to investment in our commercial organization. Our net loss for the quarter was $32.9 million, a decline from $35.6 million in the first quarter of fiscal '20. Though as a reminder, in the first quarter of fiscal '20, we had a onetime charge of $22.5 million for a litigation settlement expense. Stock-based comp for Q1 was $7 million, and depreciation was $2.2 million. CapEx was approximately $3.6 million in the quarter, with major investments in lab equipment at our South San Francisco facility. And although we signed our lease for the Factory of the Future, we have no material expenditures to date. We ended the quarter with cash and short-term investments of approximately $587 million. Now I'll briefly update you for the year. We have a very strong start to our fiscal year. And at the same time, there's a lot of (inaudible) with pandemic. We're maintaining our 2021 guidance range of $110 million and $118 million for revenue. Ginkgo's revenue is estimated to be approximately $11 million to $12 million. Non-Ginkgo synbio is estimated to be in the range of $41 million to $44 million. NGS revenue is estimated to be in the range of $54 million to $58 million. Our biopharma revenue is estimated to be approximately $4 million. Our gross margin guidance for the year is 32% to 34% as compared to 32% on our last guidance. While we had higher gross margins in the first fiscal quarter, we do expect subsequent quarters to be a bit lower, which is influenced by mix and impacted by new capacity utilization as we launch new products such as IgG and scalar DNA preps. Our operating expense, which includes R&D and SG&A, is expected to be approximately $182 million for the year as compared to $174 million in our last projection, which reflects higher stock-based comp charges, primarily due to the increase of our stock price. Our R&D guidance for the year remains at approximately $60 million in fiscal '21. Our net loss guidance for the year is now expected to be in the range of $142 million to $147 million. Stock-based comp is estimated to be $32 million due to the higher stock price and depreciation of $9 million. CapEx guidance for the year is $30 million, which includes $20 million CapEx for Portland facility, which is $16 million equipment and $4 million for facility construction. In summary, we had a strong start to fiscal '21. Our outlook is prudent, and our investments at the same time are positioning Twist for a very strong growth in fiscal 2022. With that, I'll turn the call back to Emily. -------------------------------------------------------------------------------- Emily Marine Leproust, Twist Bioscience Corporation - Co-Founder, Chairman, President & CEO [5] -------------------------------------------------------------------------------- Thank you, Jim. In conclusion, we started our fiscal year strong and look forward to an important year ahead. Looking into fiscal 2021, for synbio, we expect the continued growth and diversification of our revenue stream, a commercial ramp for DNA preps and the production ramp for IgG IgG. Marking (inaudible), continued focus on B2B solutions to allow us to capture specific multisite institutions and preparing the infrastructure and software platform for our Factory of the Future to enable strong growth in 2022 and beyond. For NGS, we expect continued revenue growth and customer ramping production, full launch of our methylation solution, the technical addition of CMI and continued conversion of SNP microarray for Twist sequencing. For biopharma, we fully expect to continue to find partnerships to expand our technology base and generate revenue while advancing our own internal pipeline of antibodies and pursuing out licensing opportunities over the next 18 months. And for data storage, we will continue to drive our engineering road map to further maturization, execute on the (inaudible) contract and pave the way for market adoption of this new storage medium. With that, let's open the call for questions. Operator? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question comes from the line of Tycho Peterson with JPMorgan. -------------------------------------------------------------------------------- Eleni Maria Apostolatos, JPMorgan Chase & Co, Research Division - Research Analyst [2] -------------------------------------------------------------------------------- This is Eleni on for Tycho. First, wanted to start with guidance. You've left top line guidance unchanged despite the beat this quarter. But you increased the gross margin guide just to account for the higher-margin in the quarter, so essentially leaving to the rest of the year, the same. Is this just typical conservatism? Or is there something else to call out here? -------------------------------------------------------------------------------- James M. Thorburn, Twist Bioscience Corporation - CFO [3] -------------------------------------------------------------------------------- It's conservative. We are in middle of pandemic. We're off to a really strong start, and we see good strong synbio business. We're seeing -- experiencing good business in Europe. In the U.S., we had a $4.5 million shipment on liquid biopsy. So our NGS business is going strong. Synbio business is going strong. Regionally, we're doing well. And at the same time, we're being conservative. We saw our gross margins increase to 36%. And we feel good about improving our gross margins as we increase our revenue, our longer-term gross margin targets 55% to 60%, and we're on track for that. But just to summarize, we are being conservative and prudent in the middle of the pandemic. -------------------------------------------------------------------------------- Eleni Maria Apostolatos, JPMorgan Chase & Co, Research Division - Research Analyst [4] -------------------------------------------------------------------------------- Great. That's helpful. And then another question on something you highlighted, the Regeneron SNP conversion. Can you talk a bit more about line of sight you have to additional SNP conversions over the next couple of quarters? And sort of the economic value or framework of how to think about that? -------------------------------------------------------------------------------- Emily Marine Leproust, Twist Bioscience Corporation - Co-Founder, Chairman, President & CEO [5] -------------------------------------------------------------------------------- Yes. Thank you. This is Emily. It's a great question. So we do know that SNP microarray conversions take some time because we go after customers that are using microarrays, they have a high volume of samples. And in order to get in the door, we need to show that we can be cheaper than the microarray. They -- nobody will switch if it's more expensive. And so now with Regeneron with Helix with (inaudible), we have multiple data points that it is the case. So it's easier to get in the door. Then the next step is, in addition to being cheaper, I think there are some benefits to using Twist for sequencing. And that is that the content can be evolved. With the microarray, you are stuck with the content. You can't do anything. And so that is another big positive. In the case of Regeneron, they use that ability to enhance the content and to not be just Caucasian specifically, but to be global human genetic diversity. And then the next step is once the content is defined, it's to enhance that so it takes a little bit of time because people have to remove the instrument to bring in the new automation and bring up the protocol process at scale. But once you're in, it's a very sticky solution. So yes, we -- our intention is to keep converting customers. They may not all be the size of Regeneron, but we think that our solution offer a true differentiation compared to kind of the old technology at microarray. -------------------------------------------------------------------------------- Eleni Maria Apostolatos, JPMorgan Chase & Co, Research Division - Research Analyst [6] -------------------------------------------------------------------------------- Great. That's really helpful. And then on biopharma, you've had great traction signing revenue-generating partnerships. Just wondering if the $4 million you include in guidance is just sort of the initial upfront payments? Or if there is a component of milestones or royalties that would offer upside to your guide? -------------------------------------------------------------------------------- Emily Marine Leproust, Twist Bioscience Corporation - Co-Founder, Chairman, President & CEO [7] -------------------------------------------------------------------------------- No that's a great question. So the guidance is only for the upfront payment part. There may be milestones or royalty, but if and when those happen, more like when they happen, that will be upside. And so at some point, we anticipate that really at milestone and our royalties from the contract we signed. And most likely, the first one to deliver upside would be the contract that we signed in the past, not just this quarter. I mean it takes time for us to do the work. And then it takes time for the preclinical work to happen to get to the IND and then to go to the next step. But what we report in orders and revenue is only upfront payment and any milestones (inaudible) or the upside. -------------------------------------------------------------------------------- Eleni Maria Apostolatos, JPMorgan Chase & Co, Research Division - Research Analyst [8] -------------------------------------------------------------------------------- Great. And if I can ask one last question here. How much of the backlog or orders you saw this quarter are COVID related? And how much revenue contribution from COVID is contemplated in your FY '21 guide? -------------------------------------------------------------------------------- James M. Thorburn, Twist Bioscience Corporation - CFO [9] -------------------------------------------------------------------------------- In terms of COVID, COVID is not material. We've had a lot of success with the RNA positive control panels that we've released in March time period. And that's actually grown into infectious disease panels. So we are seeing a lot of new customers. We've added about 500 to 600 new customers there, and they're actually coming back for additional NGS and synbio business. But in terms of actual COVID revenue, it's not material. What's particularly interesting for us is the increased number of customers and the increased share of wallet we can go after in those customers. -------------------------------------------------------------------------------- Operator [10] -------------------------------------------------------------------------------- Our next question comes from Doug Schenkel with Cowen. -------------------------------------------------------------------------------- Doug Schenkel, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [11] -------------------------------------------------------------------------------- I actually just want to touch on a few of the important but high level drivers to long-term growth. Just starting on next-gen sequencing, it's been interesting going back to the IPO seeing. You talk about the TAM growing there. I think when you first went public, we talked about the NGS TAM maybe being $400 million to $600 million, call it, $500 million at the midpoint. Now we're talking about $700 million. I'm just wondering if you could kind of break down what's expanded that? I assume it's things like microarray conversion in other areas, opportunities in liquid biopsy. I'm just wondering what's driven the expansion of the TAM? And are there other opportunities to take it beyond what we're thinking about today? -------------------------------------------------------------------------------- Emily Marine Leproust, Twist Bioscience Corporation - Co-Founder, Chairman, President & CEO [12] -------------------------------------------------------------------------------- Yes. Thank you, Doug. It's a great question. And so first, I'll start by saying that we are conservative in our TAM estimation. And that is the dollar that we could touch if we had 100% of the market. So it's not aspirational. And so the increase in the TAM has been mostly driven by the emergence of new applications. You mentioned liquid biopsy is definitely a big one. Another one is MRD, minimal residual disease. And so if you think of MRD alone, there are 15 million cancer patients in the U.S. if they get tested once a year, and the average price is $1,000, that's $15 billion of spend on MRD. And of course, we can't list all of it. We can only test the DNA library-prep portion of it. But we think that the $700 million that we're estimating today is actually going to increase further, thanks to the emergence of liquid biopsy and MRD. And I will note that SNP microarray is not included in that $700 million. We believe there is another $500 million available for SNP microarray conversion. -------------------------------------------------------------------------------- Doug Schenkel, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [13] -------------------------------------------------------------------------------- That's great, Emily. And maybe just kind of continuing down the line with questions like this. And kind of high-level as we just think about the long term. On drug development, regarding the drug development candidates you have in-house, how are you making the decision on which targets to prioritize? How are they progressing? You noted GPCR previously and adenosine receptors today. There's other ones you've mentioned in the past. I'm just wondering if you could share any details on how those are progressing? And then I guess the third part of this question is, how should we think about the possibility of essentially drug co-spin outs over the next 12 to 18 months in the absence of other out-licensing opportunities? -------------------------------------------------------------------------------- Emily Marine Leproust, Twist Bioscience Corporation - Co-Founder, Chairman, President & CEO [14] -------------------------------------------------------------------------------- Yes. Those are 2 great questions. So in 2019, we shared a lot of targets that we are working against, and we found a highly functional antibodies against all of them. At the time we picked those because they were hard to drug. And so we were in the mode of scientific demonstration. And so that meant that on purpose, we picked with our targets to show the world that we could do it. And basically, we had to do it to build our data package. And get the commercial partnerships that we are getting now. This was more of a claim to fame rather than picking targets because of the business relevance. Now things have changed. Last year, we reported that we've done some work internally and externally to identify 7 targets. And those are targets that are business relevant. And so those are targets that we believe will be able to generate some commercial interest. And so the antibodies that we already have, they're available for licensing, if needed. But we believe that the 7 targets we're working against are going to be commercially attractive. In terms of outlook on monetization, we mentioned that our first objective would be to spin them out through out-licensing. But if the opportunity is right, there could also will be -- it's possible. All the options are open that (inaudible) will be spinout of a (inaudible), where someone else would win the capital, where, in a sense, we will syndicate the risk of moving the anitbody forward in exchange for sharing the economic value. So -- but all the options are available is also spin out or licensing out, whichever is easier, faster and bring the most economic return for Twist. -------------------------------------------------------------------------------- Doug Schenkel, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [15] -------------------------------------------------------------------------------- Okay. And that's great, Emily. And last one on data storage. I mean, it's great to hear about the progress you're making there. I think this has gone from being something that was viewed as an exciting possibility and a source of optionality for the company. Now it seems like you're making enough progress where we can put more confidence in the program actually turning into something, which is great. I'm wondering if you could talk a little bit about the partnerships with Microsoft, Alumina and Western Digital. What is each partner bringing to the table? And are there delineated responsibilities between each of those? And then a second part to the DNA data storage question is, I'm just wondering if some of the improvements that you're making specific to getting to essentially cost targets and speed targets that are associated with making data storage commercially feasible would be leverageable for other purposes across your business? -------------------------------------------------------------------------------- Emily Marine Leproust, Twist Bioscience Corporation - Co-Founder, Chairman, President & CEO [16] -------------------------------------------------------------------------------- Thank you, Doug. A great question. So on the data storage alliance, the -- so we will -- we -- sorry, we're the spearhead of that Alliance, and we're glad that the people joined us. The goal is to create a bigger pie for everybody. In storage, you have to approach one is to have a closed technology. So for instance, if you think back to the Zip drive of the late '90s that was proprietary to one company. And our analysis is that when you do that when you look everything in, it's hard to get critical mass and it can be hard to sustain the momentum. And so the idea for us was to bring companies together and create a bigger pie where we have an open stand out. And so the goal of the alliance is to -- all together to define the industry road map to create use cases to educate the CIOs of companies such that when products are available, those companies have budget and willingness to do pilots and start adopting the technology. So the idea of the alliance is to basically greese the wheel of future commercialization. And thought it was the right time because we -- there's still a lot of work ahead, but we have line of sight that is working, and that's what we're going to get there. So we want to make sure that when we are -- when the product is ready that commercialization -- probably the go-to-market has already started. To answer your second question about potential synergies and speed or cost, there's definitely a synergy that all the learning that we've done on our silicon chip to date all the processes, the internal know how, we're applying to this effort. And so we are doing much better in terms of developing a better solution because we have been spending the last 7 years already doing it. And so there's definitely synergies that way. And then going back, while we are not doing it for this, that's not the reason why we're doing data storage. I think it's only logical that when you have a team that pushes the boundary of technology or science, there's likely to be some benefit back to the main business, but it's not the main objective, but it is the same thing that I worked on the initial silicon platform. And so it's quite logical that there will be some benefit over time. -------------------------------------------------------------------------------- Operator [17] -------------------------------------------------------------------------------- Our next question comes from the line of Catherine Schulte with Baird. -------------------------------------------------------------------------------- Catherine Walden Ramsey Schulte, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [18] -------------------------------------------------------------------------------- I guess, first, on the liquid biopsy customer placing the large order in the quarter, can you just talk about the commercial launch timing of that product? I can think of one that's talked about using your product as a potential second quarter launch and maybe that magnitude of an increase you could see if it does move from its clinical trials to commercialization. -------------------------------------------------------------------------------- Emily Marine Leproust, Twist Bioscience Corporation - Co-Founder, Chairman, President & CEO [19] -------------------------------------------------------------------------------- Thank you, Catherine. Great question. You probably can guess we're not able to comment on who the customer is. What -- I think what we can say is that we have been progressing quite well in liquid biopsy in a number of companies, and it starts with a small order for a pilot and then a big order for validation and another big order for scale up and now we are in the mode of clinical trials. And so I think even bigger order. But our expectation is that once it goes commercial, the level of need that they would have would keep growing, and we are not in charge of the timing. We don't control timing when those commercial launch happen. But what I can say is that when we have the capacity. So whenever it happens, we can deliver quickly. As a reminder, when the -- in Q4, when the original order came in, we were able to very quickly, in the same quarter, make it heated. So we have capacity. And so we have confidence in our future NGS revenue ramp. However, because those now reference to the bigger order, that will create some lumpiness but as there are multiple companies that make lumpy order, hopefully it will smooth out over time. -------------------------------------------------------------------------------- Catherine Walden Ramsey Schulte, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [20] -------------------------------------------------------------------------------- Okay. That's helpful. And just given the calls for increased sequencing when it comes to monitoring the different COVID variants popping up, how much of an opportunity do you see that as? And what kind of uptake are you seeing on your offerings? And how are you thinking about that contributing in the balance of the year? -------------------------------------------------------------------------------- Emily Marine Leproust, Twist Bioscience Corporation - Co-Founder, Chairman, President & CEO [21] -------------------------------------------------------------------------------- Yes. So in our view, surveillance of the COVID virus is important beyond just the yes or no. Though the people at the very (inaudible), I think people want to sequence the full virus. And that's why we actually were quite early in launching our products. In terms of how that analysis is done for the full virus sequencing, there's 2 methods to do it. The first one is what we do, which is through hybridization. And then the second one is using PCR and then sequencing. In full transparency, the PCR approach next then sequencing is maybe a little bit easier to implement but the results are not as good and we have seen now yesterday, which I think the recovering is available where our customers compared the 2 and the hybdridization approach was clearly superior, giving a better coverage of the entire genome. And so what we don't report exactly, we don't report the actual number. But I can say that how our approach is superior, and we have an RUO kit out in collaboration with [Biotia] and so we are trying to make it as easy as possible for customers to take it. And so we report the number as aggregate started NGS by itself, it's not significant. So it's not material, but a number of non-material products together contributes to our overall core. -------------------------------------------------------------------------------- Catherine Walden Ramsey Schulte, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [22] -------------------------------------------------------------------------------- Okay. Got it. And then last one for me. Just looking at academic and agriculture, you mentioned both of those were flat in the quarter. Do you think those customers are still being impacted by COVID disruptions? And what kind of growth do you expect from those markets going forward? -------------------------------------------------------------------------------- James M. Thorburn, Twist Bioscience Corporation - CFO [23] -------------------------------------------------------------------------------- Sorry, Catherine, I missed the first part. Did you talk about academic? -------------------------------------------------------------------------------- Catherine Walden Ramsey Schulte, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [24] -------------------------------------------------------------------------------- Yes, academic and ag. Yes, academic and agriculture. -------------------------------------------------------------------------------- James M. Thorburn, Twist Bioscience Corporation - CFO [25] -------------------------------------------------------------------------------- Yes. So academic, I mean, it's interesting in terms of academic, although obviously, universities have been slightly impacted by the pandemic. If you look at our revenue in academic has been roughly flat for the last year. And that's good news for us because, obviously, when the labs actually -- when the academic institutions actually start to increase activity, we should see upside there. So I'm particularly encouraged by the academic revenue. In terms of agriculture, agriculture has been a small part of our business. I mean, last quarter, revenue was $0.2 million. So we see opportunities in the future in agriculture, but the major opportunities over the last year, we actually executed well in health care, we're seeing industrial biotech pick up, and I think that labs will ramp up as the pandemic starts to decline in the next year. -------------------------------------------------------------------------------- Operator [26] -------------------------------------------------------------------------------- Our next question comes from Vijay Kumar with Evercore ISI. -------------------------------------------------------------------------------- Vijay Muniyappa Kumar, Evercore ISI Institutional Equities, Research Division - MD [27] -------------------------------------------------------------------------------- Jim, maybe one on orders. I want to make sure I understood the numbers correct. The 4.5% you called out, is that like a one-off? Or -- I feel like last quarter, you guys had the Regeneron order. So is this more of a repeatable feature? Or should we be thinking of about 4.5% as one-off? -------------------------------------------------------------------------------- James M. Thorburn, Twist Bioscience Corporation - CFO [28] -------------------------------------------------------------------------------- It's a good question. The 4.5%, Vijay, is in liquid biopsy. I think we're very well positioned in liquid biopsy. We have a great product, great solution there. We're working with a number of customers in that area. It does -- is lumpy. I think what I would highlight is that we're making great progress in building the NGS pipeline. And revenue for NGS last year was $44 million. We did almost $16 million in Q1. So we're very optimistic with the growth in NGS. And it's difficult to call when these large orders will actually come in, when we'll ship them. But we see growth in NGS this year. I know our guidance is $54 million to $58 million. We believe that's very prudent, but we get a good product, and we keep -- I mean, the pipeline of customers keeps increasing. -------------------------------------------------------------------------------- Vijay Muniyappa Kumar, Evercore ISI Institutional Equities, Research Division - MD [29] -------------------------------------------------------------------------------- Understood. And one last question from my side on the P&L. The gross margin, I guess, did you say it was mix which is going to drag down margins for the back half? And typically, it looks like Q4 is a pretty big gross margin quarter. And OpEx, looks like it went up on the SG&A side. Maybe some comments on what's driving SG&A? -------------------------------------------------------------------------------- James M. Thorburn, Twist Bioscience Corporation - CFO [30] -------------------------------------------------------------------------------- Yes. So on gross margin, our projection is conservative. In longer-term gross margin targets between 55% and 60%. This first quarter gross margin was 36%. Our last guidance for the year was 32%. So we've increased guidance to a range of $32 million to $34 million as we increase our revenue and leverage our fixed costs. We are ramping new products. So you see we have little inefficiency as you ramp the products in terms underutilized capacity. In terms of OpEx, increase in OpEx is primarily stock-based comp. The -- as you'd appreciate, the share price has increased a lot during the year. So the stock-based comp charge is higher, and then reflecting that in the increase in our operating expense guidance. -------------------------------------------------------------------------------- Vijay Muniyappa Kumar, Evercore ISI Institutional Equities, Research Division - MD [31] -------------------------------------------------------------------------------- And on SG&A, Jim? -------------------------------------------------------------------------------- James M. Thorburn, Twist Bioscience Corporation - CFO [32] -------------------------------------------------------------------------------- That's SG&A. Stock-based comps increased from $20 million to $32 million. So that's driving the bulk of the increase in SG&A. -------------------------------------------------------------------------------- Operator [33] -------------------------------------------------------------------------------- Our next question comes from Puneet Souda with SVB Leerink. -------------------------------------------------------------------------------- Puneet Souda, SVB Leerink LLC, Research Division - MD of Life Science Tools & Diagnostics and Senior Research Analyst [34] -------------------------------------------------------------------------------- The first question is on -- just looking at the orders, just -- if you could walk us through -- I mean I appreciate the $4.5 million that you called out, but I believe that was this quarter. Just walk us through, I mean, the step down here. The puts and takes to that. It is -- given the sort of one-off orders that you are seeing here, I just wanted to get a better sense of what the order book -- how should we be thinking about the order book for the year? -------------------------------------------------------------------------------- James M. Thorburn, Twist Bioscience Corporation - CFO [35] -------------------------------------------------------------------------------- I mean obviously, in terms of orders, first quarter orders were about $33.6 million. So you take off $4.5 million, looking at $29 million. I mean what's notable is Ginkgo, the orders were $3.5 million, revenue is $1.4 million. We do expect Ginkgo to pick up significantly in the rest of the year. That's why we called out revenue $11 million to $12 million for the year. In terms of our guidance, I think that's where you're getting at, Puneet. Yes, our guidance is conservative. However, we have taken into account the pandemic. We are seeing very strong bookings, as noted in NGS, our pipeline NGS continues to grow. We will see Ginkgo come back in the latter half of our fiscal year. And we continue to make progress on Synbio. We are conservative in terms of where we think the academic institutions are at. But in terms of the overall $110 million to $118 million, we thought it was prudent to leave the revenue guidance in place and increase the gross margin, which reflects a higher gross margin in quarter 1. -------------------------------------------------------------------------------- Emily Marine Leproust, Twist Bioscience Corporation - Co-Founder, Chairman, President & CEO [36] -------------------------------------------------------------------------------- And Puneet, to build on what Jim said, I'm not sure I would characterize it as a one-off order. We highlighted, because it's a significant next step in our liquid biopsy support as this customer goes into clinical trial. So -- but this is not the first order from this customer, and I don't expect it to be the last either. So it just is the next step of -- as we will go through clinical trials anymore, and then once they go to commercial launch, we anticipate that they will need even more than that. -------------------------------------------------------------------------------- Puneet Souda, SVB Leerink LLC, Research Division - MD of Life Science Tools & Diagnostics and Senior Research Analyst [37] -------------------------------------------------------------------------------- Okay. That's helpful. So within that context, if you can just help me understand, last quarter, $9 million, $4.5 million this quarter. If we think about this sort of lumpiness continuing through the year, then maybe just walk us through how much of these -- such orders are baked into the full year guide. If you can just walk us through maybe how much of liquid biopsy are you baking into the full year guide? And how much of the -- sort of the $9 million that order that came last quarter are you baking into the guide for the full year? -------------------------------------------------------------------------------- James M. Thorburn, Twist Bioscience Corporation - CFO [38] -------------------------------------------------------------------------------- So the $9 million for last quarter, we actually shipped in quarter 4. In terms of the way we build up the $54 million to $58 million, it didn't include the $4.5 million for liquid biopsy customer. So we build it up by customer. We don't actually break it out by segment. I mean, as you know, we've got about 160 large customers we're tracking. They continue to give us their projections. We're working closely with them. So we're pretty conservative in terms of the way we build up the guidance, but we don't break it out by segment, i.e., we don't break it out by liquid biopsy as an example. -------------------------------------------------------------------------------- Puneet Souda, SVB Leerink LLC, Research Division - MD of Life Science Tools & Diagnostics and Senior Research Analyst [39] -------------------------------------------------------------------------------- Okay. But it's just, I mean, appears that these orders are becoming -- I mean, routine rather than, as Emily pointed out, they're not really one-off. So I just wanted to get a sense of is that -- those are the types of orders you're continuing to expect through the year, and they are -- are they baked into the guidance or not? -------------------------------------------------------------------------------- James M. Thorburn, Twist Bioscience Corporation - CFO [40] -------------------------------------------------------------------------------- To a certain extent, they're baked into our guidance, the $54 million to $58 million. What I'm trying to get across, Puneet, is we do track key customers, and we are conservative in terms of our projections. And we've grown the NGS business from $3 million to $21 million to $44 million, and we had almost $16 million in the first quarter of this year. Our expectation is we're going to continue to do well. However, it's very difficult to predict quarter-to-quarter, but year-over-year, we anticipate good strong growth in NGS. -------------------------------------------------------------------------------- Puneet Souda, SVB Leerink LLC, Research Division - MD of Life Science Tools & Diagnostics and Senior Research Analyst [41] -------------------------------------------------------------------------------- Got it. And on biopharma, it appears that, obviously, you're working on (inaudible) and now you're doing cell therapy products. And it's good to see the progress on that front. But just help me understand, how should the -- sort of the cadence of those new project ads should be through the year? Sort of how many projects are you baking into the guide for the full year? And again, also, when should we expect to see the first clinical Phase I entry of a product? When is your -- what's your line of sight on the 10-plus projects that you have so far? -------------------------------------------------------------------------------- Emily Marine Leproust, Twist Bioscience Corporation - Co-Founder, Chairman, President & CEO [42] -------------------------------------------------------------------------------- Thank you, Puneet. So we were not guided on timing for when we'll have a first with antibody in the clinic. Definitely, it's a very important milestone for us, but we are not in control of the timing because we ended the preclinical development and then the company takes over, the partner takes over. So that's why, last year, we were focusing on having as many partners as possible because I think more shots on goals get us there sooner. So one of those 13 last year, where we get there first, we don't know who, but it was we have many shots on goals. As far as your first question, I think you're asking about how many new partnerships we're expecting. So we have not guided this year on the number of partnerships. We've guided on the total dollar amount for the upfront payment. And I'm quite encouraged by how full the funnel is. Those kind of partnerships are not like selling a kit. You can't close it in a week or in a month. So there's a slightly longer development time, but we are past the (inaudible) stage in -- for many of them. -------------------------------------------------------------------------------- Puneet Souda, SVB Leerink LLC, Research Division - MD of Life Science Tools & Diagnostics and Senior Research Analyst [43] -------------------------------------------------------------------------------- Okay. Great. And if I could squeeze in the last one on DNA store since this is -- I talked about that quite a bit. Is that -- when we think -- when do you think that could be a material revenue for Twist? And it appears that there are stability studies that you have to do with DNA and also redundancy has to be built out into the storage systems and whatnot in order to do so. So search trials, when can we see search trials? When can we see data from search trials? And potentially, when can we see material revenue for Twist longer term? -------------------------------------------------------------------------------- Emily Marine Leproust, Twist Bioscience Corporation - Co-Founder, Chairman, President & CEO [44] -------------------------------------------------------------------------------- Yes. I mean, we've done many demonstration by now. We've done demonstration for a year with Microsoft at Montreux Jazz Festival, with the (inaudible) lately in Q4 with Netflix. So I don't think we have much more to demonstrate that DNA is stable. The DNA capsule that we use that are peer-reviewed where the DNA is stable for the equivalent of 100,000 years or more. So I don't think there's a lot to demonstrate in terms of stability. That is pretty baked-in. And so what we have to do for us is go through the technology cycles. We've guided that we will have our 1 micron chip working this year and that we will have the next and final chip that we need the 115 micron ship in hand in 2022. So it's not a month away, but now we're talking in terms of quarters to get to a commercial launch to get to our prototype production. -------------------------------------------------------------------------------- Operator [45] -------------------------------------------------------------------------------- That concludes today's question-and-answer session. I'd like to turn the call back to Dr. Leproust for closing remarks. -------------------------------------------------------------------------------- Emily Marine Leproust, Twist Bioscience Corporation - Co-Founder, Chairman, President & CEO [46] -------------------------------------------------------------------------------- Thank you very much for everybody for staying on a little bit beyond the schedule. But it's a really exciting time to be empowering our customers to improve health and sustainability. And with health care under the microscope and elevated through the COVID-19 pandemic, we are proud to continue to innovate and execute and applying our DNA synthesis platform to ride the future of health care, diagnostics, sustainable chemical, sustainable materials, AgBio and data storage. With that, we look forward to sharing with you our progress in the months ahead, and thank you so much for your attention. -------------------------------------------------------------------------------- Operator [47] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.