All right, thanks everyone. Good afternoon. My name is Matt Stanton. I'm on the life science tools and diagnostics team here at Jefferies. It's my pleasure to have Standard BioTools back with us at the conference this year. Joining us from the company is CEO Michael Egholm, and we also have CFO Jeff Black in the audience here. Gentlemen, thanks for joining us here today. Appreciate it.
`Thanks for having us.
I guess, Michael, you know, it's been quite a busy few months since you closed the SomaLogic deal in early January, reported solid 1Q, and gave an update on your strategic review. And also, you know, pulled forward a bit of cost actions here. You know, we'll dive a little bit more into those each a little more, but can you just kinda level set us on, you know, where we stand today in terms of some of the progress, you know, Standard's made over the last, you know, couple months here?
Yeah, no, again, thanks for having... Maybe just taking a step back, remind everyone of the original Standard BioTools thesis, is that there are a vast set of technologies out there that are all subscale. So three years ago, I left Danaher, and we started together with Casdin and Viking, this journey where we, two years ago, took over Fluidigm and now SomaLogic. SomaLogic here, where we have gone in, built a strong team of operators, instituted Lean, and through these two transactions here, are now well-capitalized and have a revenue basis of a couple of $100 million for this year, and a balance sheet of, what is it? $464 million at the end of March.
We are just five months into the process of SomaLogic, and I would say it's going really well. Culturally, it's been a very strong fit. We have validated that the technology is highly differentiated, and we believe it actually has very, very long runway, and then we're beginning to now the transitioning process of going from just purely a service business to be a more distributed business and eventually, through the Illumina relationship, can grow the business. We've also been busy at work all at the same time, did a strategic review. Happy to share some of those findings. And we had put out a bogey of $80 million run rate out by exiting 2025.
We now identified 50 of those million, so they will be out as a run rate by the end of 2024. So, say, it's going well, despite it being in a tough macro environment right now, but we're just heads down and executing.
Yep. I guess, you know, coming off the 1Q print, I think one of the things that stood out was just the performance of Soma in the quarter, right? I think revenues grew over 20% year-over-year. Can you just talk about some of the, you know, growth and, and demand drivers there that's underpinning that? And, you know, I don't know if, you know, maybe, you know, 20% the rest of the year, but kind of like the durability of that pretty solid growth and which is, you know, kind of a, a choppier tools in, in proteomics market more, more broadly.
Yeah. Again, allow me just take one step back. When we started looking at SomaLogic, we knew it was a proteomics technology that was unique, it was well-positioned, and we knew it had a place in this space. What we now found through our strategic review is that we are extremely well-positioned with the technology. In fact, we're through KOL interviews and a number of other strategic work we've done here, have established that we have by far the broadest coverage of the proteome, by far, and the highest precision, giving us basically the strongest tool in the space. The more important thing we also learned is that we can scale.
We can expand the content without adding significant cost or any additional work to it, and it really sets us up beautifully for the long term. The Achilles heel, historically, of the SomaLogic business has been it's all service, very little distributed business, although we saw some uptick in Q1, healthy growth in that part of the business. We now have a great service business. It is lumpy, so I would not overinterpret the pull-through here in Q1. It was a nice buffer, which was a tough macro environment for selling instruments on the other side of the house. Long term, we're gonna or actually, sorry, in the midterm here, we're really gonna lean into the service business because we believe it's an entry point into pharma, and we, we introduced at our Q1 earnings call, Omics as a Service.
SomaLogic did really well in building a service business with very large volume, most of the revenue historically, and we actually believe we can leverage that whole infrastructure from master service agreements with pharma companies, these defining studies, getting samples from CROs, running bioinformatics, clinical support, can take that whole business here and actually leverage it for our other omics technologies, and so we're in full swing with that. It's not gonna change anything materially, but it's not a, it's not a revenue driver, but it's a huge enabler for the other side of the business.
What is the other side of the business is. our distributor sites for SomaScan, and then the Illumina relationship, where we've very good partnership with Illumina, and they're gonna, early 2025, have a distributed version of the kit, where they're responsible for the marketing and everything, and getting a partner of Illumina's caliber on, and that's gonna drive a distributor model. We're very excited about, and then we will maintain that sort of white glove, high charge, higher priced premium offering for pharma companies here.
Okay, and maybe to jump into the Illumina partnership and kinda to take a step back, like you've said, you know, you talk to people in the industry, and they've- kind of talked about this holy grail and the promise of matching Soma's aptamer technology with Illumina's NGS approach. I guess, you know, maybe high level, you know, why does that partnership, you know, make sense, between the aptamer technology from Soma and then being able to leverage Illumina's NGS technology?
Yeah, so the demand for proteomics is. We're at the very, very early innings. What's really important to understand is that the genome is static. Typically, only we get one genome, unless you deal with cancer, a little bit of the immune system, but other than that, it's static. You will need to do your genome once. Your proteome, once disease pathology kicks in, and actually many years before, changes, so you need to measure your proteome, like in any clinical setting, particularly in pharma, as you do clinical trials, select patients. You need to do that proteome measurement many, many times. Historically, we have not done that because proteins are really, really hard. A, Cs, and Gs, and Ts are really easy, which is why we study it so much. So no offense to all the sequencing companies out there.
I used to be a big part of one, but there's way more sequencing done today because it's easy, huh? It's easy to read those. The SomaScan technology is the first technology that really gets at the scale and answering some really fundamental biological questions, so we're really excited about that growth. The challenge has been, or as I called it, the Achilles heel before, was we're only a service business, and the academic community, the broader community, want access to the technology itself. And one of the sins of the past is we kept the technology in-house and wanted to protect it ourselves, and only by getting the technology out, having the community criticize it, operate it, do you really get to scale.
So the big learning, and there's a much bigger initiative there. Why Illumina? I couldn't think of a better partner. 4,000 NovaSeqs out there, unused capacity, and then just a subtlety that may not be fully appreciated, but when you do any one, even our competitor's assay, there's an upfront bit, and then there's a readout s equencing has now become so affordable and cost-effective that it is vastly less expensive than reading it out on a DNA array, which we're doing today.
So it'll actually make our technology be distributed, and it will significantly lower the cost for the second half of the assay. Obviously, I'm applying all my lean muscle... the SBS muscle, on that front part of the assay, but again, couldn't think of a stronger partner than Illumina with their reads, their professionalism, their reputation here, and like other companies in this space and like ours, really dependent on a getting growth engine. So it's it's a very strong partnership.
Right. I guess one more on that, you know, sticking with Illumina, you know, early days still ahead of a broader commercial launch in 2025, but, you know, I think on the 1Q call, you called it overwhelmingly positive feedback, you know?
Yep.
Would just kinda like to hear a little bit more, you know, what you're hearing from both, you know, the partners themselves, Illumina. You know, what is some of that, that feedback that's, you know, giving you so much, enthusiasm, I guess?
Yeah, so it's really the, there's sort of three aspects to that. One is when we did our strategic review, we hired outside consultants went through and validated the whole premise. I was surprised by the pull that was from the community to get on NGS. I was—other than the cost, I was agnostic on the readout, so there's a very, very strong pull to get the technology way bigger than I thought. The second piece is that the Illumina team and our R&D team will work together and taking from what was proof of concept, and now the data is looking stunning. Again, no, I don't wanna go into technical detail, but they basically have done a great risk reduction, the technical risk to moving from arrays to sequencing has been reduced. And then now, Illumina has it out with early access partner.
Yep.
Actually, it's, it's the 7,000 version.
Yep.
The 11,000 version of what with the assay that it would be slightly different, but the version that's based on the 11,000, our latest version, is the one they're gonna go to launch with early 2025. But it's working, and seeing something like just generally with technology, one thing is to do that, that, and that's the challenge with having a service business, seeing it work in your own hands, and when you can control it, it's okay. Having it work in somebody else's hand is a huge milestone, and so technology, risk reduction, and then so now seeing it work in other people's hands, so.
I guess just one last quick one on that, just on from 7,000 - 11,000, is there any technical hurdle, or once you've kind of done it with 7,000, you just put the 11,000 in, there's no-
It's just work.
Yeah. Okay. Got it.
Now my engineers and science is gonna come after me, but it is just work.
I guess, you know, you touched on it in the opening comments a bit, but on the 1Q call, you talked about kind of the 90-day strategic review. Would just kind of love to hear a bit more what you thought were maybe, you know, the most interesting things coming off that. You know, one that kind of caught my attention was the idea of a lower plex or single SOMAmer reagent model You know, maybe touch a little bit on that one process to get that into reality and, you know, when that could potentially be, you know, a new, a newer revenue stream for you guys as well.
Yeah. So what did we learn in the strategic review? I already highlighted one, which is we are highly differentiated. We have a scalable platform. We believe we're really uniquely advantaged there. We learned that sequencing creates a whole different set of pull. One legacy challenge is the gap between 11K and low plex. We have realized in our early work that the technologies we bring in on microfluidics real-time PCR, that Biomark X9 could possibly be used to do a readout. So we're doing that. We will do that in the service initially. So that, that's a readout. The other... and this is maybe the most exciting, I'm not quantifying this yet, but possibly the most exciting thing we learned or realized is that in this context of us having kept it very close to the vest, like historically opening up the kimono, so to speak, and giving customers access to single SOMAmers will demystify the technology, and so our existing customer will run 11,000, they will find 25-30 markers, will now make it easy for them to have access to those.
That then led to the second realization here is that there's a huge antibody market out there, huge antibody market. SOMAmers are not better than antibodies, but they're very similar, same affinity, same specificity, but they're different in the way they bind, and I have a catalog of 11,000 monoclonal SOMAmers, all synthetic monoclonal. There's no antibody company out there with 11,000 monoclonal antibodies to human proteins, and so there's a vast research market where you're looking for orthogonal validation. There are many places where antibodies don't work.
Little bit longer term, we're very excited about that. We're not gonna lead with this. We're gonna lead with it as for internal validation so completely new opportunity opened up there. And then the last piece is that we realized that, as I talked about before, we have this very high-end service, very capable service, but we also have a translational medicine group led off by our Chief Medical Officer, Dr. Steve Williams, and a team here that is really uniquely qualified to have conversations with pharma, that we don't believe many of our competitors are able of doing, and that we have other technologies to put on that track. So really excited about that piece, too.
Okay.
Again, all long-term growth.
Yeah.
It's a messy year because we're doing a lot of surgery on the need and a tough macroeconomic backdrop, but it's more this year.
Yeah.
Yeah.
Okay. Shifting over to revenue synergies, I think the initial deal model with the $80 million of synergies, you know, called for fairly modest revenue synergies. You know, now that you've had a few months out, I'm pretty excited about SomaLogic. You know, how do you feel about kind of potential size and timing of revenue synergies? And I guess, you know, how does that look where, you know, one, you kind of had the flip of biopharma and academic mix from one to the other, so ability to kind of cross-sell legacy lab, you know, into Soma and vice versa with those kind of flipped end market mixes between the two?
Yeah, maybe just double-click on the savings synergy again, the not fun, but tedious part of what we do, but anyway, necessary part of running a business. We have the $50 million checked in. We are working hard at the remaining $30 million, and should there be more, we'll certainly look for that. But we feel very comfortable about the $80 million that we put out first, and although we got a lot of feedback that seemed very ambitious, but we feel very confident in our ability to take that out. On revenue synergies, most of us have learned by experience, by putting in big synergies set yourself up for failure. And so now where I see the synergies, we talked about the translational medicine and muscle, moving from discovery in pharma, which is where almost all our stuff sits but move to the other side in translational where budgets are...
This is discretionary spend. You spend the money when you can afford to do the studies to discover new insights. SomaLogic have made a very small, small part of their business over to the translational medicine piece, where... you do patient selection, use as surrogate endpoints, and have established a path that we're gonna take the other technologies on. So that's one synergy. It won't show up on a top revenue line for year two, in the out years, exciting opportunities. All the salespeople are already cross-selling to the extent that they cannot have a pitch. And the other realization is still very early, that selling capital equipment and selling service is very different. Now, we have both set of muscles, and we're gonna leverage that.
One epiphany that both SomaLogic have come to, and that we at Standard BioTools have come to before, was that we need to sell both to the clinicians, and we need to have a place where you can actually fulfill the demand. So we need to sell to the technicians, to the flow core, the imaging cores, and now all the places that are gonna run the SomaScan assay on the Illumina platform. You've got to do both: create demand, and then when demand is there, it can actually be fulfilled.
Okay, that's helpful. I guess shifting over is a question, you know, got a fair bit is just, you know, you have the 2024 guidance out there, then you have the 2026 for about, you know, $300 million. Implies kind of a step-up in growth into 2025, 2026. We've talked about a number of kind of exciting factors that'll go into that Illumina partnership, some of these, outcomes from the strategic review, revenue synergies. Is there anything else kind of in that 2025, 2026 timeframe that we maybe haven't covered that, you know, people should be aware of as they think of, you know, the vectors of growth in, in twenty, you know, beyond 2024?
Yeah. So more, more generally speaking, we're, we're still in the very early innings of the life science revolution, if you don't mean or think it seems very mature. But we—there's still so much to be done despite the sort of the temporary setback we, we are at. We have a handful of highly differentiated technologies, so the... As, as we work through just the messiness of 2024, all, all strong vectors. How big the individual SOMAmers are gonna be, I don't know. I'm, I'm not putting a number out there, but it could be exciting. The, the last piece we haven't talked about is the genomics business which is the legacy microfluidics technology, which is now accretive. It's in a like mid-single-digit decline, but a managed decline. Work our way out of some of the legacy uses, our OEM relationship, including one with Olink and now Next Gen Diagnostics, will actually, we think that there's gonna be some growth there. So at least I won't have my denominator keep shrinking on, that one. And then we haven't talked about M&A at all. So there's no M&A in those projections.
Okay. Yeah, and that's maybe where I wanted to go next here, just capital allocation, maybe M&A more specifically. You've talked about, you know, kind of a healthy pipeline of assets. You guys did a deal, I think it was last week or two weeks ago. So I guess, you know, maybe first talk about the deal from last week, and then maybe, you know, and how that kind of fits in, and then just more broadly, you know, taking a step back, just appetite and bandwidth to, you know, continue that M&A engine going forward.
Yeah. So maybe a slight correction. Again, we bought an instrument for a company that's a very interesting asset in itself- from Carterra.
Yeah.
I guess the wording of the release was... If you only read the headline, it could be interpreted as we actually bought the company. Not yet. No, just kidding. But it's a super interesting technology that allow us to better characterize the SOMAmers and develop it more rapidly. So just proves that we are investing at the same time as we are cutting. So there's that. I have, at any one time, a handful of deals being live as we speak.
We're looking sort of in two categories, the tuck-ins, and we can talk a little bit about what we're looking for, but $10 million where they need leverage, not sort of fixer uppers, broken assets like both SomaLogic and Fluidigm, but big projects. A lot of good stuff, a lot of good people, but as a company, did not work. We're looking here at companies with-- that are working, but just a subscale where they can get on either our service platform or get leverage through the instrument sales, all with a good high gross margin profile. That's number one criteria we're looking a the gross margin. Then, of course, there's a set of transformative deals that everybody is constantly looking at, and we haven't, our appetite is still big. We believe that. So the team we have overinvested in, the muscle we have built here is capable of doing a lot more.
Okay. Then I guess maybe just real quick there, you talked about kind of those smaller sub-$10 million, you know, sub-$10 million or $10 million deals. I mean, what kind of... You know, what is interesting there? Is it kind of augmenting the existing portfolio? Maybe there's an interesting kind of adjacent technology out there, team out there, kinda like you said. What's kind of the mix between, you know, where you'd like to go there, or maybe it's all on the table?
Like my first filter is highly differentiated as all our technologies are. We have no me-toos in the portfolio. And then you've got to, and again, it sounds so simplistic, but we've got to get to a high gross margin profile.
Yeah.
No margin, no interest, okay?
Yeah.
You can weed away, like, about 80% of the deals just using that filter here. And it's not where the gross margin is, it's where I think a team or my team believe they can get it to. But then the perfect space is in pharma, biomarkers, additional, like, high-value information, that's when we, when we strive for perfection, but we're looking for good businesses first.
Okay. I think with that, we're out of time. Appreciate the conversation today, and