Get started, I'm Catherine Schulte. I cover life sciences and diagnostics here at Baird. Very excited to have Twist Bioscience here today. From the company, we have Jim Thorburn, CFO, and Angela Bitting, head of IR and ESG. To kick things off, Jim's gonna run through a few slides, and then we'll dive into Q&A. If you have a question during the session, you can email it to sessiontwo@rwbaird.com, and I will pass it along. So, Jim?
All right, thank you, and welcome to Twist. I skipped over the first one. So writing the future. I'll go quickly through every line item here in the disclaimer. So anyway, so background: Twist is a $200 million revenue company. We write DNA based in San Francisco, and you can look there at all these applications that we fundamentally support. So Twist actually can revolutionize the world over the next 10 years when you think about it in terms of cancer, health detection, impacting the environment. So how do we do that? We have a platform that gives us a leg up in the future. What we do is we write DNA in silicon. How does that compare to the historical way of writing DNA or making DNA?
Making DNA used to be built in the... or still is, in a 96-well plate. For that, you get one gene on that 96-well plate, and you use a lot of chemicals and reagents. With our methodology of writing it on silicon, in the same footprint, we can actually write 10,000 genes. So you just start to think about the cost advantage we have and the scale we have, and that fundamentally is Twist's ability to be able to scale cost-effectively and rapidly. If you then look at how we've grown, you can see there we've grown... You know, we went public in 2018, and as you see, we've scaled every year, and last year we grew by approximately 50%. Why is that?
We keep launching new products, our products keep being adopted, and we have a strong cost competitive advantage and value proposition in the marketplace. When you look at the revenue, break it down into three groups: Biopharma, which is antibody discovery services, with a sort of drug developer's last resort. If you have a difficult target, you come to us, we can actually provide the antibody for you. In terms of NGS, NGS is a sequencing product that's used for diagnostics, cancer detection, and then we have SynBio, which is genes, library prep, everything you need to help build drugs, proteins. So we're fundamentally that building block that large pharma, academia, industrial chemical companies need.
In terms of breaking the business out, SynBio, this year's gonna be roughly around a $100 million business, and that $100 million business, as you'll hear about it later on, we'll dig into details. We invested heavily in a new facility. That new facility is in Portland, Factory of the Future, and that gives us significant leg up in the marketplace in terms of reducing the turnaround time. NGS, our value proposition there is in quality. We reduce the sequencing cost for our customers. In terms of biopharma, that's antibody discovery services, and then in the future, we're launching products to address data storage memory. In terms of where we're going, we're focused on accelerating path to profitability for our core business, which is NGS and SynBio.
We're focused on getting to Adjusted EBITDA breakeven in Q4 next year. So in summary, this year's guidance revenue is about $240 million-$243 million. We'll end the year with cash, about $325 million. Our core business will get to Adjusted EBITDA breakeven by Q4 next year, and we'll exit next year with about $220 million cash. Our view is we don't need to raise any more cash for the company, and we're gonna be self-financing. So I think that's it.
All right, great.
Thank you.
Thank you for that overview, Jim.
All right.
Maybe just, starting on your core SynB io business, can you help us frame kind of underlying growth rates within that market and maybe what would allow you to grow faster than the overall market?
Yeah. In terms of, you know, core SynBio business, we're growing close to 30% a year. What's driving that? We have a strong cost competitive advantage. We have the ability to scale. Historically, you know, when we launched SynBio, we were slow in terms of cycle time. There are three, three sort of factors our customers really, really looking for. One is quality, another is cycle time, another is price. In terms of SynBio, you know, we've got the quality. Everybody has the same quality. In terms of cycle time, definitely slow. We're about 20, 20 days in terms of cycle time. We've brought that to 10-14 days. In terms of price, we were, we're the, the, I'd say, the low price.
We're the cost, cost leader in that we sell at roughly about 40% of the price of our competition, and that's attracted a lot of customers to us. So why do we do that? We do it because we've got the platform that gives us the cost competitive advantage.
... And you talked about quality, price, turnaround time. You know, I think when we've talked to customers in the past, you know, price and turnaround time have certainly been the two. Maybe talk a little bit about Fast Genes, especially converting that makers market. You know, how much more quickly can you get a Fast Gene than standard? And, you know, how do you view that offering rolling out to your customer base?
Yeah. So in terms of Fast Genes, so genes... We're talking about Clonal Genes. Clonal Genes, the current turnaround time is 10-14 days. Fast Genes, we're offering a product in roughly 5-7 days. So the reason we can do that is partly due to our investment. We have the advantage of the scale through our platform. As I noted earlier, we can manufacture 10,000 genes, the same footprint. So when we're talking about Fast Genes, we're talking about Fast Genes at scale. In terms of the technology around that, we've invested over the last, you know, almost decade now in terms of technology to support our gene production and our NGS production.
That gives us the advantage of being able to, A, track all our orders in terms of on the same chip. We can have up to 1,000 different customers on that same chip, and we can be producing SynBio NGS products. What we've also done is invest in the Factory of the Future, has given us the footprint to be able to lay out our production process more in an assembly line, and that, that's been able-- That combined with our software update and e-commerce investment, that allows us to be able to shrink that turnaround time for customers down to 5-7 days.
You've talked about premium pricing for that fast gene offering. Any color on what kind of premium that would look like, and, you know, how much of a margin benefit fast genes could be as we get into 2024 and beyond?
Yeah. So in terms of pricing, right now, we sell our 1.8 KB genes at $0.09 a base pair. We also sell the 3.2 KB genes at $0.12 a base pair, and 15 K, and the 5 K genes at $0.15 a base pair. So how does that compare to the market for a 10-14-day turnaround time? Well, the market's about $0.25 for a 1.8 KB base pair. In terms of fast genes, just based on our market surveys, customer feedback, the market is willing to pay significantly more for the 5-7-day turnaround time. It gives them more shots on goal, helps in terms of their productivity, advances their experiments faster.
In terms of how we're thinking of pricing, the competition right now for low volume can be between $0.65 and $1 a base pair. Clearly, what we're gonna do is focus on driving volume to our platform, and what that means is we are gonna offer premium pricing. We'll go through. We're gonna launch the fast genes in the fall of this year. And in terms of pricing, it's gonna be a premium. Haven't determined what that premium looks like right now, but we're gonna go through price discovery as we launch. But one of the key metrics to keep in mind is today, we're selling at $0.09 a base pair versus $0.25 a base pair for 10-14 days. That's the competitive landscape. As we launch the fast genes, we're certainly gonna be offering a premium.
We want to drive volume onto the platform, and we've seen success with that as our customer base has increased to roughly 3,000 or over 3,000.
And you've talked about the potential for some dynamic pricing capabilities for fast genes, but maybe still some software and technology work that needs to be done. So I guess, what work is left before you have that commercial launch later this fall?
Yeah. So there's three or four factors we're working on before launching. One is continuing to upgrade our manufacturing software. The second is refining the process. So the Factory of the Future we brought up started shipping actually in January this year. Last quarter, we shipped 171,000 genes. To put it in perspective, 160,000 of those genes were shipped from the Factory of the Future. So from an operational point of view, we're set up to deliver at scale. As we continue to refine the software, obviously, we're developing new recipes in terms of the production protocols, so that means training the operators.
So it's software, training the operators, ensuring we've got robust process as we scale, which we validated, and then delivering e-commerce platform, which is the interaction between ourselves and our customers for price discovery. So those four key elements are all on track to support the launch of the product in the fall.
You just mentioned, you know, shipping the majority of your SynBio products out of Factory of the Future. That was a big investment for you.
Right.
Maybe talk about how that transition has gone and any positive or negative surprises.
Yeah. So transition's gone well. We actually back in end of 2021, we started investing in the Factory of the Future. We were very fortunate. We locked into a 20-year lease. We've negotiated, you know, lease costs from a 3% increase per year. We acquired the equipment at... You know, as we went through the pandemic, when it was difficult to actually acquire that equipment, we locked in the prices. So from an infrastructure cost, we've actually got a sort of inflation-proof infrastructure costs, i.e., the leasehold improvements and equipment has all been invested in. In terms of next step was all our production was formerly in San Francisco for our SynBio operations.
We hired close to 200 employees over the last year, trained them, indoctrinated them in the Twist processes, brought them up to speed. We launched our first product in January this year. By April this year, we had essentially two operations, one in San Francisco and one in Portland. San Francisco operation, which is producing genes, we put all the employees on leave. We stress-tested the Factory of the Future, Portland, and in May, we had a RIF. We reduced the employee base in San Francisco as we addressed our costs as we scaled the business. Last quarter, as you noted, we shipped 171,000 genes. 160,000 came from the Factory of the Future.
Customer experience is great, good feedback from our customers, lots of positive, feedback, and we're, we're ready for our launch of the Fast Genes in the fall.
And maybe with the Factory of the Future ramping up, obviously a lot of fixed costs up front-
Mm-hmm.
-that you'll start to leverage as, as you ramp revenues out of there. Just remind us how you envision gross margin ramping over the course of the next 18 months?
Yeah, I think, I mean, as the slide showed earlier, as we scale our revenue, yeah, we've got high fixed costs, a bit like the semiconductor business. If we invest in the synthesizers, you get all the software around it, and all the technology around it. So what's important is, as we scale the business, we have that fixed cost. We're seeing contribution margin from the higher revenue. In quarter two this year, we have a September year-end, so our quarter two is March, our gross margin was 30%. We exited last year at Q4 about 45% gross margin. So brought on the fixed cost, bringing on the volume, and we saw our gross margin increase from 30%- 34%, in between the March and the June quarter.
As we scaled the business, we started to see the impact of the cost reductions. In quarter four this year, which is our September quarter, currently in, we've guided to 36% gross margin. As we continue to scale the business, we are focused on getting to adjusted EBITDA breakeven for NGS and SynBio by Q4 next year. As we launch Fast Genes, we'll see premium pricing. The leverage we get from higher revenue and the premium pricing, we'll see our margins improve. We haven't given guidance in terms of margins for next year. We've given guidance that we're going to get to adjusted EBITDA breakeven, and so focus within the company to deliver that for the core business. And then longer term, we're seeing opportunity or our guidance is 55%-60% gross margin.
And then maybe just circling back, of course, in SynBio, you know, are you seeing any changes in the competitive landscape there? Seems like we're fielding more questions on things like benchtop synthesizers and eBlocks and some of the other, you know, news coming out of competitors.
Yeah. So, centralized versus decentralized, there's certainly... from what we're seeing from a market point of view, you translate that back to our competitive advantage, our silicon wafer, ability to scale, our cost competitive advantage. You know, so from what we're seeing and seeing the number of customers approaching Twist, particularly the interest we're seeing in the Factory of the Future, we're not seeing a lot of competitive impact, from the sort of decentralized model. In terms of eBlocks, we've got... We offer gene fragments, but I would also say that, you know, if you're looking at our product portfolio, everything we sell leverages the our platform. What does that mean? The more products we put on it, we've got high R&D.
We've launched a lot of products over the last year. We continue to scale. What does that do? That drives down our cost structure, which keeps giving us a competitive advantage. We'll always see new, new products launched. However, as we scale, we can deliver at scale, and we can deliver at lower cost, and with premium pricing on the Fast Genes, we'll see an improvement in our margins.
Maybe if we pivot over to NGS, that product-
Okay.
NGS category has been a big growth driver for the company. You saw strong sequential order growth this last quarter. Just talk to what you're seeing behind that acceleration. Any one-timers or anything else to call out there?
Yeah. So NGS, so those of you who might not be familiar with the story, when we went public in 2018, our NGS business was less than $3 million. This year, our NGS business is going to be close to $120 million, guidance of $120 million. Last quarter, our NGS orders were about $33 million. The question is, overall, why are we so successful with NGS? It gets back to the platform, miniaturization, and the semiconductor precision. That gives us a leg up in terms of the quality and uniformity of the product we provide our customers. The benefit our customers get is they get a reduction of 50% in terms of sequencing. And from sample to sequencer, our workflow is less than a day.
So from a customer point of view, we can provide them the scale. Our pricing is the same as the rest of the marketplace. Our advantage is the benefits our customers see in adopting our product. Over the last year, we have had some wins impacted Q1, and we saw a pickup in our December quarter. This last quarter was a pretty strong quarter in terms of broad portfolio. Think about the top 10, we're less than 30-odd% of our customer base. We track the large NGS customers. We have a pipeline of about close to 270, 280. About 50% of them adopted them into their tests.
As these tests volume—as that test volume ramps up, we see our revenue ramp up. So we continue to see that broadening out, continue to see us winning as there's new and new applications. We've benefited from liquid biopsy. We have about approximately 20 liquid biopsy customers. We don't break it out in detail in terms of revenue, but we have seen that, that revenue pick up. We're seeing opportunity to scale up again in MRD, and it's back to the value proposition platform.
This time last year, I think we were talking about some of the potential cost reductions in the sequencer market.
Mm-hmm.
There were some planned new instrument launches.
Mm-hmm.
We now see some commercial placements there, the idea of the-
Yes
... sequencer companies saying, "If we lower the price point of sequencing, we're gonna unlock this elasticity and demand." What does that mean for your NGS business, and how do you feel like you're positioned to capitalize on that?
You wanna go?
Sure. So in terms of NGS, we are sequencer agnostic, and so we can work with any sequencer across the board, whether it's long read or short read. In terms of what we're seeing now, we see that there is a little bit of shift to Whole Genome Sequencing in some markets like rare disease. However, for markets like oncology, it's still required for a targeted panel, and so our business continues to be strong. As Jim was talking, we have strong order volume moving into Q4.
Mm-hmm.
Really, the oncology market, if you look at our products that we've introduced over the course of the last two years, they've been very oncology-focused, whether it's the methylation detection panel or the methylome or cfDNA controls. So we anticipate growing with those customers and continuing to really fuel their success across different sequencer spectrums.
Great. Then maybe pivoting to biopharma-
Mm-hmm
... I think that business has run into some challenges recently.
Mm-hmm.
How are you feeling about your competitive positioning? I know you talked about needing to ramp up some hiring.
Mm.
Any updates on how that's progressing?
I can start. Maybe Angela can polish off what I say. So yeah, so in terms of biopharma, I mean, we offer, you know, in vivo, in vitro, in silico. So when our biopharma customers come to us, they, they. We offer them a solution to deliver, "You will get an antibody." And, you know, this last year, actually, end of 2021, we bought a company called Abveris. We had, part of the deal, there was. We had to hit a-- the Abveris team had to hit a minimum revenue number in terms of earn-out. They just missed that, and that-- That was through calendar, I guess through calendar 2022. The outcome of that was we had to fall out in terms of the integration.
Some of the team left, so we lost about five BD personnel. We're in the process of rehiring. That impacted our orders this last quarter. Although, we did highlight recently, we announced the Ono agreement, so things are beginning to pick up. We will hire the additional five BD personnel. We will focus on growing the business and getting back on track. This year, the revenue we've guided to is about $23 million. In terms of long term, we're looking at, for the biopharma business, getting to adjusted EBITDA to break even on $40 million revenue, and we feel confident based on our hiring plans that we'll get to that run rate. It won't be by Q4 next year.
However, the team we're hiring, it takes about 6, 6 months to get up and running in terms of hitting their quotas. Quotas average is about $1 million per head per quarter. So we're on track in terms of focus in terms of getting to that $40 million Adjusted EBITDA, and we've got a strong portfolio in terms from service offering.
I'd just add that, you know, we have very small market share in the biopharma sector, and so we have a lot of opportunity ahead of us, and we have a solid offering, really. And what we know is that where we have effective sales reps in territories, we sell the service. And so we're looking forward to building out that team and really executing on what we have to offer.
And then maybe DNA Data Storage really quickly. I want to make sure we, we touch on that-
Yeah
Before we wrap up. But, you know, you've planned to do an early release of the terabyte Century Archive in 2025. You know, what are the key things that you need to be worked through before that launch?
So, progressing well from a technology point of view. We are having customer, positive customer, potential customer conversations, but it's really all around technology. You know, we've demonstrated the sort of gigabit, you know, sort of... Is it the altitude or? Yeah.
So we're working on-
Yeah
... the complete gigabyte workflow solution, which we intend to demonstrate by the end of this calendar year, and then moving toward 2025, the early access commercial offering on the terabyte chip.
All right, great.
Yeah.
And then a couple minutes left. We have three questions. We'll kind of do rapid fire.
Okay.
I'd love to get an answer from both of you-
All right
... Luke, Angela, into this as well. As you think about the next 12-18 months, you know, what are the two biggest opportunities that you see for the company?
I think lots. I would say, number one, Fast Genes. You want to...?
Number two, execution and scale.
And number 3, I'll give you a 3, is getting to Adjusted EBITDA break even for the core business by Q4 next year. And I'll give you number 4 is exiting with $220 million cash.
Great. And then on the reverse, you know, next 12-18 months, what are the two biggest challenges that you see for the company?
I would say number one, execution.
Number two is execution.
Great. And then last, you know, what's something that investors and/or analysts don't ask you very often, but you wish that they would?
Don't ask it very often? I think the question is, you know, how much fun do you have in the business? So I would necessarily say, look, there's a lot of fun in the business. It's been fantastic to take the company from $3 million, sorry, from $25 million to, you know, over $200 million. We've reinvested in the Factory of the Future, and it's a lot of fun. It means there's a lot of risk, and at the same time, we're executing. So it's. I would say it's very satisfying. And, you know, the next 12-18 months, there's going to be a number of catalysts, and, we're going to keep focused on acquiring customers and executing.
Angela, anything you'd add?
So I would just add, you know, we have a complex story in four different businesses, and so one of the things that I wish we were asked more is, how can we participate in all four businesses successfully? And it all comes back to me, to the power of the platform and the fact that we make the front-end oligos for all four businesses in the same way-
Yeah
... by miniaturizing the chemistry on the silicon.
Yeah.
Yeah.
And we have a lot of fun.
Yeah.
We execute.
All right. Great! Well, with that, we're out of time. Angela, Jim, thank you both so much.
All right.
Thanks, everyone, for joining.
All right. Thank you.
Thank you, Cathy.
All right. Thank you.