Q4 2023 Singular Genomics Systems Inc Earnings Call
Participants
Philip Taylor; IR; Singular Genomics Systems, Inc.
Drew Spaventa; Founder, Chairman & CEO; Singular Genomics Systems, Inc.
Dalen Meeter; CFO; Singular Genomics Systems, Inc.
Dan Brennan; Analyst; TD Cowen
John Sourbeer; Analyst; UBS
Presentation
Operator
Good afternoon, everyone, and welcome to the Singular Genomics Fourth Quarter and Full Year 2023 earnings call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host Philip Taylor. Sir, the floor is yours.
Philip Taylor
Thank you, operator. Presenting today are Singular Genomics, Founder, Chair and Chief Executive Officer, Drew Spaventa, and the Company's Chief Financial Officer, Dalen Meeter. Earlier today, singular genomics released financial results for the three months ended December 31, 2023. A copy of the press release is available on the company's website before we begin, I would like to inform you that comments and responses to your questions during today's call reflect management's views as of today Monday, March 18, 2024 only and will include forward-looking statements and opinions, statements, including predictions, estimates, plans, expectations and other information related to our financial and operating results, plans and strategies. Actual results may differ materially from those expressed or implied by these statements as a result of certain risks and uncertainties. These risks and uncertainties are more fully described in our press release issued earlier today and in our filings with the Securities and Exchange Commission, including our most recent Form 10 K filing in the Form eight K filed with today's press release. Our SEC filings can be found on our website or on the SEC's website. Investors are cautioned not to place undue reliance on forward-looking statements. We disclaim any obligation to update or revise these forward-looking statements. Please note that this conference call will be available for audio replay on our website at investors dot singular genomics.com in the Presentations and Events section.
With that, I will now turn the call over to CEO. Drew Spaventa.
Drew Spaventa
Good afternoon, and welcome to the singular genomics Fourth Quarter 2023 earnings call. It was a productive quarter to finish off an important year for the Company, and I'm pleased to update you on our progress. We will focus our call on the following areas one, business highlights and key accomplishments from 2023, two new data and product announcements and three strategic focus for 2024.
Let's start with our fourth quarter results. We shipped 84 instruments during the quarter and generated $1.1 million in revenue, our highest quarterly total yet of these shipments, three were to academic core labs and five were to commercial labs. Shipments comprised an equal split between traditional capital purchases and noncapital arrangements, bringing our total G4 shipments to '24 as of December 31.
In addition to our Q4 revenue performance, we had several other key accomplishments and activities for the year. To note, we commercially launched and transitioned the majority of our customers to RF. three flow cells, allowing users to get up to 450 million reads per flow cell or 1.8 billion reads per run for some of the most widely run applications. We commercially launched Max Re flotel kits to customers for single-cell sequencing, increasing the output of the G 4 to 800 million reads per flow cell or 3.2 billion reads per run for a specific single cell and spatial sequencing applications. We improved sequencing quality on the G4 recently increasing the specifications to 85% basis greater than or equal to Q. 30.
Lastly, we narrowed our priorities across the R&D roadmap to focus resources on the highest impact activities and projects for new innovations while reducing our cash burn and extending runway.
Turning to new data and product announcements, we recently showcased our near term product pipeline at the AGBT Conference in Orlando, Florida. At the conference, we unveiled the G. four X spatial sequencer, a high throughput in situ spatial sequencing platform the G. four X is designed to offer novel capabilities, stackable data streams and unprecedented throughput for spatial profiling of tissue. It's novel capabilities will include direct seek, which is the sequencing of RNA in situ and has the potential to open new areas of scientific discovery. In addition, the G. 4 S. will offer readouts of targeted transcripts, targeted proteins and a fluorescent H&E stain all in the same tissue section. This combination of readout modalities will be offered at an unprecedented scale with 40 square centimeters of flexible imaging area and single day runtimes the G4 system will enable labs to process 20 times more samples per week than existing technologies.
At the conference, our CFO and Co-Founder, Eli Glezer, presented to a standing-room-only audience showing the performance data and technical specifications of the G4 X system. In addition, we hosted a successful customer and KOL event, including lab directors and scientific leaders and the special community events provide an opportunity to develop relationships, solicit feedback on the system and discuss opportunities for collaborating and working together to bring the G. four X forward, we presented internal and external data at the conference internal data included transcripts, proteins and direct sequencing of RNA external data came from two technology access program or TAP partners, early collaborators, including Katherine Lu from the Dana-Farber Cancer Institute, who noted the high sample throughput and excellent data quality has been generated on the G. four X with our bone marrow samples that towards the very difficult tissue type have been impressive and have allowed us to envision much larger studies that have not been previously possible. The scale provided by the G. four X promises to have tremendous impact on expanding our understanding of the tumor microenvironment in acute myelogenous leukemia, AML and beyond. In addition, I have mismatches from Harvard Beth Israel Deaconess Medical Center noted as the spatial biology field matures, high throughput spatial platforms. This is the G. four X will empower more researchers to incorporate spatial tissue profiling into their work, as well as enable us to answer bigger questions and to perform increasingly larger studies. We are encouraged by the feedback from early collaborators and interest from potential users coming out of AGBT. The conference generated more than 200 qualified marketing leads. And now we have a growing pipeline of near term service projects on the G. four X and a funnel of potential sales opportunities for early adopters of the platform. We intend to initially offer kits the G4S that will support transcripts, proteins and offer for us an H&E stain. The system is designed to accommodate a large number of samples and will have the capability to read out hundreds of gene targets and dozens of proteins in the same tissue section. Content will be available in fixed panels or customizable for the customer future kits. The G4 X will also support direct seek, which is designed to directly read regions of RNA such as cancer hotspot mutations, guide RNAs and crisper screens, or B and T cell receptor sequences. The capability to perform direct sequencing of RNA within cells and tissues is expected to bring a powerful new readout modality for in-situ molecular pathology. Direct seek will be initially available as a service with plans for broader release shortly thereafter. The G4 upgrades are expected to be available to G4 customers by the end of this year. As part of a G. four X early access program. Initially available will be an immune oncology panel of approximately 300 gene transcripts, 10 to 15 proteins and the ability to customize content direct seeking additional panels are expected to be released at a later date. We also plan to provide G4S technology access services starting in the second quarter.
Turning to our views and strategic focus in 2024. We are encouraged by the level of interest and engagement around the G. four x. We are seeing strong interest from early collaborators, especially as it relates to our technology access services offering. Based on early feedback and interest in the G. four X, we intend to focus more heavily on spatial sequencing and multi-omics moving forward. We believe this is an area where we can offer novel and differentiated solutions with compelling business economics. The setup for the G4 X has multiple compelling aspects, driving the shift and focus first strength of the value proposition. The G4, its value proposition is expected to provide unique capabilities that customers are asking for. This can be categorized into novel data output modalities and high throughput. The G4 is designed to be highly differentiated from any other current offering while directly addressing customer pain points.
Second, the business economics are attractive ASPs on both the G4 as instrument and consumables are expected to be higher than the current G for business, the ability to offer high throughput in the form of 10 to 40 tissue samples on a single flow cell translates to expected ASPs and margins to be materially higher than current kits and significantly higher potential for consumable pull through for G. four X instruments.
Third, market dynamics and growth, the spatial profiling and multi-omics spaces in the early stages and is expected to grow rapidly. The current market is largely comprised of academic labs, CROs and reference labs. These labs need higher throughput and lower cost per sample. Current tools are limited. We believe that G4S will be uniquely able to serve these customers and accelerate growth within this space. We see a strong setup for the G. four X to be a highly successful product, and we are making the necessary trade-offs and decisions to invest and bring this product to market as fast as possible. We also recognize the need to manage our cash and resources prudently and have continued to identify and implement actions to drive additional cost savings to this end we recently made the difficult decision to reduce our headcount by approximately 20%, and we reduced our spending plans to decrease cash burn and focused resource more heavily on our spatial sequencing product road map. This reduction was incremental to the cost savings taken in October of 2023 and discussed in our last earnings call. We believe these actions will extend our cash runway into late 2026, while still supporting our current G4 customers and focusing our development work to bring the G for us to market as fast as possible we will provide additional color and updates on our outlook for 2024 on our Q1 earnings call. And now I'll turn it over to Dalen to go through the details.
Of our fourth quarter financial results.
Dalen Meeter
Thank you, Drew. I'll start with financial results for Q4 2023 and talk briefly about 2024. As previously discussed, we shipped eight G. four instruments in the fourth quarter of 2023. Revenue for the fourth quarter was $1.1 million, predominantly made up of $0.9 million from revenue recognized on for capital purchase instrument placements and consumables pull-through of $0.2 million. We expect revenue from the remaining four instrument shipments to be recognized over time as these customers.
Purchase consumables gross profit was negative $0.5 million in the fourth quarter of 2023 compared to approximately flat in the fourth quarter of 2022 our gross margin was negative because of both additional discounts we provided to certain customers as well as higher costs associated with the installation, training and support of our system placements. Operating expenses in the fourth quarter of 2023 totaled $24.8 million compared to $22.5 million in the fourth quarter of 2022. These totals included non-cash stock-based compensation expense of $2.7 million in Q4 2023 and $3.1 million in Q4 2022. The year-over-year increase was primarily driven by the timing of expenses related to certain compensation and benefits and severance costs.
Net loss in the fourth quarter of 2023 was $23.2 million or $0.32 per share compared to $21.1 million or $0.29 per share in the fourth quarter of 2022. The weighted average share count for the fourth quarter of 2023 used to calculate net loss per share of approximately $73.6 million. Ending cash, cash equivalents and short-term investments, excluding restricted cash, totaled $173.9 million.
Turning to 2024, Stu discussed, we recently implemented a reduction in force of approximately 20% of our workforce. We have also taken actions to reduce our non-personnel related operating expenses in 2024 to further decrease our cash burn. These actions were incremental to the cost savings initiatives implemented in October of 2023 and discussed on our last earnings call. In total, we estimate the combined savings from these actions will reduce annualized operating expenses by approximately $20 million and extend our cash runway to late 2026. While these actions were not easy, we believe rightsizing the cost base of the organization was a necessary step to position us for success in the long term future.
Drew Spaventa
Thank you, Dale, and I'm excited as we look ahead to 2024, this will be a pivotal phase for singular genomics. You know, I spent the last seven years developing incredible technology. We have invested approximately $300 million, and in doing so created a powerful sequencing platform with significant moats around our system. Our chemistries and methods, our IP and our products. Over the last few years, we have increasingly focused on leveraging our NGS technology and foundation to address the spatial and multi-omics markets. Our NGS foundation and continued innovation has resulted in a unique and powerful on-ramp to spatial sequencing. Our many years of investment, both NGS and spatial sequencing now positions singular to enter these high-growth markets with a highly differentiated product. The recent restructuring of our business will provide extended runway give us time to get this product to market and scale commercially, the synergies and footprint of our current NGS. business and customer base will allow us to onboard existing customers and leverage our current commercial operations.
Now let's open up to questions. Operator?
Question and Answer Session
Operator
certainly everyone at this time would be conducting a question and answer session. If you have any questions or comments, please press star one on your phone at this time. We do ask that while posing a question, please pick up your handset if listening on speaker phone to provide optimum sound quality. Once again, if you have any questions or comments, please press star one on your phone. Please hold while we poll for questions. Your first question is coming from Dan Brennan from TD. Cowan. Your line is live.
Dan Brennan
Great.
Thank you.
Thanks for the questions, guys. Congrats on the quarter and on the ForEx.
Yes, so on sounds like when you get more color at 1Q, but could you unpack a little bit the strategic shift from the sequencing side to the G. four X and can you just give us some sense of what that entails like? Are you still selling? Are you still going to be charging ahead on the in fact, I done. It's shifting kind of what it means?
Drew Spaventa
Again, thanks for the questions. This is Drew. We lost you at the end there, but I think I understood the most of the most of the question in terms of strategic ship, it's really a confluence of factors that's driving the shift. It's really best understood kind of looking at three different aspects of the setup we talked about on the call. The first is the value proposition of the G. four X and I think there's two ways to think about it, the value proposition of the system relative to other options out there in the customers' eyes and the value proposition relative to the current G. four and what we see with the axes, you know, it's really resonate with customers, the novel ability to use sequencing in situ and do things like direct seek. And it's also the high throughput lower cost that our large imaging area will deliver. And that combination is really resonating and it's just a very strong value proposition.
The second is the business economics on X. We expect to see higher ASPs for the instruments. And we also expect to see a very different pull through profile on sequencing. Our kits ranged from around $600 to about $1,200 on spatial, the cost per sample and the ability to get you anywhere from 5 to 40 samples on a single kit gives us the ability to potentially have ASPs that are many, many times higher on the same kit on the same system with much higher margin dollars. So the amount of time someone has to press go to have a healthy pull through system with significant margin dollar contribution to the bottom line is just it's about 5 to 10 times less. So it's just a very different setup on those two and then I think the last thing is that the market is growing very fast. And when you have high growth, you have areas that you can kind of find a foot Hill hold and differentiate yourself, and it's just much easier to launch and grow a business when when growth is abundant, whereas sequencing in a lot of ways in the academic and in the segments we're currently selling in. It's not really growing as fast that wallet share starting to shift towards spatial and single-cell and protein and all the things that the G ForEx directly addresses on the clinical side. There's still absolutely going to be growth in sequencing, but that's reimbursement driven. It's decentralization of sequencing and it's going to require much longer time frames we're still very interested in pursuing that market and ideally advancing that through partnership over time. But the G. four X, we think has set up to be a much different profile of business in the short term when we're measuring over the next quarters and years.
Dan Brennan
Got it. And then in terms of just so you will still be pushing ahead then I guess in terms of the clinical market, maybe not research, just wondering from a from like an operational commercial basis as we go through 24, is it I think The Street probably has somewhere in the midst of, I don't know, 30 or so placements of the G. four.
Sounds like any color how we think about like direct to the business in '24 as you shift this business model?
Drew Spaventa
Yes, we're still working through a lot of that. I mean, I want to be clear, we are shifting our focus and we are putting all of our resources towards getting X, developed and out, and that does require a difficult and challenging trade-offs. We will have more color in the next quarter's call, but right now we are not pounding the pavement on putting additional dollars and to go drive EOG for right now, we are focusing the resources on G. four S. 100% committed to supporting our existing customers. And we are also interested in advancing the G4 through partnership. And we do have efforts that are ongoing and outreach. But our focus again, we're trying to really hone in on what's the highest value best return on the resources we have. And that to us is very clear at this point, it's X and that's where the majority of our attention is going.
Dan Brennan
And maybe last one, just on the ForEx and what's the key milestones issue that we could be watching for in terms of some of the early access customers, like when will we see publications? Just kind of give us a sense of what are the what are the guideposts we can watch throughout 24 that will give us confidence you guys are on the right trajectory there?
Thank you.
Drew Spaventa
Thanks, Dan. Yes. So so we're expanding our Technology Access Program. Now early on. A lot of these are collaborations where you're doing work to submit grants or you're doing evaluations to demonstrate the technology to potentially early adopters will move into kind of a paid for services arrangement kind of in Q2 really probably taking more effect in Q3 because, as always, onboarding, there's work to get people onboarded, but that'll be something to look out for services and kind of uptake in Q three. And then we're targeting early access placements with just a few select customers. Again, the idea here, these are very high-volume customers and places where you're going to have a tremendous amount of demand. So the plan selected early access customers end of the year and then moving into a full commercial launch first half of next year.
Dan Brennan
Great. Thanks.
Great. Thank you.
Operator
Thank you. Your next question is coming from John Sourbeer from UBS. Your line is live.
John Sourbeer
Hi, guys. This is Lucas on for John. Salar beer at UBS. Is there any commentary you could provide on the sales funnel mix between the G4 and the G. four X right now? Thank you.
Drew Spaventa
Yes, yes, thanks. It's still early to look at the sales funnels for both income and apples to apples. What we're seeing on ex-US, we have a growing list of dozen plus potential service collaborators that are in the funnel, and that's growing very quickly coming out of AGBT. We had 100 plus interactions. And you know, it does take time to follow-up with all those interested parties. And we're doing it in a very formal way where we're trying to identify specific projects where they could utilize the G. four X and a lot of that's working through to understand the details of the project to make sure it's fit for the current capabilities of where we are. We still have a ways to go to develop kind of the full set of capabilities in the platform. But that funnel on the services side is really starting to take shape nicely, and we're executing on those.
Now on the funnel for instrument placements, side of things that's going to take some time. Like I said, we're only talking about early access placements later this year with commercial launch in the beginning of next year. And people are going to want to see publications and services. And we still have a lot of work to do to kind of launch this product the right way, which we are affording ourselves the time to do on the sequencing side, there remains demand, but not not ready to comment specifically on the final numbers that we've talked about before. But again, our focus at this point is really identifying where are their G. four X customers. And if those customers are interested in taking a G4 now as part of a package to step into X, those would be opportunities we would move through the funnel. But right now, we are not actively at seeking G for only opportunities. We are focusing our attention on G. four X opportunities or combination opportunities.
John Sourbeer
Thanks. That's all of really good color. And then is there any commentary you could provide on, you know, revenue and, you know, just kind of the general cadence of how things could track throughout the year?
Drew Spaventa
It's still very early for us. We're working through this now a lot of this reorganization and shift. It has been of the work that we've done over the last couple of months. I think we'll have more information as we work through this kind of at the next quarter call.
John Sourbeer
Okay, not a problem. And then lastly, I'm a PR. Should we consider that product as still being in development or given the rollout of the G4, as you know, is that kind of a replacement for the PEA?
Drew Spaventa
It's a good question. I would consider that the G. four axes, our spatial sequencing platform, we're bringing to market and it's all hands on deck to focus on getting that platform out the TX platforms, we have six beta platforms and that we may revisit at some point. But right now they're on hold. Again, our mindset right now is very much focused focus focus on getting the G4 accounts.
John Sourbeer
Okay. Thank you. That's all I had.
Operator
Thank you.
Your next question is coming from Matthew Sykes from Goldman Sachs. Your line is live.
Hi, this is Jack Allen on for Matt. Thank you for taking my question. First, for the anticipated G4 X launch, do you expect a similar go-to-market strategy offering both reagent rental and outright instrument purchases?
Drew Spaventa
I think we envision a somewhat different strategy. I think we're going to lean into services a lot more, and I expect that we'll be more discerning on alternative methods versus capital sales. Again, the demand profile at this point seems different, and we learned a lot from the G4 launch. And so it's still early to say a year from now when we're selling units and where commercial, what we expect that mix to look like. But I think one thing that we have learned the service can be a really nice on-ramp, there's a lot of demand there. So I think the other thing that we were planning is a few early access placements that really partnering with those early access customers and making sure there are places where there's very high high pull through, and that's something that uniquely the system is suited to address.
Got it. Thanks.
That's really helpful. And then lastly, so as you continue to cut headcount to reduce cost, can you just talk about what you were thinking about in terms of level of investment into the business to support the GX. launch?
Drew Spaventa
Yes, the reductions are very difficult and we've been a lean operating company to the extent possible from onset and the thought process behind reducing and focusing was really just trying to eliminate anything activities and priorities that weren't critical to kind of the revised focus. And that focus is supporting existing customers and the existing sequencing business and then putting all R&D and product resources on G. four times on a lot goes into developing these systems. It's multidisciplinary teams. These are complex systems and reagents, so you can get to a point where you have really nice proof of concept of really nice data of productizing that and getting it out it robustly. That's something that we know it does take resources to do that. So we've gone as lean as we can with the more narrow focus on G ForEx and supporting existing customers. And we're trying to advance as quickly as we can in that nature.
Dalen Meeter
Hey Jack, this is Dalen. And I'll maybe just add one thing in the savings estimates that we talked about in the prepared remarks and the statement about extending our runway out to the end of 2026. We are contemplating internally some just kind of modest investment for some of the infrastructure that we think will need to stand up to support the go-to-market strategy such as services, right? So we are contemplating some reinvestment to get this product to market.
Got it.
Thank you.
That's that's it for me.
Operator
Thank you.
That concludes our Q&A session. I will now hand the conference back to our host for closing remarks.
Drew Spaventa
Please go ahead.
Thank you, everyone, for joining the call today. I look forward to update you on our progress as we progress this year.
Operator
Thank you, everyone.
This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.
