Thanks for joining us, everyone. I'm Tom Peterson. I'm an associate on our life sciences and diagnostics team here at Baird. We're really excited to have Twist Bioscience presenting today, and representing the company, we have CEO Emily Leproust and CFO Adam Laponis. Thank you both for joining us.
Thank you.
Before we begin, just a reminder to refer to Baird's website and our published research for important disclosures about what we're gonna be discussing today. I think Emily maybe has some introductory summary comments to make, and then we'll jump into Q&A from there.
All right. Well, thank you very much for having us. I will let you load the slides. So quick introduction on Twist, moving to the next slide. I'll start by saying that, I will be making some forward-looking statements today. So at Twist, we have built a technology to write DNA from scratch, and, we are building a scalable and profitable business, which we've done from the technology, but strong commercial execution, strong development of new applications, launching new product. And, as we'll end with, and I'm sure we'll discuss, too, we have a very defined path to profitability. Our technology is the silicon chip. Our silicon chip, instead of making 96 oligos at the same time, we can make 1,000,000 oligos at the same time, so we miniaturize the chemistry.
But we can also mix on the same chip multiple products from multiple applications for multiple customers. And so really, it's almost the concept of a plane, and what we do in our e-commerce is we sell DNA, and so we sell seats, in a way, on the silicon chip. And now we're at a point where with all the applications, all the customers, we can run full chips. And from the one chip that we have, initially, we've been working on making DNA, but in the recent past, we've expanded into proteins where we can make IgG, for instance, and we were slowly expanding into RNA, with applications such as RNA-Seq. And on the area of RNA therapeutics, we are being driven into the RNA market by our customers.
From the silicon chip that I mentioned, we make the oligos, so that can be 100 base pair, 200. We can go direct synthesis all the way up to three, sorry, 500 base pair. It used to be 300, now it's 500 base pairs. And either you know or we'll discuss that, we have three product lines that are revenue generating. One is in SynBio in green, in blue, sorry, in the middle. From the oligos, we can either ship the oligos, we can assemble them in a fragment, we can clone them into clonal genes, we can express IgG protein. In green, the oligos can be amplified to make panels. Then we have all the reagents to go from the sample to the sequencer for NGS applications.
And then in Biopharma Solutions, there is a service. The service team uses all the products of Twist, where we get to target for a customer, and then we provide a preclinical antibody, VHHs, type of therapies. Over the years, we've built a what I believe is a very differentiated product. The platform works. We've built it over ten years, and the production capability is very, very strong. We can make 16,000,000 oligos per day. Recently, where the oligo vendor visit us, and they brag that they made 21,000,000 oligo during the year. We make 16,000,000 a day. So it's really a different scale. That scale can go beyond oligos into genes.
Even though we are selling DNA, we are focusing very strongly on providing a great user experience through our e-commerce. So from the time you land on the e-commerce to the time you get the invoice, it's beautiful, frictionless, and intuitive. And then at the end of the day, we also build what we think is a compelling business model because we do have high fixed cost. It's a semiconductor-based platform, but we have very low variable cost. And so once we've absorbed the fixed cost, the variable contribution is very, very high. In terms of looking back at the last few quarters, you can see that we've had, you know, consistent revenue ramp. It's color-coded by the different business by the different product groups.
In blue, SynBio, in green, NGS, and in purple, Biopharma Solutions. As we ramp revenue growth, we've improved gross margin, and we will slowly shrink losses. So on the left, you can see how the adjusted EBITDA losses have shrunk, and we've signaled that we're on track to get to less than $20 million adjusted EBITDA for Q4 of this year. And on the right, looking at cash use, 65% reduction in cash use year over year. I mentioned. I won't go into the details, but I mentioned that we have four product groups. Two of them are tools, SynBio and NGS. Two of them are advanced solutions or applied market. One is already commercial with Biopharma Solutions.
We are not reiterating guidance, but this is the guidance that we shared at the August second earnings call. What we are seeing is continued ramp in revenue. The guidance that we shared was $310 million-$311 million for the year. Improvement in gross margin, year-over-year reduction in losses, and we see a path to 50% gross margin in Q4 of 2025. So with that, I'll stop here, and I think hopefully that starts the conversation that to go. Thank you.
Yeah, fantastic overview, Emily. Thanks for running through that. I wanted to start on the core SynBio business, and just kinda get a current status update for how you view the business coming out of fiscal 3 Q, and we've got some questions about the implied, you know, about a $1 million step down in fiscal 4 Q. So maybe any timing dynamics that you wanna flag, and just your confidence in underlying momentum in the synthetic biology business.
Yeah. So we mentioned at the time of the earnings call, that we have a very large contract or contracted customer, that will step down in terms of revenue in Q4, and so taking that out, there is growth in the SynBio market. Actually, there is some very good growth, and that is not an accident. We have invested in enhancing the portfolio of products that we have with our Express, which used to be the Express Genes, but actually is turning into an Express portfolio. Since we launched Express Genes, we've launched Express Prep, we've launched Express IgG, with HEK expression, Express IgG, and CHO expression. And so that Express business is going really well. We're seeing sequential growth. We've also enhanced our product around non-clonal fragments.
The market for non-clonal fragment is capped at 1.8 KB, and recently we've extended that length to 5 KB. So I'm sure it will very soon be copied by our competitors, but we are at least for now first in class there. We've launched a new product called Multiplex Gene Fragment. There is a direct synthesis of DNA up to 500 base pairs. So if you're a customer, you can either encode a full VL VH, scFvs or VHHs on one, or if you're doing mRNA, you can encode mRNA promoters in there, or if you're doing CRISPR, you can encode multiple CRISPR guide. So it's a very powerful new product. So overall, we see that the market is there.
We see that our products are expanding and resonating, and again, the user experience that we deploy through our e-commerce is being well received.
Great. Let's stick on Express Genes. This obviously been top of mind for investors since the launch, the full commercial launch in late January. How would you assess the first few quarters of the Express Genes offering, and how would you characterize, you know, initial customer interest relative to your expectations?
It's been very successful. First of all, I think in a way, most important, it does what it says on the tube. I will say, ship in five to seven days. We publicly showed that to our customer in June. Tens of thousands of genes expressed, and 97% of them shipped in six days or less. So it does what it says on tube, so that's number one. Not all of our competitors have necessarily that kind of strengths in their marketing claims. And so from there, people bought it, people tried it, they liked it, they are buying it again. Some customer are using it consistently, some depends on their needs.
Some customers have expressed interest in signing a fixed contract with a fixed premium price in exchange for volume commitment with us. And then very importantly for us, we've had net new customers that were not our customer before, but they were attracted by the Express, both in academia and NGS. Sorry, academia and biotech companies. And then I'll let Adam talk about the what is actually the most important part, which is the impact on gross margin that-
Yeah
- The Express portfolio has brought.
Now, the Express portfolio has been a really key driver for us, and we talked about it in the last earnings call. Over the last six quarters, we've seen 75%-80% of the revenue growth drop to the gross profit line across the business, and now with Express, it doesn't matter if that's NGS or the SynBio side of the business. We're seeing that relative contribution be the same, and it's really exciting as we continue to launch more products that are Express, that we see that trend continuing into the future. That's giving us a lot of confidence in that guide.
Got it. That's helpful. You mentioned, you know, adding some net new customers. One of the rationales for the Express Genes offering was, you know, kind of tapping into that DNA makers portion of the market. We've seen a couple of periods now where we've seen academic promotions, you know, holding price premiums consistent at 20%. You know, how are you targeting this kind of long tail of DNA makers, and how would you assess some of these promotional activities in kind of bringing in customers on a trial basis and eventually, you know, ordering more regularly?
I mean, there's two things. One is we want the price to be high enough so that we get the value that we provide to customer. You know, five days is absolutely a terrific value. So the high premium is what we deserve to command for the, again, the value we provide. At the same time, there's a little bit of activation energy, there's a little bit of resistance, there's a little bit of maybe people not believing that it does what it says on the tube. So that's why for us, it's important to often enough bring a discounted price that's low in premium, and we think that with 20% we make it easy for academic groups to try it.
And our view is that once you try it, you see the value, and then you're way more likely to come back to it. And it was definitely very successful in June, and so we're doing it again the last few weeks. And it's, you know, it's fun. It's back to school type of an excuse for a marketing campaign. But it's basically making sure that there's enough people to try it, and then over time, the premium goes back to where it belongs. It slightly because the value again is very good. So it's a great opportunity for us to bring the new customers that are gonna be sticky and stay, and come back later.
What about the initial competitive response you've seen in the market from other participants since the launch? You know, where do you think your offering is most differentiated from other peers that might be trying to compete on price or turnaround time, similar to the Express Genes offering?
Yeah. So, I apologize in advance for mentioning the name of a different bank, but at the JP Morgan conference, we showed a graph of where the market was, right? So there was an Express Genes offering from many of our competitors, but they were characterized by two things. One, they were characterized with very high prices, which those prices were just so high that, you know, people basically just didn't use it. It was. And then the second characteristic was that those product offering didn't have high capacity. If it takes twenty steps to make a gene, you can have a fraction of your products of your orders skip the lines and go quickly. But you can't do it for all the orders.
That's really the context that we provided when we launched. 100% of our genes are made Express, and people that order standard, the order is a wait before synthesis or after synthesis so that it ships in 10 days. That's differentiation number one. Differentiation number two, even with the premium pricing, even at a high premium, we are significantly cheaper than those offerings. I think we're seeing. We've seen two responses really. One is from GenScript. They had a product, and they relaunched it under a different name. I think it was Rocket, and now it's Flash or vice versa, basically the same thing. Then the second is we saw IDT announce that they will offer Express Genes.
So obviously, we are, we're onto something. I think it's an incredible value. Imitation is the best form of flattery. At the end of the day, I think we still have the only technology that makes 100% of our genes express. And right now, I think we are entering a very great growth and our customers are enjoying a very great value that they can come back often at, even with premium pricing, at a very, very good value.
Great. That's really helpful. Last quarter, you flagged that in-place manufacturing capacity is now expected to support about $700 million of annual revenue. I think that's about $200 million higher than the previous figure. So if you could just walk through at a high level, you know, what's driving this higher, and how should we think about the existing manufacturing footprint as it relates to, you know, potential new products?
Yeah, sure. Happy to talk through it. So, this is a really exciting conversation for us 'cause when we opened the Factory of the Future, the Portland, OR, Wilsonville facility, we talked about about $500,000,000 of revenue capacity online. That same scientific and engineering talent that helped build out that factory was then used to help build out Express Genes and other Express products. They've now shifted a lot of their focus to process improvements, and so we've talked about it at different steps along the way, but you know, one of the examples we had is we were able to the writers that we use were on a 13-minute cycle time. Through some engineering changes, we dropped it to a six-minute cycle time.
That effectively doubled the capacity of all the writers, it increased the quality of the products we're making, it decreased the amount of materials we're using, and it allowed us to do 500 base pair direct synthesis and launch some of the new products we've launched in the last quarter or so. Kind of think about that. That took no capital, and just a couple, you know, people of talent. That kind of mindset is just the beginning of this. So we're seeing those shifts and really optimizing our capacity and our processes, and we think there's a lot more we can do in the future as well.
Fantastic. Given some of the movements from the U.S. House on BIOSECURE, and with the caveat that we understand it's not passed legislation, I wonder how you think about that as a potential impact on the competitive dynamics in the business. You know, understanding that China is not a huge portion of your business, but you know, how do you think about that as a potential driver for share shift over time, and how are your customers evaluating their supply chains and resiliency there?
Yeah. So thank you for your question. So BIOSECURE, it did pass the House yesterday. And like you mentioned, so it's focused on genetic analysis and biomanufacturing. It's, it doesn't apply to DNA synthesis. However, I think the questions about supply chain has raised the awareness from our customers. And I'm now, when I go to customers, I do that all the time, I now get questions that frankly, I never got before, and that's the question of: where do you make your DNA? And I don't have to bring it up. The customer base on their own, they bring it up, so it's definitely on top of their mind.
Since we make DNA in California and Oregon, we can very quickly move on to the next question. Our view is that we will win on our merits. We are faster, better, cheaper, better user experience, better scale, and so we will win on the merits, but definitely, those questions around supply chain and origin of manufacturing is a headwind for some of our competition, and it's definitely, I think, a tailwind for us.
Great. Let's flip to NGS. You know, last quarter, you flagged share gains as a continued driver of NGS growth. You know, where do you think your offering is most resonating with the industry? And, you know, you also noted exposure to methylation and liquid biopsy beginning to pay off. So do you think you're taking, you know, incremental share from this opportunity set in particular?
Yeah, so in liquid biopsy, we've been taking market share since the time of the IPO, so it's been a multi-year, more than five years, effort to win the pilots. And so now we have the vast majority of the market share in liquid biopsy, and what we are seeing is that the liquid biopsy market itself is growing. Our customers now have products that are diagnostic products in liquid biopsy that are being commercialized. Some of them have FDA approval, they have labels that are great, they have reimbursement from insurance.
And so, the more of that happens, the more there is FDA approval, the more there is reimbursement, the more of those tests get pushed commercially, the number of patients that are being tested goes up, and every time there's a patient that tested, some DNA from Twist is burned, and so that there's revenue flowing to us. And so that has definitely been a success story over the, you know, the last year, but it's an effort that we've been pushing since the IPO. Going forward, this will continue. We have also been quite good in rare disease, in the rare disease market, but where we are pushing now, the next level of push is around MRD.
We've missed the boat in terms of the first generation of MRD test, but now, two years ago, we've launched a MRD solution to enable tumor-informed MRD test with 500 probes at the same cost and time as 16 probes, and we think that we're gonna be baked into a number of second-generation MRD tests, and so when those take off, we should see a similar revenue ramp as we are seeing now in liquid biopsy. We're also pushing on RNA-Seq, that was launched last year. We are also building a portfolio of product to have a highly differentiated, irresistible product offering around for the conversion of SNP microarray to NGS.
Those applications, MRD, RNA-Seq, SNP microarray, it will also take time to ramp, but we've been starting the work now for years, and that's what we do at Twist, I think, really well. One is we are absolutely crushing next quarter. We are deploying commercial velocity to beat and raise guidance, and at the same time, we're still playing the long game. What do we do today so that we love our lives two, three, five years from now? Some of those long-term investments we've made in MRD, RNA-Seq, and SNP microarray should start paying off and deliver continued growth in the NGS market.
Your top ten NGS customers have pretty consistently been in the mid- to high 30s in terms of the percentage of NGS revenue. You know, would you continue to expect this concentration and mix to continue over the medium term, and how would you characterize this kind of top ten customer set, if there's any commonalities that you would point out here?
I might give a couple comments on it, and I'd say a couple of things. Yeah, we are seeing that relative concentration. It predominantly is in the diagnostic space, but what it's interesting is it's not the same top ten every quarter. There's a rotation here that's occurring. Some are coming in, some are coming out. We're seeing winners, we're seeing losers, but we're also seeing it's every customer has a different ordering pattern, different set of needs. So our big thing is we wanna be there for our customers no matter what. We're kind of the from a liquid biopsy, we're in a lot of the assays, but as they ramp, we're there to ramp with them. We have the capacity, but we see that, you know, there can be an element of lumpiness.
Yeah
... in that business, and so we're continuously adding ramps to scaling that growth move forward.
Any changes to the customer funnel velocity or time frames? Feels like we've seen, you know, a handful of customers moving into that production phase over the last couple of quarters, but, you know, given some of the softness in certain NGS markets, I wonder if you've seen any extension of those evaluation periods.
No, I think a couple of comments I'd give, and we continue to see more and more of our customers ramp commercially.
Mm.
We also see, you know, with some of the economic headwinds on the diagnostic customers on the march towards profitability, the profit advantages that Twist chemistry offers and the reduced reliance on sequencing is a competitive advantage for our customers as well. So that value proposition particularly resonates in harder times. So in some cases, it's actually accelerated the adoption. In other cases, it hasn't slowed anything down, though.
... Got it. Let's get one in on Biopharma discovery. A couple of updates from last quarter, including the first Twist discovery antibody to be administered to a patient. Can you give us a status update on the Biopharma organization internally? Do you feel you're right sized to kind of appropriately capture the market opportunity here? And then sort of what kind of time frame should we be thinking about to expect the current team to be running up to full speed?
That's a great question. So we're talking about the service division, where we get a target from a customer, and we deliver a preclinical therapeutics. The business model is we want to be paid a fee for service that has, you know, about 50% gross margin or better. So we are not subsidizing the R&D of our customers. Sometimes we also get some milestones or royalty, milestones and/or royalties. And at this point, we have not been satisfied with the performance of that team. The revenue is, you know, flattish around $5 million a quarter, and we can do better.
I've gone myself to sell the product myself in front of the customers, just to convince myself that we have something that's worth pursuing. The customer we are serving that are discovering, optimizing, humanizing, developing therapeutics is the same customers we are serving on the SynBio side. SynBio is doing well, so obviously the market is fine. When I present even myself to customers, it resonates. We have actually an amazing portfolio of technology, where we can leverage in vitro, in vivo AI to discover antibodies. We have a great track record. We have lots of data. Those customers are very skeptical customer, and they're scientists, and the data set that we have is very compelling.
So we don't have a problem with the service offering or the data set that we have to convince customer. So then the next step in diagnosing what's going on is when we book an order, when we convince someone to go with us, do we deliver? Are they happy? And so we do a survey. Or we try to do a survey after each conclusion of each project. Customers don't always do it, but the ones that are winning, we do it, and we have very high scores. People are happy with the service. We ask them: Will you recommend us to your colleague? Will you do a reorder from us? And the answer is yes. So overall, everything is green.
The market is there, product is there, the operations is there, and so it's really only a question of commercial execution, and we see it in the numbers. There are some business managers that meet quota, some that don't. So obviously, it's a question of execution, and so we are making sure that the leadership of the team is very strong. We are making sure that we are supporting the business development manager to turn the ones that are not meeting quota into the ones that are. I have very good confidence that when we can do that, the growth will come back. So our patience is not infinite. There's no sacred cows at Twist. You are only as good as the numbers say you are, and at this point, we do have to improve those numbers, but I'm confident that we can do it. We have the technology to do it, and that group can become a very strong contributor to the Twist success.
Great. We've got a little over a minute left. I'd be remiss if I didn't get some profitability or margin questions in. So over the last couple of quarters, and including on this presentation today, you pointed to fiscal 4 Q 2025 gross margin to be, you know, around 50%, compared to about 44% in the guide for this upcoming fiscal quarter. So, you know, what gives you confidence in an implied fiscal 2025 improvement, and how should we be thinking about this from a cadence perspective for 2025?
No, it's a great question, and the predominant driver of the gross margin expansion is that, is revenue expansion. And so when we talk about 75%-80% of the revenue growth has been dropping the gross margin for the last six quarters, continuing to see that ramp is what we're talking about for 2025. And so we are up, you know, expect 500-600 basis points year on year. We expect that trend to continue if the growth, as the growth continues to materialize, as well as some of those process improvements we were talking about as well.
Sure. Adam, you've been in the CFO seat for about nine months or so, starting the year. How are you thinking about medium-term financial and profitability targets, and how should investors think about progression here over the medium term?
No, it's a great question, and I'd say, look, our North Star is we are on a path to profitability, and we don't need to go back or want to go back to the capital markets on that path to profitability. And that's guiding our decisions. Everyone's comped on revenue growth, margin growth, and cash in the bank. And if you think about that as a set of priorities, that's what it was when I came in, and we're gonna stay on that path.
Fantastic. Well, I think that brings us to time. We'll leave it there. Emily, Adam, thank you so much for joining us.