Good afternoon. This is Steven Mah from the Tools and Diagnostics team, introducing our next company in the life science tools and synthetic biology space. It's my pleasure to welcome Todd Nelson, CEO, and Eric Esser, President and COO of Telesis Bio. As a reminder, you can email me questions at steven.mah@cowen.com, or just, you know, just ask the questions if, if you want to. So, anyway, so Todd, why don't we just start off with, you know, you know, talk about macro headwinds. I know you just recently, you know, reported, you know, preliminary Q4. Looks like pretty good growth. You know, consumables were, you know, at a record-
Yeah
... million dollars in the fourth quarter. You know, kind of balance, you know, kind of your performance versus macro headwinds in the space-
Mm
- and kind of what you're seeing, going forward. And, I know you didn't guide for 2024, but-
Yeah
... maybe give us some color over maybe why you didn't and, you know-
Sure
... what you're kind of seeing.
Happy to. So yeah, sales will actually be flat year-on-year in 2023, and we announced that. But hidden underneath that flat sales are some really encouraging things that you had mentioned. So we have about 300 of the BioXP systems out. There's two different systems. One's called the 3250, and there's a 9600, just differs by throughput. But I think the positives that we're seeing is that once we sell a system, the recurring revenue continues to grow, even in the face of continuing headwinds on the macroeconomic side. And certainly, we have felt that. We launched the 9600 in late 2022-
That's right
... and had very sales of that instrument, which are about $250,000, were very, very strong in the fourth quarter, first quarter, and then they kind of trailed off as this macroeconomic headwind continued. What we've seen since then, there was a mix shift from the 9600 to the 3250-
Yeah
... 'cause it costs a little bit less, and we've seen an uptick in sales for the kits. We have about 22 kits that can be run on the system, and so I think that was very encouraging. I don't, you know, I haven't-- You're the arbiters of what happens with the macroeconomic environment. I think that we're well-positioned through differentiated products that we can talk to you a little bit about, like when the appetite comes back. But I'm very pleased that, you know, our collaborations are up 30%. Margins were up from 56% to 60%. We've taken a lot of costs out of the business. We've extended our cash runway and have had the largest quarter ever for BioXP. Kit sales and our collaborations are in great shape.
So, I think those are the things that are kind of working for us in the background. We still, to be clear, see, you know, headwinds, and that just hasn't let up yet.
Okay, got it. And then maybe on your strategy of kind of, you know, pivoting into working with, you know, pharma companies, you know, you know, maybe, you know, dive into kind of your Pfizer partnership a little bit and maybe some other, you know, strategic initiatives, that we can-
Yeah
... look forward to.
Happy to. Great question. So, the company was founded in 2019, basically around automation platforms for making or for doing gene synthesis and cloning, excuse me, at the bench top. And we have added an mRNA product, and that was a logical thing to do during the pandemic, and we've seen significant uptake there. So part of what was driving the kit sales is a 300% increase in kit sales for mRNA. So the first thing on the strategic side is we realize now, after being in the market for a few years, that we have a highly, highly differentiated and very competitive position in mRNA, and that we need to compete differently in the DNA space because that's...
You know, admittedly, I think there are lots of customers that want to use us, as is evidenced by, you know, 300 systems being out there, that want to control their workflow, keep their IP at the bench, and get things done presumably, a little bit faster than if they use a service provider. mRNA, for sure, it can take up to 8-10 weeks to get that product, from a provider, and we can get it to our customers within just a few days, so that's a significant differentiator. The other, I think, strategic thing is that we've got enzymatic DNA synthesis technology, called SOLA, that we've been working on for a few years, and we have partnered that so far with Pfizer, and Pfizer intends to use that.
We're one of their four strategic companies, technology platforms that will allow them to make mRNA-based vaccines for flu and COVID. And, you know, we've got a very good relationship with them. I can't talk a lot about the details of you know, the collaboration itself, but we're very happy with where it's at. And embedded within our financials are in the collaboration revenues, is revenue from them.
Yep. Yeah, and just can you remind us of the magnitude of some of those payments you had? I mean, I know there's a couple milestones. They—I think they're publicly disclosed or...
Yeah. So, some of them are, some of them aren't, so I can tell you what's publicly disclosed. We had an $8 million upfront fee that was ratably recognized. That ended two years into the agreement, which was at the end of 2023, and then we've received somewhere around an aggregate of $10 million in milestone payments. And then there's then there's another part of the agreement where I would say if Pfizer elects to move forward with exclusivity, that it would unlock a much larger number related to different milestones, potentially around clinical development and sales or commercial milestones. And what they have said publicly, that would be more than $100 million. I think that was in the original press release.
Yeah. Okay. All right, yeah.
We're very comfortable with that number. If they move forward, we're very comfortable with that number.
Okay, and you know, if I remember right, you know, you intend to commercialize SOLA as another one of your product offerings.
Yeah.
You know, can you update us on the timing of that commercial launch?
Well, we consider it to be already launched because we are signing and in a position to sign commercial licenses. So, that's the first phase. I feel like we're already commercialized that.
Okay.
You know, we talked about the Pfizer agreement. We have other customers that we're working with there. So, I feel like we're there. Where SOLA is not, is actually at the bench top, like running on the BioXP or something like that.
Right.
And so we continue to evaluate that along with other technologies to see what is actually the best platform for on-demand DNA synthesis at the bench top. And SOLA is a very high throughput, very appropriate thing for biologics and cell therapy with pharma generally. So if it's higher throughput, SOLA is a great solution, and we've not yet integrated the SOLA reagent chemistry into the BioXP, but I would imagine we'll do that at some point in the future.
Okay. Okay. Like future, like 2024 or, you know, still TBD? Or-
Our intent is to get the technology out there, but I can't comment on 2024.
Okay, got it. And, you know, I guess similarly with that, you're gonna be introducing a... You know, you already do have a mRNA kit for the XP.
Yeah.
So this would be more of a, you know, I guess, more of an additive thing to your portfolio?
The SOLA?
Yeah.
Yeah. Well, SOLA is
You intend to do kits as well, right?
Yeah. So the way that SOLA works is that it changes the paradigm fundamentally in a significant way from what can be done today. So today, gene synthesis needs to be done generally in a centralized organization, and they send it back to you.
Yeah.
There's been a significant interest, I think, since the pandemic ended, in better securing supply chains, and we fit very well into that with high throughput, customers like, you know, pharmaceutical companies. So I think we're well positioned there. The kits then would be like plates that the customer can put into their freezer, and if they want to make a gene any time of the day or night, anywhere in the world, they can just pull one of those plates out, and that significantly changes the paradigm from, you know, weeks or longer to get the genes that you want, potentially to a day or two. And it dramatically improves the value proposition for mRNA, which can be certifiably months to get that, and we can do it in, like, you know, two to three days.
We're very, very enthusiastic about the adoption of SOLA as a high-throughput reagent and enzymatic DNA synthesis for mRNA templates.
Right. Right. Yeah, and so just for the benefit of the audience, so SOLA, it's a short oligo, like-
Like assembly
... assembly.
Assembly, yeah.
Yeah. You know, maybe can you talk about, you know, how, you know, you, you've vertically integrated your supply chain for oligos with the acquisition of Eton.
Yeah.
Can you talk about how that kind of fits in with your kind of your broader SOLA strategy? And you know, and also your broader strategy to improve profitability by you know, reducing cost of goods.
Yeah. So a couple of things on that. Yes, we have—when we started the business, we were—our supply chain included purchasing supplies from other companies. We've now vertically integrated that, as you said, and make our own oligos. Those are still phosphoramidite oligos, but we offset now, Eric, about 80%?
70%. Yeah.
70% of internal production, and that accretes to gross margin, of course, and helps us with quality that we couldn't control before. So that's been a very positive thing for the business, very positive for the customers. How SOLA fits into this, I think we'll have to see in the future. There's a world in which SOLA could be used as a manufacturing platform, and that would drive the cost of synthesis down significantly, but we're probably a few years from that. So it'll remain at the bench top, but as a broad-based manufacturing technology, there is the potential for that, but not right now. I think what we're excited about is getting these instruments and the reagents to the bench top first, rather than, like, large facilities.
Okay, got it. And you know, the current gross margins are, what? About 60% right now.
That's right. Yeah.
Is that, is that a good kind of run rate going forward? You know, 'cause, you know, how should we think about that?
Well, you know, we had goals this year to expand gross margin, or at least for 2023, and I think we largely hit the target. You know, the mix shift in the second half of the year and toward the end of the year offset that a little bit. But in terms of the insourcing activity that we undertook, both around the oligo manufacturing, which we now have stood up-
Mm-hmm
... as well as the insourcing of the instrument manufacturing itself, we hit our targets there internally. So I think we're set up well as we look forward into 2024. You know, we have the right, you know, processes in place to be well positioned for continued margin expansion. I think a lot of it certainly depends on the macro environment and the mix, you know, in terms of what we're able to achieve on the instrument side and the adoption of SOLA and the ramp around that, but we feel pretty good about where we are with margin.
Okay, got it. All right, so, I'm just trying to think, you know, how does this... Just thinking more kind of long term, you know-
Mm
... given your cash position and your goal to, you know, achieve profitability, kind of... You know, I mean, obviously, gross margins, you know, play a big part into that.
Yeah.
So that's what I'm trying to just kind of triangulate and, you know-
I, I, our, our-
You can answer it in a different way, like maybe when you can expect to become cash flow positive, maybe in a different...
I don't know that we can answer that, 'cause I don't think we can, like, provide guidance.
Right.
But what I can say strategically is that, you know, our goal is to improve gross margins, and that appears to be something that we can do, as we've made the right decision to insource things. We've insourced the two things that Eric mentioned, the reagent manufacturing as well as the instrument manufacturing, and then, as Eric also mentioned, the mix shift. But, I think investors should understand that, we have higher margins on newer products and in the mRNA line. And so, you know, we're enthusiastically embracing that space for a number of reasons, and I think not only because we're highly differentiated, but the financial impact it can have on the company, longer term. And then the second thing is SOLA. You know, that is right now a collaboration, a commercial collaboration stage technology.
And so, you know, the upfront licensing fees can be fairly high, and that can accrete to gross margin also. So with the margins at 60%, I think we're happy, but I think there's certainly room to grow, and I think we have a plan to expand those continuously in the future without specifically, you know-
Yeah
... saying exactly what they might be, but it does depend on those mix issues and volume.
Okay.
Yeah.
And then, you know, how should we think about, you know, additional, like, SOLA licenses to other-- I'm not, I'm not talking about bench top use on the XP-
Mm-hmm
... but more kind of on the strategic partner side. Is there any exclusivity with Pfizer, or, you know, how should we think about that?
Not that we can discuss around SOLA. So what I would say, I think, in response to that question is that, you know, we, we have a couple collaborations. We have a pipeline of opportunities, because it's a higher throughput reagent chemistry.
Right.
We're mostly talking to pharma companies, and we have an increasingly full pipeline. So, you know, our desire, our hope, is that we can sign a couple of additional SOLA deals this year.
Okay. All right, that that's helpful. And then, you know, maybe there... I mean, there's, you know, I get inbounds from investors on enzymatic DNA synthesis, so-
Mm-hmm.
There's lots of different enzymes. There's also lots of different, you know, methods. You guys are doing an assembly method. Others are using, you know, engineered enzymes, such as TdT, which are more like a polymerase.
Mm-hmm.
There's a lot of confusion because a lot of those companies are struggling, and there's companies like, you know, DNA Script as well. Again, a lot of confusion around the space. You know, maybe, you know, could you maybe, from a high level, you know, kind of outline, you know, the various enzymatic processes and, you know, how yours are differentiated and, you know, in effect, more robust as well, from my opinion?
Well, so it's a good question. I think the competitive landscape and the technology stack in the industry has evolved rapidly in the last, you know, few years.
Mm-hmm.
And so you're right, there's basically, like, two large camps. There's the TdT chemistry, which adds a base at a time, and is an enzymatic process. And then what we do is we start with-
Mm-hmm
... very small building blocks that have already been QC'd, and so we can... I'm exaggerating now to make a point, but we can make all these building blocks, sequence them, mass spec them, whatever. So we end up putting that product through a ligation procedure into gene synthesis, which allows for much higher fidelity and longer builds. So I think that as the industry, in particular for mRNA, migrates towards the need to have longer templates, SOLA is very, very well positioned there, both from a cost perspective, from a throughput perspective, from a fidelity perspective, to deliver in that space. When you get to the bench top, as we've mentioned already, I think TdT chemistries are very, very, you know, interesting, and I think they've evolved a lot in the last few years.
And so, we find those potential technologies to be very, very synergistic with our BioXP product. So we look at SOLA as being like a pharma product, high throughput, drug discovery, has potentially a cost advantage and throughput advantage, that's appropriate for one customer set. We would evaluate putting SOLA on the bench top, but I think the TdT chemistry is something that, you know, we're interested in, and we could potentially license or get access to that, to put that closer to the BioXP, which I think would help us, you know, execute against our market. So, I think TdT chemistries have come a long way, and we certainly watch them. And, you know, we're excited to see where they end up.
Mm-hmm. Okay. Yeah, and, you know, from my channel checks, those tend to be fairly expensive enzymes.
Mm-hmm.
You know, a lot of them are not, you know, tethered to a, you know, to a matrix or column, so, a lot of them aren't reused.
Mm-hmm.
Is there any, and I appreciate, yeah, SOLA is, you know, very highly confidential. Can you kind of maybe give us a sense of the cost of the enzymes that you guys use for the SOLA process versus maybe TdT?
No. I can't. I don't even think I would know what they are, so excuse me. So it's a good question, I just don't have a robust answer for you. I think what I can say, and I'll hand it over to Eric, because he probably has a better answer than me, but I think we have a path with SOLA because we can build at such scale upfront, that the cost of the DNA over time becomes de minimis.
Okay.
And so most of our cost, from a bill of materials perspective, will be in plastic and enzymes.
That's right. Yeah, and I would just, I would just sort of amplify that. You know, the difference is that you deliver all those enzymes to the bench, and you, you synthesize on a, you know, base-by-base process for some of the other enzymatic... for the TdT-based enzymatic synthesis process. Whereas we can make a, a, a collection of DNA building blocks, and as Todd said, QC those, and that can serve a very large number of synthesis operations, right? So you essentially reduce the, the DNA cost to, to near zero, you know-
Okay
... over the long run, at high scale and high volumes.
High scale, low cost. Okay.
Yeah, that's why we're finding that the position for SOLA is exactly where our collaborators are, right?
Mm-hmm.
They're high throughput, large companies, and that seems to be where the interest is. And I have to say, you know, a few years ago when we started talking, you know, before the IPO, we were just trying to figure out, like, where is the technology going to land? And it wasn't fully developed. I think we're getting better information on that, and I would say with confidence, it's migrating towards a higher throughput, you know, higher fidelity type of landscape in kind of drug discovery.
Right. All right, all right. All right, fair enough. Let's talk about, like, the decentralized, you know, offering that you guys are, you know, contemplating here versus, you know, the existing centralized offerings from, like, IDT, Twist.
Yeah.
you know, GENEWIZ, GenScript, and we, we can discuss those companies, in a second. But, you know, what gives you confidence, you know, that, you know, a decentralized solution, you know, is something the market wants?
Well, I think that's evidenced in the 300 systems we've sold-
Yeah
... and the fact that the kits are, you know, had their highest, you know, sales last quarter. There's a market for it, right? And so the question becomes: You know, how much of that market can we get over time? And we know, and you know, because you've published on that, that's a fairly large market. And so the question becomes: How much of that can we, you know, how many customers are there that want to control their workflow-
Yeah
... continue, you know, control their IP, potentially do things faster on the DNA side? And, you know, I think we'll have to wait and see, but it's certainly clear to me that if we can get back on the growth trajectory that we were on previously, and I have to say, from our view, there were no fundamental issues other than macro headwinds that have slowed down the instrument placements. I think we're in very good shape. So I think part of it is evidenced by just the growth that we were and are experiencing, that, you know, there are customers out there that want to do it. And then the number, I think we've said, you know, for years is in the thousands.
So we're still in the early adopter stage for the BioXP, and, you know, we're interested in that benchtop space, whatever that means, for on-demand synthesis. And so, you know, we're going to continue to work at that, but I think it's, you know, without... You know, analysts will tell you, like, what that number is, but there's clearly thousands of labs-
Yeah
... that could benefit from this. Our vision, which is not guidance, but, I mean, our vision is to have one of these systems in every lab because it's so simple to use. Over time, I think a certain part of the market will adopt a decentralized model, just as they have in almost every other instrument platform.
Okay.
So I think that... I agree that certain parts of the market are well served with DNA service providers, but I think there's also an emerging segment of the market-
Mm
... certainly for RNA, and certainly within that, where certain customers want more reliable, faster service.
Yeah, yeah. Now, that, that's a good point, too. And I don't know if you've been following, like, the, you know, BIOSECURE Act, the proposed bipartisan legislation, and also some of the comments from, you know, National Security Commission on Emerging Biotechnology, and Michelle Rozo, the vice chair. She specifically flagged synthetic DNA manufacturing as, like, a critical bottleneck, critical emerging technology. You know, I think there's more of a focus now on, you know, DNA sequences are actually IP.
Mm.
I mean, it's actually a code that you know, people can figure out. You know, there seems to be some... You know, I've been hearing some you know, some things from our Washington research group that there's you know, potential halo effect. So even though the DNA synthesis market is maybe not necessarily-
Mm
... named by the government as a potential threat actor like, you know, WuXi AppTec or, or BGI, but, you know, I think there will be a kind of a reluctance to send out DNA sequences to, you know, Chinese players like GENEWIZ or GenScript. I'm not sure what your guys' thoughts are in terms of, you know, that—could that be, you know, potentially, you know, beneficial to Telesis as, you know, people start to realize, I—you know, DNA sequences are, are, are pretty, pretty... You know, I mean, it, it, it essentially is IP.
Yeah, and that's part of the value proposition of our automation platform, is keep your IP at the bench, and that's what we're seeing in the mRNA space, which was very much like the biologic space-
Yeah
... in the 2000s, right? Nobody wanted you to know, as a competitor, what else they were working on. It's very much like that. So, part of our value proposition is just that, like, keep the IP at the bench. I think the other thing I would say is we're all about biosecurity, and so even though it's a decentralized, you know, chemistry, we're moving towards decentralization. You know, we're members of the IGSC, and we're strong proponents of biosecurity. Every single sequence that's submitted to us goes through, you know, stringent biosecurity, just like it does at other companies.
Mm.
But, you know, I think that's something we'll stay on top of. It's something that's very important, but it is also part of this changing paradigm and, and being able to control your workflow, control your supply chain, control your experiments, and, it's that control, you know, along with the quality, that I think is, is really supporting the value proposition.
Okay. All right, great. You know, maybe in the last few minutes, you know, can we talk about some milestones and things we should look forward to in 2024?
Well, we haven't provided guidance, so assuming that I can provide, like, you know, things that you can look forward to, I can't talk about numbers, obviously. But I think that, you know, we believe we've got a, you know, a plan to grow the business. We're launching new products on the BioXP system.
Mm.
We're looking to partner our SOLA technology. So those are the levers that I think, you know, we're just looking forward to continuing to execute.
Okay. And then new products on BioXP, you're talking about, like, the, the kits?
Yeah.
Yeah.
Why don't you-
Yeah, that's right. Yeah, we-
It'd be helpful if you can kind of outline the, you know, how many kits you actually have and how many you think you might launch in the-
Yeah
... future.
Absolutely. We had a robust new product effort last year that we talked about, you know, or in the early part of the year, and I think we largely executed on that. We have 22 kits that are available across the two BioXP platforms, 3250 and 9600 today, that enable everything from straightforward fragment assembly to cell-free DNA amplification and mRNA synthesis on the BioXP. For 2024, our focus for BioXP new product development will be around mRNA and extending the capabilities that we offer today. So, that'll be things like longer length synthesis, enabling that. It'll be things like additional modifications beyond pseudouridine, different capping technologies. Those are the kinds of things that customers are asking us for, and that's what we're focused on in 2024, so that's what you'll see.
Okay. And what about kind of your Pfizer partnership? I know we can't discuss much, but without disclosing anything, there are potential near-term milestones?
I think what's been said publicly is that there was a research period, which was a couple of years.
Yeah.
We're kind of right at the tail end of that.
Okay.
And then there's, you know, two phases of research, and then there's an election to move forward. I would say that we're over the last two years, we've learned a lot about SOLA. We're very pleased with where the technology is at, and we're very happy with the Pfizer collaboration.
Okay. All right. Fair enough. All right, are there any questions from anyone in the audience?
I think I have a question. How long is the longest piece you can synthesize reliably at once?
Go ahead.
On the BioXP today, we can synthesize up to 7.2 kb. There's a subtlety in that we also have a Select Kit that allows you to bring your own DNA to the instrument, and we're able to go a little bit longer than that, but the basic answer would be 7.2 kb.
For de novo synthesis. So, if you start with the digital sequence, and you're a customer, and you've got something you want to build, it kind of caps out at 7.5 on the system. Now, our company has had, you know, we've synthetically built chromosomes, so you know, it's 100 million base pairs or something. But on the system, it's far smaller than that, about 7.5 kb. SOLA has the potential and is able to build longer gene constructs than that. So I think there's the potential as the build length becomes more of a requirement for the mRNA market in particular, and for certain parts of cell and gene therapy, that you know, hopefully we'll see continued good adoption there.
All right. Well, with that, yeah, I want to thank you guys for coming, and thanks for the update.
Well, thanks as always. Appreciate it.
Appreciate it.
Yep.