Hi, good morning, everyone. My name is Anna Snopkowski, and I'm an associate on the Life Science space here at KeyBanc. It is my pleasure to introduce you to the Rapid Micro Biosystems team, Rob Spignesi, President and CEO, Sean Wirtjes, CFO, and Mike Beaulieu, Head of IR. First of all, I want to say congratulations on a great year and hitting a few key milestones such as gross margin positivity and expanded partnerships. As a quick reminder, after the introduction, we will open up for Q&A, so feel free to email myself, which is anna.snopkowski@key.com, or you can also post in the chat below if you have any questions. With that, I will turn it over to Rob to give a quick overview of the business for those who may be less familiar with the story.
Thanks, Anna. Appreciate that. Good morning, everyone, and thank you for joining today. By way of quick background and context, we are focused on a critical part of the global pharmaceutical quality control infrastructure. It's called microbial quality control. This is a process by which, regulated, first of all, it's important to note, it is regulated, it's mandated by the global regulatory authorities. It's a process by which all pharmaceutical companies go through, no matter where they are in the world, to ensure that their products are free of microbial contamination. Think bacteria, mold, other organisms, and are ultimately safe for patients. The challenge is with the methods that exist largely in the world today, they have not innovated in about 100 years since Louis Pasteur invented them.
I won't go through all the detail around them, but quickly, it's a very manual, I think, Petri dish, growth-based incubators, pencils, people, method that can take days, if not weeks, to get to a result. It's error-prone, costly, and were fundamentally developed well before current manufacturing methodologies. You have this incongruent situation between current methods of manufacturing and discovering drugs and this legacy fundamental quality control method that is pervasive around the world today. As you may imagine, it's resulting in risks and challenges and costs for the industry. It's under pressure to change from the industry itself, as well as the regulators globally who are enforcing new data integrity requirements against which the legacy methods are ill-equipped generally to keep up.
To address this broad problem, we've developed a technology called the Growth Direct Platform that fully automates and replaces the legacy methods and brings this critical process into the 21st century where it belongs. There are a number of reasons why we're excited about our business. First, it's a large and growing market. We sized that at about $10 billion and growing, and that's a mix of recurring revenue and called one-time system potential. We have strong barriers to entry to include first mover advantage. First mover is very important in this space because once you get validated and kind of spec'd into a process, it does become a durable position. We are, in our view, the standard for the industry, the clear market leader. We're proud to count 70% of the global top 20 pharmaceutical companies as our customers.
It is also important to note that while we have 14 of the top 20 as our customers, we are just getting started with regard to full penetration within their network. There is plenty of runway to go within our current customer set and, of course, the balance of the top 20, as well as other customers around the world globally. We address all pharmaceutical modalities, manufacturing modalities, but we are especially strong in Biologics, which is our largest segment, as well as Cell and Gene Therapies. These are the higher growth segments. We also address sterile injectables and small molecule manufacturing as well. We have sales and customers in those segments as well.
Lastly, we have a high growth and attractive business model where we'll place our Growth Direct System, capital equipment sale, and pull through a high rate or a high yield of recurring revenue in the form of proprietary consumables and services. Recurring revenue is more than half of our overall revenue. That revenue, again, as I touched on, is effectively spec'd into a GMP manufacturing process and becomes quite durable and sticky once up and running.
That's a great overview. Thank you, Rob. Maybe just to start with the top line growth you saw for 2024, 25% growth is obviously an impressive figure, especially during a year where equipment sales across the industry have kind of dipped. Could you just talk about what makes your systems unique and why customers chose to prioritize spend in microbial quality control?
Right. I think it's important to note our commercial strategy, which is driving that growth. It's our land and expand. Effectively, we secure a customer, and then we seek to expand within their manufacturing network. We talk a fair bit about our larger customers for a couple of different reasons, but it's important to note that we have many mid-sized customers as well. We can address all manufacturing modalities as well as any size and scale of customer. With regard to our larger customers who drive a good portion of our growth, our value prop is resonating. I touched a bit about that in the lead-in. What customers get effectively when they partner with us with the Growth Direct, they go from data integrity is a big one.
As I mentioned, with regard to the regulators, publishing guidelines, and enforcing against data integrity, it's a major lasting tailwind in the industry. Many, I would say most, of our customers are interested in data integrity improvement. Customers can go from a data integrity challenge environment with the legacy and traditional methods to a highly robust regulatory compliant environment, which is a big driver. Cost as well with regard to the legacy method. Generally, efficiency more broadly, we're able to improve their cost structure and their efficiency. For example, our system is rapid. We're able to rapidly provide results, which allows customers to potentially release product faster to market, to move to the next processing step faster, to find problems faster, and potentially shut down manufacturing so they're not manufacturing scrap.
Also reducing direct costs, labor is an example, but also indirect costs with errors and potential recall. It is also, I think, important to note that we are, in some cases, considered a critical manufacturer to our larger customers. As a consequence of our growth and our position with these customers, we are interacting more with the senior levels of leadership, which helps us be a little more resilient from year-to-year budget cycles and gives us a bit more visibility as time has gone on here as well.
That's great. On the same point, you talked about land and expand. Are you seeing customers that have previously placed one order either move to a different facility in a different geography or start to make multi-system orders as their therapies roll out?
Without question. I would say a major piece of our growth driver is that expand phase. As you may imagine, that's a core part of our strategy. Customers will typically acquire initially one to a handful of systems, validate those systems in their manufacturing environment, and then expand from there. I think the beauty, one of the beauties of our system and our approach and our technology is customers can expand in multiple dimensions in multiple ways. We are a high-volume, high-capacity system that automates the vast majority of daily routine use test volume in any facility.
Customers can automate a single test across multiple geographies. A customer can automate multiple tests in a site network or geography or any kind of combination thereof. We have multiple ways we can expand with customers. Customers can and do prioritize that expansion based on where they want to solve problems in a priority order.
I think something we have seen is that when ASPs are at the higher end, you can sometimes have lumpier quarters, and that could be harder to predict. Maybe just in terms of revenue visibility, how do you think about this evolving over time?
Yeah. We generally expect visibility to improve over time. To your point, it's still a capital equipment sale to a certain extent. Although recurring revenue, as I mentioned, is becoming more of a feature of our business, which is a driver of improved visibility as our recurring revenue consumables and services can tend to smooth out and give us forward visibility. I think with regard to Growth Direct System sales in particular, one of which I mentioned is we are a critical supplier in some cases and have a priority status, is our belief in some of our larger customers. We interact with the senior levels. That gives us a sense of a strategic view and with that roll-out intentions, which is helpful. We're seeing we have a number of multi-system orders, which we talked about on previous calls, that helps us with forward visibility as well.
Clearly, part of our commercial strategy is to continue to work with customers on that expand phase and secure multi-system orders in our funnel that will translate into placements, which helps with visibility. We can touch on this as well. Our recent relationship with MilliporeSigma, we envision, will also help with visibility as that larger commercial force gets up and running here and provides for visibility as well.
I guess on that same point, you talked about multi-system orders. Your pipeline seems strong. Maybe just touching on 2025 guidance and some of the moving parts there. It seems that some of your growth assumptions could be conservative or just room for upside. Could you just talk about where you could see upside with your?
Yeah. I'll take that one, Anna. I think it's important to kind of start this conversation out with our philosophy around guidance. Especially entering a new year, I think we want to be putting guidance out there that's prudent and achievable. We think that's what we've done. As we look at that, I think there's a couple of really important things that are meaningful context, but also areas for potential upside should things go in a different direction. I'll kind of hit those as we go through this. First one is, where's the market right now? What's customer behavior look like? We have not seen a meaningful improvement in the scrutiny, the level of scrutiny that we had seen over recent quarters in terms of capital purchasing. Having said that, we are seeing customers still make capital purchases where there's a compelling value proposition.
We believe we bring a compelling value proposition to our customers. Should that area start to loosen up a bit from what we've been seeing, that could be an opportunity for upside for us. I think we've also not included any of our larger multi-system orders in our funnel in the guidance at this point. Clearly, we think there's opportunity to convert some of those into actual deals this year. We're taking that approach because the process for larger multi-system orders tends to be more complex, tends to involve more decision makers, and tends to be a little more binary where a decision gets made or it doesn't. That is something that we want to manage very carefully here. The third one is MilliporeSigma.
We do have a relatively small commitment in year one and a much more meaningful commitment in year two, which would be 2026. We have not assumed anything in terms of contribution from MilliporeSigma in system placements in 2025. To the extent they are able to get up and running and start pulling some things into the year, that would be upside to the guidance that we have out there as well. I think the approach we take is important to us. It has served us well. I think over the past couple of years, it has been nine quarters in a row now that we have met or beat our revenue guidance. We want to continue that as we go forward, of course.
Kind of related to maybe a longer-term outlook, just looking at one data point, Evaluate Pharma, the CAR-T market is expected to grow at about 35% through 2030. I know that's somewhere you have a strong position. You're involved with 100% of the CAR-T market. Would you expect to kind of grow alongside these therapies as those therapies ramp to their full potential?
Yes, Anna. We would. As you may imagine, it's part of our strategy to be the provider to the cell and gene broadly, but specifically into CAR-T. We have a very, very strong position. I believe it's a bit below 100% now, given I think there was a recent approval. I think the point is still made. Our value proposition, as we touched on earlier in the discussion, resonates quite strongly with pharmaceutical manufacturing broadly defined. It has an especially strong position against the CAR-T manufacturers. Certainly, the ones that have been commercial and large volume are current customers.
It's just given the high volume of testing that's required for that therapy, the very, very fast turnaround, in some cases, two weeks of vein-to-vein time, the criticality of accuracy and the intolerance, I would say, for errors, given that the speed is important because typically, there's a patient, a time-critical patient waiting for the therapy. This is typically a therapy of sort of last option for many patients. Our system, the turnaround time, the speed, the automation, the data management is a very, very strong fit. That's perhaps a bit longer way of saying we do plan on growing with the CAR-T market and as a fundamental plank in our growth strategy to make sure that we secure those new therapies that are getting approved and coming to market.
That makes sense. I kind of want to touch on some of those recent partnerships I mentioned in the beginning, like Lonza and MilliporeSigma. I was just wondering, maybe starting with Lonza, they're rolling out your Growth Direct System with their LIMS system to their cell and gene therapy manufacturing network. Just could you tell us what you think about this partnership and how this will expose you to new customers, especially in the cell and gene space?
Yeah, sure. I think it's important to note, and for those listening, the white paper is on our website. It's a really good example. Lonza created a white paper that's now public. It's available on our website. I think it's a good case study for a lot of what we've been chatting about today. It kind of walks through why Lonza wanted to automate, how they did it with the Growth Direct, why the Growth Direct was selected, and how it was actually executed. It's a really good case study if people are curious on why customers adopt us and how do they roll it out globally. Quickly, Lonza was looking to standardize and automate their cell and gene portfolio. They also mentioned one of their sites in Switzerland is a biologic site, also has a Growth Direct.
It just touches on the point that we're outside cell and gene as well. They wanted to achieve a few different things. They wanted to reduce costs, increase time to result, increase standardization and compliance, and go to a paperless lab with complete walk-away testing. They selected the Growth Direct as the centerpiece of the automation and then married it with their MODA- EM platform, which is effectively a lab information management systems platform, software platform that manages the environmental monitoring program. We worked with Lonza hand in glove to have these systems communicate with each other and interact with each other. That became the platform that was rolled out and is rolling out across Lonza's platform. Many of our customers have rolled out this way. Some actually use MODA. Others do not.
The takeaway is that the overarching value prop and strategy that Lonza and goals that Lonza was trying to achieve is, I think, similar to what many of our customers endeavor to achieve. I think Lonza did it in a very elegant and had a fantastic write-up about it. At the end of the day, I think the article touches on this. It's a good example of what industry should do/is doing. To your question, yes, we do think it has a great impact, could have a great impact on our business with regard to how we're perceived to interact with, to partner with, to grow with these large customers for those that are already partnered with us. Moreover, MODA is there are installations in other customers that have MODA installed that we are not yet in. I think that could create an interesting commercial pathway as well.
Have you seen any of that indirect impact so far, just given Lonza's reputation, other customers maybe adopting more Growth Direct Systems or new customers entering your pipeline?
Yeah. I think it's hard to put a direct link to it. I think generally, it's created a tailwind with regard to a fantastic company like Lonza, among the largest CDMO out there selecting us. We announced Samsung not too long ago as well. Most of our customers are not publicly announced for a couple of different reasons. Without question, it provides a fantastic stamp of approval and credibility for our business with other customers as well.
Touching on MilliporeSigma, which was more recently, could you just describe some of the biggest benefits and the biggest motivation of this joint venture? Is it involving having a bigger commercial team to market the Growth Direct?
Yeah. The relationship directly addresses the three primary priorities that we speak about quite often. It is directly designed to impact those three top-tier priorities, which, again, is to accelerate Growth Direct System placements. That's number one. Number two is accelerate gross margins. Number three is innovate new products. First, with accelerate Growth Direct System placements. At its core, it's a worldwide co-exclusive distribution agreement. By co-exclusive, we mean Rapid Micro Biosystems will still sell direct to customers. MilliporeSigma will also have access to technology, not only in the pharmaceutical manufacturing end markets, but other end markets as well, to include personal care, cosmetics, med device, and other. As you may imagine, their sales team is quite a bit larger than ours.
The strategy there is to have deeper and faster penetration of the Growth Direct across the worldwide markets, again, not only in pharmaceutical, but in adjacent markets as well. It's important to note that Rapid Micro Biosystems will still perform all installations and services on any system sold, whether it's through the Rapid Micro Biosystems Direct channel or through the MilliporeSigma channel. The second plank in the agreement is designed to improve gross margins, so much of which we procure, especially with regard to our consumable, MilliporeSigma sells in their product portfolio. The focus there is to agree to a procurement agreement, a purchasing agreement, to reduce our cost of goods sold and increase gross margins more quickly than we would have without the partnership. We're very, very excited about that. There's a number of exciting opportunities for acceleration of gross margin improvement.
The last one, I think, is also important is product development. Part of the contemplation around the partnership is that our product portfolio fits hand in glove effectively with MilliporeSigma's current portfolio. We see them in a lot of labs. We are in a lot of labs around the world. There is clearly an opportunity to have our current products integrate and operate more smoothly together. Of course, there is contemplation around developing new technologies and products and services together going forward.
You touched on adjacent markets that MilliporeSigma will expose you to. I think this expands your strategy quite a bit. What do you think the biggest opportunity is here? What consumable application will they be using?
Yeah. The biggest opportunity is likely personal care. Potentially, there are some opportunities in the food and beverage market. I think personal care, to include cosmetics, is probably the most organic adjacency. It is almost the size of pharmaceutical manufacturing based on our most current research. It is a very, very sizable market. The Growth Direct can address it. We have not gone after it largely due to commercial team size and focus. We are very excited to get access to that market through the MilliporeSigma team. I would say all of our applications are relevant to that market, with the possible exception of sterility. Importantly, just because of the way those products are manufactured, it is not always a sterile environment. In many cases, it is not a sterile environment.
Importantly, our bioburden product would be the functional equivalent in some ways to a sterility test in that environment. We could see a mix shift into more bioburden applications, which is good news for us because that creates positive gross margin mix for us. Not only the increased volume of Growth Direct Systems and services generally, but an application mix shift would be accretive to our gross margins.
Got it. You have also had some internal expansions through different product launches. You just mentioned Sterility, which will not be involved with some of your newer end markets. How is that launch going? Maybe just some background on it for those unfamiliar.
Yeah. We launched Rapid Sterility mid-last year. As I touched on earlier, our business strategy here is to capture the vast majority of test volume in any pharmaceutical manufacturing environment. The standard microbial quality control tests are environmental monitoring testing, which is the highest volume typically in a manufacturing plant, water testing, product/bioburden testing, and sterility testing. That is the vast majority of the microbial tests. Our strategy is to go out there and capture all that recurring revenue on a proprietary platform. Before mid-last year, we had environmental monitoring, water, and bioburden available. Now we've launched Sterility.
Sterility test is a critical end-of-line test that a sterile manufacturing plant, so think injectable drug, a CAR-T, an injectable drug, sterile injectables, biologics, would go through to ensure the finished product, they'll actually sample the syringe or the vial, is actually sterile and ready for patient use. A very, very important test. The traditional method takes about two weeks if everything goes well. It can be longer than that if there's a retest. It is another two weeks. It can be quite a long time to get a result. Typically, these companies do not ship to market while they're waiting for a sterility test to come back. Our test can do it as quickly as three days, a final result, and a time to detection as early as one day. As soon as you detect the first organism, it's an instant fail.
It's a bit different than the other tests. Time to detection is very, very important as well. Call between one to three days. If customers want to be conservative, it may be as long as five days, but dramatically faster than the standard two weeks. Customers can, again, ship to patients faster. We touched on this in a different context, but this also gives us deeper access to markets such as vaccine manufacturing, sterile injectable manufacturing, and really all segments that require a sterile format. We're quite excited about it.
I know this market has a few more competitors than your other products. Do you think having a more complete end-to-end portfolio sets you up for greater market share?
To Anna's point, this market has got some, I would say, some legacy, I'll call it technology-enabled solutions out there. We knew that coming to market. We developed, we think, a very compelling value proposition. We also have the Growth Direct platform that many of our customers that we would expect over time to adopt Sterility already have with regard to environmental monitoring, water, and/or bioburden. They are used to the system. They are used to the benefits of the system. They are used to how it works. The sterility Growth Direct is effectively the same Growth Direct as our other platform. There are user synergies and benefits with regard to our platform. It just creates, we think, lowers the friction for adoption and creates a stronger value prop versus other options out there.
Yeah. That makes sense. Just some areas of further expansion that I'm not sure that you're in right now, but just GLP-1 is obviously a hot topic recently. Is there a possibility to expand in that market? Would it be more sterility with injectables?
Oh, without a doubt. GLP is high on the radar. But really, GLPs are a great example of our full strategy. So those manufacturing modalities and those customers could use Growth Direct across all of our entire platform: EM, water, bioburden, and sterility. All those are used in reasonably high quantities by the GLP-1 manufacturers.
Another question that often comes up with investors is profitability. One of your focuses, obviously, has been to improve gross margins, which you were able to achieve, I think, in 3Q. Could you just talk about some of your further efforts to reduce the measures that you've already taken advantage of?
Yeah. Sure, Anna. Thanks for that. I think this is a journey we've been on for a little while now. I think over the past two years, we've improved gross margins by over 50 percentage points. I think we're pretty unique in the rate of improvement that we've been making. The areas we have opportunity in continue to be areas of future opportunity. Number one in that list being reducing the material cost of our products, and particularly focused on consumables and our EM consumable. There are multiple ways we do that. There's a procurement strategy around that. Can we find different vendors, leverage relationships or volume for better pricing to actually make the purchase price of the items less expensive?
There are things we do around the composition of the product, so things like material changes or even R&D projects for larger things to change or remove the material and therefore the cost that goes along with that. We have an automated manufacturing line, which is running well, but we have continued an additional opportunity to make that more efficient, which would drive product costs down in that area of the business. We should not forget about our service business, which if you look at last year, you could see in the second half of the year, we got up in the 40%-50% range on gross margins in service. There is more opportunity there from a productivity standpoint to continue to improve that as well. We are on a nice trajectory.
Probably not going to continue quite as steeply, but we think there's meaningful annual opportunity to continue to improve that, move it up toward the 50% range by the end of 2027, which is the goal we've previously stated publicly. I think the other thing important to note in this area, Rob touched on it. This is one of the key areas that we're starting to focus on under our agreement with MilliporeSigma. Rob touched on some of the consumables, for example, where we match up very, very well in terms of what they sell and what we consume. We don't purchase any of those items from them today. Meaningful opportunity there, we believe. We expect that it could go beyond that.
It could go to things like warehousing, leveraging their global footprint, where we pay external parties at market rates to do that right now. Maybe there's an opportunity there or freight, similarly leveraging their network there. These are things that we have teed up and are exploring right now. Our target is to get this all figured out and in place within six months of when we sign the deal. We are in that window. We are aggressively getting into these conversations. I think that's upside to margins in the latter part of this year. We definitely expect it to be additive to our margin improvement starting in 2026.
Perfect. Just moving to another area of concern for investors recently, obviously with the news around tariffs and NIH funding. If you could just give an overview of your exposure in these areas and whether you see this as a risk in 2025.
Yeah. On tariffs, we manufacture all our products within 20 minutes of where we are now in Massachusetts. Everything is made in the U.S. We do have some items we buy from Canada. If you look at the environment today, there is a bit of exposure that we believe there may be some mitigation for. Not something we view as a big feature right now, but obviously, it is a really dynamic area. As things change, we are staying on top of that, and we will continue to assess whether developments have impacts or likely impacts or not.
Right now, we do not view that as a significant area based on where things sit today. I think on NIH funding, we are typically dealing with products that are either commercial or very close to commercial. In terms of our business, minimal impact from that for us. It is something that could impact our customers. It is something that we keep our eye on from that perspective as well.
Yeah. That would probably—we are not prevalent in the research, academic research, or research broadly environment. We have, as Sean mentioned, we are more downstream in the manufacturing environment, which has got less of an NIH impact versus research.
Okay. That's helpful. Pretty minimal exposure. If anything, it would just be on the things with Canada. We're almost out of time. I just want to thank the entire team for answering all the questions. I feel like that was definitely very helpful to the audience and those newer to the Rapid Micro story. Thank you.
Thank you.
Thank you, Anna. Thanks, everyone.
Thank you all.