2025 RBC Capital Markets Global Healthcare Conference. I'm Connor McNamara, the Life Science Tools and Diagnostics Analyst at RBC. It's my pleasure to introduce our next company, SOPHiA GENETICS. On stage with me, CFO George Cardoza and Head of Strategy, I believe IR, more strategy, okay, Kellen Sanger, welcome and thank you for being here.
Thank you.
Thanks.
Let's just get started on rehashing Q1 results. You had incredibly strong gross margins, nearly 76%. How should we think about the gross margin progression through the rest of this year and just kind of longer term? Is that an anomaly or is 76% a good hurdle rate that we should look to?
We were quite pleased by the gross margin in the first quarter. We said on the earnings call, you know, we had a couple of one-off items. So while it may not be that high, you know, certainly in the out quarters, we're still very positive about our gross margin progression year- over- year. It continues to expand. And you think of the long-term model of the business, basically, you know, if we can drop almost three quarters of each incremental revenue dollar to gross margin, you know, we've publicly said we believe we can drop 60% of that down to EBITDA. You have to allow for a little bit of sales commissions and G&A growth in there, but we're confident we can drop over 60% down to the bottom line. And actually, we've even beaten that the last two quarters. So we feel quite good about the cost.
You know, the company, while we're very focused on revenue growth, we have not lost any of the cost discipline as well.
Great.
I'd like to touch on that later, but let's do talk about the revenue growth because you've had, as you exited, you know, as we went from 2023- 2024, you did see a kind of a slowdown in revenue, and you attributed a lot of that to the timing of onboarding of new logos. Q1 was very positive as a reacceleration in that revenue growth. Can you just talk to us about the timing of that when you win a logo? And then how long does it take them to really start generating revenue? And then how should we think about that, you know, based on new logo wins over the last 12 months?
Yeah, sure. So we deploy a commercial strategy of land and expand. In many ways, 2024 was a year of land for us. We added 92 new customers over the course of the year in comparison to 490 customers who are using the platform today. That's a pretty large step up. In Q1, we added another 28 new customers. The focus for us is getting those customers into routine usage, have them ramp up and generating revenue. It typically takes between six to nine months for them to complete the verification and validation of the test, after which the goal for us in coming into 2025, a major growth driver for us, is going to be expanding across those accounts. Encouraging them to adopt new applications. In doing so, that lead time is a little bit shorter.
We've historically had a great ability to expand across accounts. Our average customer uses 2.6 applications. 60% of our customers use two or more applications, 38% three or more, 20% four or more. Our goal now is to take those 120-odd new customers that we've signed over the last kind of five-odd quarters and then get them into routine usage as quickly as possible. In Q1, it was an incredible proof point of that. We've been directing more resources towards the implementation. We moved 33 new customers into routine usage. Of those 120, which is up from an average of about 20 customers per quarter in 2024. Some of the efforts and the reallocation of resources is paying off. Now it's just trying to get those into routine usage and expand across those accounts.
Great. Just out of curiosity, is the geographic, where the customer is geographically, does that change their adoption curve? I know you've been growing a lot in the United States, first OUS. Does that, are U.S. customers adopting quicker or slower?
Yeah, clearly the U.S. has been a growth market for us. You saw, you know, we had 30% growth in the United States. We remain very bullish about our growth prospects. It's funny because this company is headquartered in Switzerland. I always joke that they kind of did the hard part first. They did all the European countries where, you know, every country is a little bit different. Now coming over to the United States, there's a huge growth opportunity. You know, in terms of the validation, it's probably a little bit more test specific. Things like liquid biopsy may be a little bit longer to actually go fully into production as opposed to maybe what the specific pipeline like a solid tumor or heme would be a little bit quicker.
The U.S. customers continue to come on board, and it's a market we couldn't be more excited about.
Is a good barometer just overall sequencing test volume increase, is that kind of what you guys point to as, you know, still healthy end markets? You are just getting, you know, as much of that growth as you can going forward?
That's the market, yeah. Certainly sequencing continues to grow. And you know, Roche wants to come in, come into the pool, the water's warm. You know, we can work with any platform, but basically, yeah, more sequencing is sort of the market lift, if you would. I think our growth has been historically far in excess of that. I think, you know, that shows that our solutions are being well received and really we are continuing to take share.
Got it. Okay.
More sequencing and then also increasingly sophisticated sequencing as well. The number of data points or the volume of data coming off the machines is increasing as well. This is something that SOPHiA is well positioned to take whatever the newest innovation is, whether that's HRD testing or liquid biopsy testing or whatever the future might be, and then bring that onto the platform.
Yeah, because a lot of clients, you know, they might have done a small gene panel for 15 genes, 20 genes. Now we continue to see them going to larger and larger panels. Now it has gone to Whole Exome and even Whole Genome. Yeah, not only are you seeing that, but you are just seeing the, yeah, the raw count is more sequencing, but it is even more and more sequencing in terms of the coverage.
Got it. All right. Just, sorry, one more question on Q1 because we're asking everyone, but with U.S. policy, what is your impact from any tariff changes that have been proposed?
Yeah, pleasure. Knock on wood when I say this, but you know, because it's in flux. At this point, we really service oncology patients. You know, I know some people are more impacted by the NIH cuts in terms of the researchy side. We really service oncology or rare diseases. That's kind of a, you know, we're treating patients there. That side really wasn't, we had one client that was impacted by the NIH. Even that, I think they've said they've gotten clarity now on what they can do going forward. We are in Switzerland, so we do ship some supplies in the United States. We said on the call, I mean, that's going to be de minimis in terms of what the tariff impact is on us, but that's as of today. Hopefully.
Knock on wood again there, George. Let's get back to the U.S. You know, if you look at growth, and this will be a lead into kind of long term, but you know, you've been under-indexed to the United States. Do you continue to see that as one of the primary drivers of growth? Can you remind us again of last time you laid out long-range targets and when we might see the next iteration of long-range targets?
Yeah, no, clearly again, the 30% growth in the United States, we think it's sustainable. We even think we can accelerate that even. We're very, very bullish on the U.S. market and continue to be. Europe continues to grow. I mean, it's going to grow a little bit slower than that. You know, we said by the end of this year, we expected our growth to be north of 20%. We believe in that. Honestly, all of that's really, this year we've modeled our pharma business basically to be flat. People who follow us may know our pharma did have some challenges last year. You know, we're seeing some green shoots and we're seeing some recoveries there.
I know pharma budgets really did pull back a bit, but we're optimistic that that could really be a good growth accelerator in 2026 and 2027.
Yeah. The only thing I would add is that we're thinking about U.S. customers, the size of the accounts are notably larger than what we see in other geographies. The number of patients that we're testing, but obviously there's also some favorable ASP elements of contracting in the U.S. and then increasingly winning full volumes of accounts and servicing U.S. customers across their full patient needs, whether that's signing them up for solid tumor and then expanding to hem-onc and then also to liquid biopsy. There's this larger enterprise dynamic to working with some of the U.S. customers where they appreciate the value that we bring in terms of cost savings or turnaround time or allowing them to own the data of the patients that are being sequenced in their hospital.
In the U.S., when you win those, is it typically an account win where you get multiple hospital network? Is that part of the reason why the U.S. opportunities, you know, higher spend per customer?
Yeah, that's part of it. I think, I mean, liquid biopsies have been an incredible application to get our name in the door. You know, for those of you who don't know, we started a collaboration with Memorial Sloan Kettering where they were performing liquid biopsy testing and the MSK- ACCESS test that you could get on the Upper East Side of Manhattan here. For years, they were trying to take that and enable other patients across the globe to be able to launch that testing. With the diversity of the network that we've been exposed to and the algorithms that we've built over the last 10 years, we were the first company that enabled Memorial Sloan Kettering and us and patients across the globe to adopt and receive liquid biopsy testing.
This is obviously a market that Guardant has proved out in the U.S. quite well. As you look at other institutions across the globe who now might want to adopt liquid biopsy testing, we've had incredible results. I know that we announced 37 customers have signed up for liquid biopsy testing on SOPHiA since the application's launched just last year. These kind of marquee names and partners in the U.S. have been a major catalyst as well as kind of cutting edge or leading edge applications.
How important was the LDT regulation and how that has flip-flopped, you know, as far as how quickly those customers adopt or was there hesitation because they didn't know what would happen with LDT rules?
No, it was helpful. I mean, obviously we supported Dr. Arcila and AMPA leading that lawsuit that ultimately was successful. I think even after the Chevron decision, I think there was a lot of people questioning, you know, this was an agency that sort of without any direction from Congress had sort of decided to increase, you know, the rules and regulations, which I think now, you know, obviously they've been pulled back. I think it helps give people a little sense of clarity that LDTs are here to stay. It's really important in the molecular field too because change is happening so fast. I mean, the idea that you're going to take something through the FDA, which can be a two, three-year process, by the time you come out, you know, technology's changed, things have changed.
I think everybody and AMPA really led the way, which, you know, kudos to them. I think their argument was always, this is going to slow innovation down. I mean, you know, every time you pick up a journal, there's a new gene tied to a new disease state. This is why it's so important that this innovation continue to go rapidly.
Okay. I realize I tied this in with an earlier question, but as far as long-range targets, and maybe purposely avoided that, but can you just remind us where, you know, the last time you gave long-range targets and how you're thinking about when the next time is you'd like to give that out to the investment community?
Yeah, you know, we said, you know, we expected to exit this year with 20% year-on-year growth. We pointed out that the company historically had a CAGR of 23% growth. That is sort of the ballpark that we are working to get back to. Obviously, internally, we are working to far exceed that. Certainly, we think that is a comfortable place. You know, we are bullish if we continue to grow 20%+ , continue to have the cost discipline. I think we have proven with the software model that it is very scalable. We drop quite a bit down to the bottom line. That is why we think the business is exciting.
Okay. I guess maybe one of the things that differs versus last time is you were anticipating the pharma business, I believe, to be 10%+ of revenues. Obviously, that's been an area where for a variety of reasons, pharma is not spending. Obviously, they're not 10% of revenues. You know, at the same time, you've accumulated now over 2 million patient sample data, which I would have to assume at some point becomes very valuable, especially with AI technology if you can interrogate that. You know, what's kind of the tipping point that you see from pharma? Is it a lot of it is just, hey, they're tightening their budgets and they're not spending money on anything, especially something on the earlier side? Or is it, you know, do you need 2.5 million samples?
Is it kind of just a variety of things that eventually tips that demand from the pharma customers?
Yeah, I think there's a recognition that, you know, certainly there's enormous value in that. I think even just our reach, I mean, we were in the United Arab Emirates a couple of weeks ago. And you know, AstraZeneca and M42 and SOPHiA were all basically announced the expansion of the MSK- ACCESS liquid biopsy test. Again, pharma is helping, you know, and selfishly, they want more testing done because that trips people, okay, these people now qualify for this therapeutic. They are actively working with us to promote, you know, liquid biopsy testing in the Emirates. You know, and it's a very successful model. I think pharma looks at our footprint and sees, you know, the 800 providers that we're working with globally. It's, you know, it's very hard to replicate that. I think there's an excitement there.
Certainly on the data side, as you've said, I think there's a lot of excitement on the data side as well.
Yeah, I mean, earlier this month, we announced the expanded partnership with AstraZeneca. That was a relationship that started on the sponsored testing of HRD testing back in 2023. They really liked the results of that. So they started sponsoring MSK- ACCESS globally. And earlier this month, we announced an expanded partnership there. I think we also, you know, just looking back, we did a little bit of a reset on our strategy and how we're going to market. And I mean, the number of conversations that we're having with large kind of top 10 biopharma is increasing. We were at AACR earlier or later last month and World CBCDx. And I think the quality and the substance of the conversations are increasing. So more to come on how the kind of refocus strategy will start building up momentum over time.
Got it. Let's talk about liquid biopsy because I do feel like that's been a refocus strategy. I think two years ago, the number of times you said liquid biopsy in a given call was one or two, and now it seems to be a highlight. Just to be clear, you're not running a lab, you don't own a lab where you're running the test. And you're not selling sequencers. How does that fit in with a liquid, you know, being a liquid biopsy company or offering a liquid biopsy test?
No, it is funny because you have to remind people we're a software company. We analyze the data that comes off the sequencers, but no, there's no blood or tissue coming into our facilities. Liquid biopsy is exciting though because again, you look at this was a test that was developed again in Manhattan by Memorial Sloan Kettering. Now, if you're a hospital, am I going to try to bring up my own liquid biopsy test? It would probably take my scientists a couple of years and maybe they're successful, maybe they're not. Right now, what's happening effectively, the patient's blood's going out to Redwood City and being tested by Guard. They're completely out of the loop. They're out of the information stream.
Now for them to have the ability to bring up a world-class liquid biopsy test and literally SOPHiA gives them the recipe, walks, holds their hand through the process, we call it the MaxCare process. Basically, we're holding their hand all the way through, looking at the data as it's coming out, ensuring that, you know, the test they're doing in Abu Dhabi is exactly the same quality as it would be in Manhattan. They now have the ability to do that test and care for their patients locally, which is huge versus sending the blood. You think of the United States even, you know, what's happening, a lot of the hospitals, they're completely out of the economics. Everything's going to Guardant. Matter of fact, they don't even know a lot of cases, you know, what's happening to, you know, to the patient.
On the data side as well, I think Tempus has, if nothing else, they've made people appreciate the value of the data. Now the hospitals are like, we want that information. You know, Tempus will send them a PDF file. They actually want to have, you know, that patient in-house. You think of it's better patient care, they're eliminating the transit, you know, faster turnaround time, better for the patient. Now the hospital participates in the economic. It's really, really compelling. It's gotten us in a lot of doors that previously were closed to us. The idea that, you know, because, you know, as well as Guardant has done with liquid biopsy in the United States, Europe's a little bit, you know, lagging in terms of liquid biopsy.
Again, that's why this, when we go out with this product, you know, in Europe and France and, you know, in the Middle East, it's very impactful. And people, you know, yes, we want this.
Okay. And so you're targeting labs or hospital labs outside of the U.S. that have a sequencer.
Yeah, of course.
What's your kind of, if you look at, you know, how much of your wins are, how many of your wins are coming from customers that are current customers with the software side? Is this more, hey, you're going after new customers? Or, you know, maybe they've said no in the past to the software and now you have a more compelling sales point to them.
Yeah, it's a solid mix. I think depending on geography, it really has been a great way for us to sign up new customers. Specifically with the help and sponsorship of AstraZeneca, reaching geographies across the globe is important. We want a diverse data set. We want a data set that is, you know, representative of different patient populations so that the value of the data back to the others is important. I would also say the ability to land or enter into an account with the liquid biopsy test, MSK- ACCESS, and then kind of pair that with MSK- IMPACT, which is a solid tumor test that was also developed by Memorial Sloan Kettering, which we've similarly done a good job of decentralizing. Those tests were meant to go hand in hand with each other.
There are lots of abilities or opportunities for us to come in with liquid testing and then expand to solid tumor. And then, you know, our NPS score is 67%. They get used to the platform. They've already implemented it. It's now kind of a no-brainer to add additional applications as opposed to them kind of creating those on their own.
It's been a nice mix. In the U.S., it's definitely opened some doors. I think in Europe, you know, some of the leading institutions there were already our clients, but wanted to do it. You know, in the Middle East was a great example where, you know, AstraZeneca helped us quite a bit. You know, having AZ kind of behind this going, look, you can do liquid biopsy testing. Here's the partner to help you do it. It's very impactful.
Similar to the software offering, this is sequencer agnostic. It can be done on any sequencer.
Yeah. No, we work with Element. We work with MGI. Yeah, we're, yeah, I mean, this is a Software as a Service and our bioinformaticians can make it work. Again, the genetic information, CTGA for how it comes off. So we can make it work.
Are the economics similar to your, you know, non-liquid biopsy software offering in that you're getting, you know, whatever, a per test?
Yeah, this actually is a higher price point for us because, again, I think we perceive it and the market perceives it as more of a value-add product. Yeah, this is one of our higher ASPs that we offer.
Is that an easy sell because with the software, you're just saying, hey, we're, you know, call it whatever, you pay us $200, you don't need someone on the bioinformatics side. Now, not only do you get that, but there's a reimbursable revenue-generating test that they have now, they would have now that they didn't have before.
Yeah, exactly. So we're going out, you know, even $400 even because, again, the reimbursement is, you know, 3x, 4x that. So they're happy they're getting a significant cash flow stream that they wouldn't have gotten before. If it's going to Guardant, there's zero economics going their way. To pay us, you know, a quarter of the economics is not, you know, is very doable.
Is that a longer-term driver of continued gross margin? Because if you're doubling the, essentially doubling the ASP, I'm assuming there's not a lot of additional cost of goods for this or maybe there is, but.
Yeah. And, you know, certainly, yes, the answer to your question is yes. We've hedged on the ASP in total because a lot of people look at our overall ASP. We are expanding in Latin America. We've gotten some new offerings in India. I think on the one hand, we'll have our ASP lift from things like MSK- ACCESS. Again, we are a global company and, you know, we're all passionate about trying to get this technology out. Some of the emerging markets may put a little bit of downward pressure on our overall ASP, but we think if we sell enough higher-end products, even with the emerging markets coming in, we can hold the line on the ASP side.
Just with these customers, how many, you said you can be used on a variety of sequencers, but how many of your customers then do have multiple sequencers in a specific lab? How does that change the adoption? Do you basically have the, you could do the test on all three or then are they just doing liquid biopsy tests on one of their sequencers?
I'll give one example. One of our customers in Latin America, who's one of our larger accounts and actually the largest central lab in Latin America, is a customer of SOPHiA. It's actually an incredible case study. They validated, I think, seven different SOPHiA applications on three different types of sequencers. Three different brands of sequencers, which is a pretty incredible testament to our ability to adapt to any sort of workflow that the customer might want. We're also a partner with them in terms of making decisions on how they might want to organize their workflow and produce the data. We have certain recipes or things that we've developed over time after implementing 800 customers across 70 different countries. We've seen, you know, what works and what doesn't.
In that case, we work hand in hand with them in order to create the best workflow. And then, yeah, we can work with any type of sequencer, any type of library prep and chemistry in order to get those going. It's nice to see some examples of the full menu of applications validated across each of those sequencers.
You said that the hospital now would own, or the hospital lab would now own the patient data. Does that mean that you do not have access to it in your AI cloud or do you still, you are still able to access that with those tests?
We process the data, but we don't own the data. The data ownership stays locally with the institution, but at the same time, as we're processing, obviously the AI reads the data, it learns from it for the next patient, but that data stays locally at the institution. We're able to access it and learn from it and provide insights off of it. According to, you know, GDPR and other types of setups of data control, it's very important to us that the institution and the patient ultimately retains control of their data.
Okay, but it's still additive to the 2 million that when you have an AI platform, you could still act, you know, through the.
No, and especially for things like rare diseases, you know, it's almost impossible to replicate, you know, what we have because we've seen the rare diseases when you've done over 2 million genome profiles.
Okay, great. We have 50 seconds left. Path to profitability, remind us what you've said. Is this, you know, obviously a push in liquid biopsy? Does that change the timing of those targets either via faster revenue or more investments in liquid biopsy?
Yeah, I know our guide, you know, we were happy to see our adjusted EBITDA loss was, you know, down into the single- digits. You've seen the 75% gross margin. We've said publicly that 60% of that can drop down to EBITDA. You know, we've said publicly that we expected our losses to be very small by the end of 2026 and to go to adjusted EBITDA profitability into 2027. We've stayed with that guide. I know Q1 was very good, but we've stayed with that guide at this point.
Great. Thank you for joining us. Thank you for everyone.
Thank you so much.
Everyone in the audience, we appreciate your time.
Very much appreciate the invite. Thank you.