Good day, thank you for standing by. Welcome to the Twist Bio Fiscal 2022 Q4 and Year-end Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you'll need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to turn the call over to your speaker today, Angela Bitting, Senior Vice President of Corporate Affairs and Chief ESG Officer. Please begin.
Thank you, operator. Good morning, everyone. I would like to thank all of you for joining us today for the Twist Bioscience conference call to review our Fiscal 2022 Q4 and Year-end Financial Results and Business Progress. We issued our financial results re-release this morning, which is available at our website at www.twistbioscience.com. With me on today's call are Dr. Emily LeProust, CEO and co-founder of Twist, and Jim Thorburn, CFO of Twist. Emily will begin with a review of our recent progress on Twist businesses. Jim will report on our financial and operational performance. Emily will come back to discuss our upcoming milestones and direction, and then we'll open the call for questions. We would ask that you limit your questions to a maximum of two and then requeue as a courtesy to others on the call. As a reminder, this call is being recorded.
The audio portion will be archived in the investor relations section of our website and will be available for two weeks. During today's presentation, we will make forward-looking statements within the meaning of the U.S. federal securities laws. Forward-looking statements generally relate to future events or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize, and actual results and financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected.
These risks include those set forth in the press release we issued earlier today, as well as those more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on information available to us as of the date hereof, and we disclaim any obligation to update any forward-looking statements except as required by law. With that, I'll now turn the call over to our Chief Executive Officer and Co-founder, Dr. Emily Leproust.
Thank you, Angela, and good morning, everyone. This morning we reported record revenue of $203.6 million for fiscal 2022 and $57.3 million for the Q4. We continue to take market share in both SynBio and NGS by expanding our customer base, delivering differentiated, high-quality products, and anticipating market needs. In addition, our biopharma business continues to sign an increasing number of partnerships with biotechnology and pharmaceutical companies to conduct discovery and optimization projects. Fiscal 2022 has been one of macroeconomic contraction, COVID shutdowns, geopolitical instability, and more. Yet we delivered 64% revenue growth year-over-year, and we grew our customer base to over 3,000.
In the slide deck for this call, we have included a list of some of our customers who have published, conducted webinars, case studies, or app notes using Twist products. You will see that the list is broad and deep and just a small fraction of our total customer base. Our Twist team continues to demonstrate exceptional resilience in the face of challenges. Our silicon platform for DNA synthesis enables us to compete in multiple markets that each experience different market dynamics, hence reducing risk through diversified revenue and customer base. Taking a minute to highlight our technology. For those of you who may not have had the opportunity to visit our fab, we have miniaturized the process of making DNA using traditional DNA synthesis chemistry.
By making DNA using our proprietary silicon chip platform, we have been able to reduce the amount of reagents used by 99.8% compared to a plastic plate platform. These reagents are a material driver of COGS, so leveraging this dramatic reduction enables us to achieve significantly lower COGS than our competition. The way it works on each chip, we make short pieces of DNA called oligonucleotides or oligos. The oligos are built base by base, like stacking Lego blocks on top of one another, and then can go up to 300 bases in length. As a reminder, each base being one of the four building blocks of DNA, A, C, G, or T. This type of oligo synthesis on silicon chips is common for all of our products. We call it the front end, and it is where half of the magic happens.
By magic, I mean where the technological differentiation originates. The vast majority of our sales are custom products, meaning that the sequences of DNA are defined by the customers. However, we have designed our technology such that on each chip, on every chip, we can group orders for many customers and multiple projects. Indeed, the oligos for all of these orders are synthesized in parallel on the chip. Because if each chip can synthesize up to 1 million oligos, we can leverage the silicon platform to achieve differentiated scale. Once we've made the oligos, we extract them from the silicon chip, and they are then sent to the appropriate back-end workflow. This might be in gene production, NGS target enrichment panels, oligo pools, IgG proteins, synthetic controls, and so on.
Each of these back-end processes is unique based on the SKUs and flavor of DNA produced, but typically, operators work 24/7 to run batch processes for multiple orders on commercial automation. Because the front end provides scale, low cost, and quality, the back-end processes are remarkable by how unremarkable they are. The second half of the magic lies in the overall complex, highly automated processes of capturing an order, of designing the oligos, of synthesizing multiple orders from multiple customers on a single chip, of sending them to the correct back-end lab for further processing, quality control, packaging, and shipping. These in-house developed softwares we use to track and direct these complex production processes in an automated manner enable us to rapidly go from order placement to shipping at scale and low cost, which is another true differentiator.
This workflow speed and efficiency continues to provide the foundation for our revenue growth. Specifically, for SynBio, we reported revenue of $80 million for fiscal 2022, an increase of more than 50% year-over-year, and $21.6 million for the Q4. The strength in SynBio came in across the board with genes and Oligo Pools experiencing significant growth. An important point to make is that our products that generate revenue in our SynBio verticals are used by pharmaceutical, biotech, industrial, chemicals, and agricultural companies, as well as academic labs. We shipped approximately 558,000 genes in fiscal 2022, compared to 372,000 genes in fiscal 2021. To support our continued growth, we are ramping our Factory of the Future in Portland, Oregon, with a 24/7 manufacturing team currently training and producing test products today.
Of note, we have about 40 employees from San Francisco that have moved to Portland, bringing with them experience in our manufacturing processes and intricate knowledge of the Twist culture. These employees are now training our new employees. With 177 employees in Portland as of today, we remain on track to begin shipping products out of Portland in January 2023. Initial manufacturing in Portland will focus on genes, Gene Fragments, and Oligo Pools, targeting a turnaround time of approximately 10-12 days for genes, the same as our current average turnaround time for genes in San Francisco. As we ramp production in Portland, we expect to introduce fast genes, which we believe will offer a significantly faster turnaround time, enabling us to tap into the DNA makers market with premium pricing while maintaining our position as the most cost-effective gene synthesis provider.
We expect to introduce Express Genes in the fall of calendar 2023. I'd like to personally invite you to tour our Portland manufacturing facility. On Tuesday, November 29th, we will be arranging tours for investors and analysts who wish to visit. Please contact Angela if you'd like to schedule a tour. Turning to NGS, we continued our strong back half of the year with $29.2 million in revenue for the quarter, bringing our NGS revenue for fiscal 2022 to just shy of $100 million, coming in above our guidance. For the year, NGS revenue grew approximately 37% faster than the market is growing. Orders came in at $28.2 million for the quarter, and we expect fiscal 2023 to again be back half-loaded, similar to 2022.
I'd like to point out that recently, we shifted the incentive structure to our core business sales force. As we built our business, we moved from equal compensation for orders and revenue to one where sales commission is now 90% tied to revenue. Both orders and revenue continue to be important metrics for us to track, but the incentive for our sales team has shifted, and along with it, the significance of order numbers going forward. Of note, for the remainder of the organization, our bonus structure is based on both revenue and gross margin. On the market side, many of you are aware that the sequencing landscape continues to evolve with less expensive whole-genome sequencing options now available, and several new and exciting players introducing solutions for longer read offerings. For Twist, these technical advances offer opportunities. Indeed, we are sequencer-agnostic and an enabler across platforms.
We recently announced an agreement with Illumina whereby we will manufacture and they will sell an exome target enrichment kit. We believe that by leveraging their robust sales force and integrated install base, we will reach a differentiated customer set. In addition, we're working with PacBio on a robust solution for their newly announced sequencers. For exome sequencing today, we offer a complete workflow solution, including target enrichment, library prep, buffers, beads, blockers, adapters, EGI, et cetera. As the cost of sequencing comes down, we expect that over time, some applications and groups will move from exome sequencing to whole genome sequencing. When that happens, meaning when applications like germline sequencing or government-funded initiatives to sequence populations move from exome to whole genome sequencing, we will have an opportunity to continue participating through our library prep offering.
For the very large market opportunities like cancer screening, the dynamic will be different. Indeed, they will still require deep sequencing, and panel and exome sequencing will continue to be the mainstay. For instance, customers pursuing liquid biopsy or minimal residual disease need deep coverage of specific genetic sequences, sometimes 5,000x coverage or more, in order to ensure capture of the disease-driving mutations at low allelic frequency with high sensitivity. For these applications, we expect it to be cost prohibitive to conduct whole genome sequencing, even as the cost of sequencing decreases significantly beyond what we see today.
Additionally, we believe that the reduction in sequencing costs will encourage adoption of liquid biopsy and MRD assays, as overall test costs will decrease and make them increasingly palatable for reimbursement and routine adoption by customers. Of note, in these applications, Twist product pricing is expected to remain constant, even as the cost of sequencing drop. When we introduced our NGS offering in 2018, we anticipated this sequencing price reduction and our product portfolio evolved over time. In fiscal 2021 and 2022, we introduced several new products in the NGS space with the vast majority targeting cancer. We have launched our Methylation Solution, the Human Methyl Panel, cfDNA controls for liquid biopsy test, and a rapid, cost-effective, patient-specific MRD panel targeting up to 500 mutations.
We have added oncology-focused Alliance Panels developed by key opinion leaders at leading institutions like the Broad and Baylor. These products support our effort to enable our customers and dominate the workflow between the sample and the sequencer. Moving forward, we see growth in NGS coming from clinical advancement of liquid biopsy testing, as well as taking market share in research applications. Because there is a long sales cycle for customers to adopt our target enrichment panels as they need to undergo pilot testing, verification, validation, regulatory clearance, and clinical testing before broad-based commercialization. Once we're included in a test that reaches the market, it is very sticky, as they will need to be validated through the regulatory agencies for any changes. Today, we have about 50% market share for target enrichment and library prep. We have a lot of market share to gain.
In addition to escalating volumes for customers who enter the commercial phase, we continue to win pilots, which bodes well for future growth. In Biopharma, we reported $24.2 million in revenue for the fiscal year, tremendous growth over fiscal 2021, and yet still just short of our guidance. Revenue for 2022 Q4 was $6.5 million, almost all of which came in September. Importantly, orders for the Q4 remain strong at $9.4 million, and we fully expect strengthened Biopharma's return in fiscal 2023, given that in the conversations we are having, our positioning as the high-quality low-cost leader resonates with our partners now more than ever. For Twist Biopharma team based in San Francisco, we currently have 59 partners in Biopharma with 83 completed and 50 active programs.
59 of the 133 programs have milestones and royalties associated with the projects. The Twist Boston team had 62 active programs ongoing as of September 30th, 2022. As we look ahead, we expect continued growth across the portfolio as we are moving towards a combined product and service offering together with the Twist Boston team, targeted for launch in the Q2 of 2023. Working together for a little over a year, we have incredible synergies that we believe will enable us to expand our reach and market share in the Biopharma segment. With reference to Revelar, we did not see the outcome we were hoping for. We invested a small amount of capital to take a long shot, did not exceed our original commitment, and shut it down quickly when the opportunity did not materialize.
This illustrates our discipline when it comes to investment decisions. Moving to data storage, we now have 37 employees working on the team, including 31 engineers and scientists. We continue to bring up our proof-of-concept chip, which we expect will enable us to move from writing 1 MB of data to 1 GB of data in a single synthesis run. We are also working to integrate the chip into our prototype electrochemistry DNA writer system. This system will enable us to launch our Century Archive pilot to early access customers. Importantly, the Century Archive is expected to set a new standard for archive data retention longevity.
In late October, we announced the appointment of Patrick Finn to our newly created position of President and COO. Patty has been with the company for eight years, taking greater spans of control as we demonstrated success. We conducted an external search for the position and found that Patty was the right person to lead our next phase of growth and fiscal responsibility. I look forward to partnering with Patty and the executive team to achieve our aggressive objectives. With that, I'd like to turn over the call to Jim to take us through our financials. Jim?
All right. Thank you, Emily. We had another great quarter and terrific year of growth at Twist despite a volatile macroeconomic environment. Revenue for quarter four was $57.3 million, which brings our revenue for fiscal 2022 to $203.6 million, with year-over-year growth of 54%. Orders were $62.1 million for the quarter, which brings orders for the fiscal year to approximately $226 million, and that's an increase from $160 million last fiscal year and 42% growth year-over-year. Gross margin for the quarter was 44.9%, and gross margin for the year was 41%, and that's up from 39% last fiscal year, reflecting improved leverage. We shipped to approximately 3,300 customers, and that's another record for Twist.
We closed the year with cash and investments of approximately $505 million. Our NGS business had another strong year, and revenue was $99.3 million, which is 37% growth year-over-year. Our Q4 revenue is $29.2 million, and that's an increase of 36% year-over-year. This growth reflects the strength of our product portfolio, with the top 10 customers accounting for approximately one-third of our NGS revenue, and we served approximately 1,200 NGS customers in fiscal 2022. Our pipeline for large opportunities continues to scale. We're now tracking 257 accounts, up from 249 noted on our last earnings call. 121 have adopted Twist, an increase from 114 last quarter. Now turning to SynBio, which includes Genes, DNA Preps, IgG, Libraries, and Oligo Pools.
The SynBio revenue for the year rose to $80 million compared to $52.7 million in fiscal 2021, and that's an increase of 52%. Some of the highlights include shipping to approximately 2,300 SynBio customers. This includes a diverse customer base, including biotech and large pharma companies. Genes revenue increased to $61.5 million, and that's up from $39 million. We shipped approximately 558,000 genes in fiscal 2022, a significant increase from 372,000 in the previous fiscal year. Oligo Pools had a strong year with revenue of $12.4 million, up from $8 million in fiscal 2021, with increased demand primarily from the healthcare segment. We continued to scale our antibody discovery business and revenue for fiscal 2022 was $24.2 million, up from $7 million in fiscal 2021.
However, this was below the low end of our range of 26. As Emily noted earlier, orders of $9.4 million were back-end loaded in the quarter and consequently, our quarter four revenue was $6.5 million, which was flat with Q3. For our Twist Biopharma antibody platform, we now have 59 partners, up sequentially from 53, and have 50 active programs, with 83 programs completed and back in the hands of our customers. Of our total programs, 59 include milestone and royalty agreements. Our Abveris, our Twist Boston business, is doing well with 62 customers serviced in the quarter, including 36 projects on the Beacon platform. I'll now quickly cover our regional progress. EMEA revenue rose to $62.1 million in fiscal 2022 versus $44.1 million in fiscal 2021.
APAC continues to deliver robust growth, with revenue increasing to $19 million in fiscal 2022 from $10.3 million in fiscal 2021. The U.S. revenue was $122.5 million in fiscal 2022 versus $77.9 million in fiscal 2021. Now moving down the P&L, our gross margin for the quarter was 44.9%, and this brings our overall gross margin to 41.4% for fiscal 2022. Note the gross margin includes stock-based comp, $4.5 million, depreciation $6.5 million. Our operating expenses for the fiscal year, including R&D and SG&A, change in fair value and mark-to-market adjustments of acquisitions was approximately $319 million, as compared to $204.4 million in fiscal 2021.
To break it down, R&D for the fiscal year was $120 million, an increase from $69 million in fiscal 2021. Core business R&D for fiscal 2022 increased to $56 million compared to $37 million as we continue to invest in new products and process development. Antibody R&D was $25 million in fiscal 2022, up from $15 million, reflecting our continued investment in our antibody discovery business. Revelar spend was $14 million in fiscal 2022. Data storage spend was $25 million up from $15 million in previous year. We had previously given guidance that the original data storage spend would be $40 million. However, as the year unfolded, we managed that spend and managed that burn in data storage.
SG&A for the fiscal year was $212.9 million, an increase from $135.9 million in fiscal 2021, and this includes compensation costs of $136 million, which includes stock-based comp of $55 million. Startup costs in SG&A for Portland were $16 million in fiscal 2022, including approximately $6 million in compensation costs. Change in fair value of contingent considerations and indemnity holdbacks for the fiscal year resulted in a gain of $14 million versus a gain of $0.5 million in fiscal 2021. Stock-based compensation for the year was approximately $18 million as compared to $37 million in fiscal 2021. Our net loss before taxes was $234.8 million for fiscal 2022 as compared to $152.7 million for fiscal 2021, primarily due to higher OpEx costs we highlighted earlier.
CapEx for the fiscal year was $102 million. Portland CapEx for fiscal 2021 and fiscal 2022, cumulative, is a total now of $87 million, which includes $46 million for tenant improvements, $34 million for lab equipment, and $7 million for capitalized software. We exited the fiscal year with $39 million in inventory and cash and investments of approximately $505 million as of September 30th, 2022. I'd like to note that we report in conformance with accounting standards established under U.S. GAAP, and there have been no material adjustments proposed by our independent auditors. I'll now provide guidance for fiscal 2023. We enjoyed strong bookings in quarter four and another record year of growth.
However, due to the macroeconomic environment, and as more SARS-CoV-2 variants continue to emerge, along with seasonal vacations this quarter, we're projecting our Q1 revenue to be approximately $54 million. Our fiscal 2023 guidance for the year is in the range of $261 million-$269 million. We estimate Q1 SynBio revenue to be approximately $21 million and for the year to be $104 million-$106 million. We estimate Q1 NGS to be approximately $25 and for the year, $120 million-$123 million. Note NGS is down sequentially.
The reason is a couple of our large customers are taking shipments in the Q1 due to a seasonal impact of vacations. We estimate antibody discovery revenue for the Q1 will be approximately $8 million and for the year, $37 million-$40 million. Our fiscal 2023 gross margin is projected to be 39%-40% and our operating expense is projected to be approximately $365 million for the year, which includes $138 million R&D and $227 million SG&A. Our net loss guidance before taxes for the year is expected to be approximately $260 million, which includes stock-based comp of approximately $83 million, depreciation and amortization approximately $26 million, and data storage expense approximately $46 million.
CapEx fiscal 2023 is projected to be approximately $50 million with another $20 million expected to be deployed in Wilsonville. Cash balance projected year end of fiscal 2023 is expected to be $300 million. For fiscal 2024, we're projecting revenue to be approximately $350 million, and that includes $50 million for antibody discovery. Gross margin of approximately 49%, OpEx to be approximately $386 million, operating loss to be approximately $215 million, which includes stock-based comp of approximately $90 million, depreciation and amortization of approximately $35 million, and data storage OpEx of approximately $57 million. CapEx, we're anticipating to be $40 million and the year-end cash balance at the end of 2024 is projected to be $170 million.
In summary, we had a record year and continued to build our capabilities, expanding our position as a provider of choice of high-quality, affordable synthetic DNA to our customers across multiple industries. We're now a leading supplier of NGS sample prep, and we have scaled our antibody discovery capabilities and continued to deliver on our DNA data storage strategy. Although there is macroeconomic volatility, we're excited about the opportunities ahead and are focused on executing on the financial projections outlined in today's call. With that, I'll turn the call back to Emily.
Thank you, Jim. As fiscal 2023 is now well underway, our focus remains on driving towards profitability in our core business. We've laid out the three-year guidance with a path to Adjusted EBITDA and breakeven for the core business, and we are targeting $80 million revenue to reach Adjusted EBITDA breakeven for Biopharma. In SynBio, we expect to generate initial revenue out of the Factory of the Future outside of Portland, Oregon in January 2023. As we qualify our production processes in this new facility, we'll begin to add new products for SynBio that benefits from the larger square footage of the site, including Express Genes, long fragment, impossible genes, and R&D based products. For NGS, we expect another of high-throughput deal with larger customer producing liquid biopsy tests as they continue to run their commercial results.
With sequencing costs coming down, we remain focused on expanding our reach in cancer and owning the workflow between the sample and the sequencer. In Biopharma, we are planning an integrated portfolio of antibody discovery and optimization offerings, capitalizing on efficiencies between our synthetic library approach paired with in vivo discovery from our Boston team, both complemented by our machine learning and AI collaborations. In data storage, we have our first fully integrated seamless chip with A to Z controls in-house and are making good progress to bring you the chip and our new pilot production DNA data storage writer. We plan to launch our Century Archive solution as an early access offering in late calendar 2023.
In parallel, we will continue to partner with leaders to set the stage for commercial success across the Century and accessible archive solutions while preparing the market for DNA data storage. Overall, I'm reminded of a speech I gave when we went public a little over four years ago. At Twist, it hasn't always been easy. In fact, it has never been easy. We always persevere to overcome the challenges we face. We have embodied resilience and financial discipline throughout the organization to report another strong year of growth. Each day, we have the opportunity to go again. I can't wait. With that, let's open up the call for questions. Operator?
Thank you. As a reminder, to ask a question, you'll need to press star one one on your telephone. Please wait for your name to be announced. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question comes from Steven Mah with Cowen. Your line is now open.
Oh, great. Can you guys hear me?
Yes.
Yes.
Okay, great. Great. Thanks for taking the questions. A question on the gross margins. I know they're dropping in fiscal year 2023 as Factory of the Future scales and then, Jim, you mentioned it grows to 49% in fiscal year 2024. Would you expect the utilization percentage of the Factory of the Future in fiscal year 2024 to achieve that 49% gross margin guide? Are you reiterating the 50%-52% gross margins at $300 million in core revenues?
Yeah. So, um, in terms of Factor of the Future utilization, we're- we haven't disclosed, uh, what the utilization rate looks like. Um, the 49% , uh, gross margin reflects, uh, the, um, growth in, uh, top line revenue and does reflect improved utilization. And in terms of as we continue to scale the business, uh, we're still- we still see line of sight in terms of achieving the longer term, uh, gross margin of 55%-60% for the business.
Okay, great. Thanks for that. My second question on MRD, Emily, you noted that, you know, the business is doing well. People are validating, you know, the MRD assays. Did you mean that the users are validating your product for lab-developed tests? Second part of that is, could you give us a sense of your mix of your MRD customers? Are these reference labs, academic hospitals or basic R&D? Thank you.
Yes, yeah, that's a great question. Thank you, Steve. As a reminder, we provide the reagents to enable customers to run MRD tests. We're not sending out own MRD test, just to be clear. Therefore, the majority of our liquid biopsy and MRD customers are diagnostic companies that are developing and validating their own test.
Okay. That's helpful. I'll hop back into the queue.
Thank you. One moment for our next question. Our next question comes from Catherine Schulte with R.W. Baird. Your line is open.
Hi. Thanks for the questions. I guess first, maybe the step down in NGS orders sequentially. Can you just talk to the drivers there that were going on?
Yeah, I think a couple of issues. We had some large orders come in the previous quarter. As we noted in the call, a couple of our customers are actually asking us to ship in the Q1 of calendar year. That's just step down and orders is just a one-time event as these customers are pushing their orders out into Q1. We get very strong backlog in terms of the number of customers. Our pipeline continues to grow. We're feeling good about where we're at. We're just dealing with, I think, the year-end vacations. We see some impact of lockdown in China. At the same time, our customers are signaling strong outlook for us on our NGS products. We anticipate that, you know, the quarter one fiscal next year is gonna be strong.
Okay. Got it. I think probably, you know, given the events of this week, you highlighted that no material adjustments have been proposed by your auditors.
Yeah.
You've had a material weakness that's been highlighted in your filings for a while now. Can you just talk to how those remediation efforts are progressing and any other comments you can make regarding the short report from earlier this week?
Yeah. Thanks, Catherine. We've actually had three material weaknesses, one on order entry, other in journal entries, and other in ITGCs. We've remediated the order entry weakness. We've remediated the journal entry weakness on ITGCs. The ITGC issue that remains, and that's purely due to user access issues. There's no impact on our financials. In terms of the short report, you know, a couple of things that brought up in the short report. You know, we in the business, I mean, we worked with both PwC and Ernst & Young. PwC is a great firm. We moved to Ernst & Young because if you look at our business, we've significantly grown our healthcare business. Ernst & Young has a strong healthcare practice.
We collaborate well with our auditors and as highlights, we get no material weaknesses. In terms of some of the personal references against me, I actually helped out in an organization, you know, with 230,000 ladies in prison in this country, helped build careers, helped they get trained, they get development, and a lot of them moved on to be executives in companies. I think it's a great social impact. I had actually no share ownership. I was offered shares, but I declined that. I would have preferred to the ladies of the charity. The statements in the report are totally wrong.
Catherine, just so you know, we won't comment further on the short report. We're very happy to take questions on the business, but our statement on Monday's and the great transparency that we strive to always provide as a management team speaks for itself.
All right. Thank you.
Thank you. One moment for our next question. Our next question comes from Matthew Sykes with Goldman Sachs. Your line is now open.
Hi. Good morning. Thanks for taking my question. Emily, maybe the first one for you, just on the gene maker market, as it relates to Factory of the Future capacity. I know you've mentioned in the past it's like a $1.4 billion market, and what a characteristic that's important to them is turnaround time. Could you maybe just talk a little bit more about the improvement in turnaround time that Factory of the Future will bring?
Just kind of talk a little bit more about, 'cause I think originally you thought that price was gonna be a defining factor for that market, but it's really turnaround time. Could you just talk about what that market is really looking for? I'm sure it's turnaround time, but in addition, what else and how you can unlock that market to solve for the capacity that you're building with Factory of the Future to make sure that there's a significant enough market out there for what you're building?
Yeah, no, to answer your question, Matt, now that we've been, you know, in the marketplace for a number of years, we've shipped more than half a million individual tubes and in this year alone. We have a really good grasp of what customers want. What we see in the makers market is the two groups. There's the big companies that insource the work as well as academic labs that postdocs and grad students that need DNA. What we find from those groups is speed is very important for them.
Even if the DNA was free, they would not get it from us at the speed that we have now, which is industry average. That's why we made an effort to lay a plan to offer them genes synthesis that is the same or faster than if they did it themselves. The reason why we can do that is when we analyze the process that we use in San Francisco, the 20-step backend process of gene synthesis, it is not a linear production process today. It's 20 steps, but we have 10 machines. Basically, the same order has to go to a machine twice and that creates conflict. When we analyze the data, everything is logged in our databases.
We found that DNA is spending half of its time in freezers waiting for the next machine to be available. We know that intrinsically, the size of the process can be half as fast if we can remove those production bottlenecks where the plate is waiting for the next machine. That's what we've done in Portland. In the Portland facility, we now have 20 machines such that it's a true linear production chain. The plates go into one machine, and when it's finished, it goes directly to the next one, and there's no wait time. That's why we feel it's a low risk on the process side because we're not changing any chemistry, we're not changing any instrument.
It's the same process. It just, there's no wait times between steps. The combination of that market understanding with the different layout of the backend production in Portland will enable us to offer Express Genes and that will unlock the makers market. There's also, in addition, a commercialization strategy to leverage e-commerce and digital marketing. We've been making great effort on our e-commerce in our B2B solutions to make sure that when we have Express Genes, the transactability that the customer has to go through to work with us is intuitive, frictionless, and beautiful.
Got it. Thanks, Emily. Jim, one for you. Just looking at the fiscal 2024 guidance on the OpEx of $386, I know that there's $57 million of that is DNA storage. Could you talk a little bit about your expectations for R&D versus SG&A split within that $386 million and where the flexibility is within those two segments, the SG&A versus R&D, for that $386 million to maybe come down a little bit as you start moving closer to that time period?
Yeah. In terms of the $386 million, we haven't broken out the R&D portion. The flexibility we see is in terms of SG&A as we tend to continue to grow and leverage our investment in infrastructure. You know, we've been fairly, as you can see, slowed down the rate of growth of OpEx. We've been investing heavily over the last few years, building out our organization infrastructure. As we continue to scale the top line, we've highlighted in previous calls that OpEx will grow at a slower rate than top line growth.
As we continue to manage our data storage investment, continue to manage our SG&A, in particular our back-end office infrastructure, we'll continue to manage that cost base going forward, which will then support us getting to Adjusted EBITDA break-even and getting to positive income. We're very close to that end of 2024. As you can see, we've got plenty of cash runway as we get to close to that Adjusted EBITDA break-even, and we have the opportunity to manage our data storage spend.
Got it. Thank you.
Thanks.
Thank you. One moment for our next question. Our next question comes from Luke Sergott with Barclays. Your line is open.
Great. Good morning, everybody. One cleanup here. Can you give us the FX assumption for next year and kinda give us a sense of how that trended throughout this year as well?
Yeah. Luke, it's Jim. Good morning. In terms of FX, most of our business is actually in dollars and most of our costs are actually in dollars. Although there's a maybe 10% impact, it's not has a huge impact on our business so far. In terms of the pricing on a go-forward basis, we're actually with a lot of our NGS, particularly some of our larger customers who already locked in the prices. In terms of FX, yes, we'll receive some impact around the fringes, but it's not a significant headwind for us.
All right, cool. Thank you. That's fine. Excuse me, on the rest of the business, you talked about the NGS pushouts. What are customers saying on why they push those orders out to 1Q? Is this related anything to all the new technologies out there?
It's not aware of new technologies. It's just in terms of timing. The couple of customers that I'm aware of, it's just a matter of timing. If I was picking in December, it's gonna be shipped in January. That's based on their end customer demand. I haven't heard anything on the technology side. Emily, you have any?
Yeah. No, no. I think it's pure timing of their business. Slow, you know, we have experience and the last weeks of December are always awkward in shipping. This year is especially awkward. We think that most of our customers will be shut down the last week of December. We're planning for that.
One last one for me is, you know, you gave the 2024 guide and, you know, the growth assumption here of roughly flat growth and by, you know, 30% is very impressive in itself. Just wondering why, you know, what's the assumption here, no acceleration from Factory of the Future coming online? Is it something like that the growth is really satisfying the printers coming online, and then you guys are gonna bring more on 2024 as you continue to scale the business? Any of the mix dynamics as it goes to SynBio or NGS as the Factory of the Future ramps, because there's a margin implication here?
Yeah. In terms of Factory of the Future ramp, yeah, we're seeing roughly, I mean, it's early days yet, we're seeing roughly 50/50% in terms of the SynBio NGS mix. In terms of outlook, you know, the macroeconomic environment is still volatile, so we're projecting out a couple of years here. We're always prudent in terms of forecasting. In terms of capacity, you know, we've made the investment. You know, I think in terms of overall, in terms of Factory of the Future, we've made what's about $87 million investment. We've got about another $20 million to go. That's consistent with the previous guidance we've given, and that's gonna be ample capacity to support us getting to at least 350 and beyond. We don't see any headwinds from a capacity point of view. It's all down to, as Emily's highlighted, execution and then executing on the makers market.
Great. Thanks.
Okay.
Thank you. One moment for our next question. Our next question comes from Vijay Kumar with Evercore ISI. Your line is now open.
Hey, guys. Thanks for taking my question. Jim, I had one on accounting here. I think one of the points raised by the short report was COGS being classified as CapEx. Can you comment on that? You know, when I looked at the last, you know, the Q3 10-Q, some of the costs, the operating lease costs associated with Factory of the Future went into OpEx. Is that a change from how expenses were being recorded in the past or is this because you moved into a lease facility and it's just how the accounting works? Maybe address those two issues.
In terms of COGS being moved in onto the balance sheet, you know, that's an interesting observation. I have no idea where that comes from. If you look at the investment in CapEx we laid out on one of the slides today for Portland, we've invested about $4 million-$6 million in tenant improvements. We took over essentially building that needs this 100,000 sq ft tenant improvement. You know, if anybody's interested, I can show you the invoices. It's all building out the structure for the labs, installing all the offices, all the piping, et cetera. The items that are associated with the investment in Portland are sitting on our balance sheet. What was the other part of your question, Vijay?
The operating expense, some of the lease expenses related to Factory of the Future that's going under OpEx. Is that a change versus prior?
Yeah. No. The lease expense related to the Factory of the Future is part of startup, and that prior to factory qualification, that is sitting in SG&A, and that was $16 million for this year. We call that out every quarter. There's been no change in how we account for that.
Thank you. Maybe one on this gross margin, you know, cadence here. You know, what's the confidence here that the gross margins are going up by 900 basis points from fiscal 2023-2024? That seems like a very steep ramp, Jim.
Mm.
When I look at Q1, is there any first half versus second half cadence issues here on gross margins when I look at fiscal 2023?
If you look at last quarter, gross margin is 45%. As we scale through the Factory of the Future and improve our utilization and we are successful in terms of growing in the makers market, we got a number of levers there. You get the impact of reducing underutilized capacity. Second is in terms of the makers market, as Emily's highlighted, the faster genes, we get higher price, so we get good leverage there. In terms of investments, you know, in terms of R&D, you know, if you look at our R&D, that was another point made in the short report that, you know, our R&D increased from $70 million- $120 million.
Well, we increased the investment in SynBio NGS from $57 million- $56 million. Put a slide in this just to give transparency. I mean, we hired additional scientists, we're increasing our investment in NGS and SynBio. What does that mean? We keep refining our processes and keep launching new products. You're gonna have a combination of scaling the Factory of the Future, seeing growth in revenue, improving our position in the makers market in terms of growth in makers market and launching new products. All those elements contribute to improving our gross margin.
Just while I'm on the comment, you know, the overall R&D increased from roughly $70 million in 2021 to $120 million. You know, DNA storage was up by $9 million. Revelar, this is a one-time event. We spent $14 million in Revelar R&D in 2022. That will not happen in 2023. In terms of antibodies, we've stepped up our investment in antibodies, so we'll actually see growth in biopharma business as well, and that contributes to our gross margin improvement.
Understood. If I may, one last one. Revenues are up. I think when I look at the 2024 guide versus 2023, the initial expectations of revenue is up 30%. The OpEx up, I think, 6%. I think a cash OpEx ex SBC is low singles. Is that level of SG&A spend, R&D spend, is that enough to sustain the growth here?
Yeah. I mean, we've, if you look back over the last couple of years, we have increased, back to my point there in terms of R&D in, for SynBio and NGS. We upped our spend from $37 million in R&D, SynBio and NGS in 2021 to $56 million. What's that? About 50% growth. The advantage of the Factory of the Future is fast turnaround time, or and Express Genes, which allows us access to the makers market. It's a combination of historical investment and the impact of the Factory of the Future and our investment in antibodies that allows us to deliver the growth that we're projecting.
Understood. Thanks, guys.
Yes.
Thank you. One moment for our next question. Our next question comes from Puneet Souda with SVB Securities. Your line is open.
Yeah. Hi, guys. Thanks for taking the question. First one, what are you hearing from European customers in terms of the order book and wondering if there was any NGS order book impact from that? Could you just elaborate just given the market conditions in Europe? We've been getting questions on that.
In terms of order book, you know, the Q3, Q4, the sequential step down. However, what we're hearing from our customers, it's kind of selective. The outlook looks good. Some orders are being just a little bit pushed out from Q4 into Q1. The conversations on liquid biopsy are good. Conversations with MRD are good. Europe, we actually had a strong quarter in Europe, which kind of surprised us. September we anticipated that, you know, Europe would have been a little bit weaker.
You know, September was strong and we're encouraged by what we're hearing. On the China side, we have seen a little bit of impact of lockdowns that will impact us sequentially from Q4 to Q1. Talking about our fiscal Q4, so September to December quarter, we'll see China, Asia being down, but that's impact of lockdowns in China. Overall, the feedback from customer base is strong. Why is that? It's because of the quality of the product. We are the low-cost quality provider and this environment suits us.
Okay. That's helpful. Emily, if I could ask on, you know, the liquid biopsy customers, I don't know if you provided that number. I think you had about 20 or so liquid biopsy customers in past. You know, just given all the questions lately being asked, could you quantify how large of a book of business is liquid biopsy today? You know, are these early validation versus any commercial products where your probes are being utilized? What are your expectations for contribution in 2023 from these liquid biopsy customers? Because that's obviously an important driver, even with the NovaSeq X Plus launch, which is targeted more towards, you know, whole genome shift.
Yeah, maybe I'll start and Jim can fill in. Yeah, we actually are starting to see revenue from customers that are likely in the commercial phase. You know, we see probes, it's not always easy to know how they are used with customers if it's in validation or pilot. In the past, most of our revenue was for the R&D, the development of a test. As we find bigger contracts and get bigger orders, now we're starting to see slow orders in the commercialization phase.
Okay.
Jim, I don't know if there is more we can say about that.
No, there's not more I can really add. Puneet, you know, our, you know, larger accounts continue to grow. We feel well positioned with liquid biopsy and the other applications. You know, we discussed some of the feedback from customers. Some of it's timing. We'll continue to make inroads in the market. You know, it's all about execution over the next year.
Okay.
Commercial organization. We got great products.
Mm-hmm. Anything you can elaborate in terms of sort of how should we think about in your guide for 2023, 2024? Obviously, by 2024, these would be a larger customer. Just wondering in terms of overall contribution that we could see from liquid biopsy.
No, we don't break that out. The reason for that is we have agreements with our customers. The only customer I think that's gone public is Grail.
Yeah. Okay.
I think the one thing we can comment what we shared before is liquid biopsy is a big strategy, a big part of our strategy for revenue growth. That's why we have good confidence in our abilities to deliver this as they go commercial.
Okay. That's helpful. You know, if I could ask a more broader question, just given the sort of the questions that have been asked lately in terms of pricing, what is your philosophy here in terms of pricing versus the market? Obviously you've been competitive in past and as you scale into Factory of the Future, could you sort of elaborate about your pricing expectations? Because I think the question is, this is a higher inflationary environment and you are getting some benefits from the COGS at the Factory of the Future. Just could you elaborate a little bit on how are you thinking about pricing in 2023 and within the guide that you have laid out? Thank you.
Yes. Yeah, actually, inflationary environment can be a little bit useful for us actually in production. Because since we use so much less reagents than everybody else, if the reagents go up, you know, 5%, 10%, 20% in prices, the impact to us is a lot less significant than on the competition. Also we're quite smart. I think when we signed the lease in Portland, it's a very long-term lease, and where we basically cap the rate of increase on the rent for a long time. Basically, we have rent at lower than inflation. That's another great benefit to us. That's on the cost side.
On the price side, our assays are value-priced. When we launch our Express Genes, you know, we expect that the ASP for Express Genes is going to be higher. However, it will be the exact same, you know, production facilities. Therefore, we anticipate that margins will increase. Similarly, when we've launched the IgG product line, that is a great opportunity for us. IgG require two genes to make one IgG, and the ASP is somewhere between $500-$800, depending on the flavors of IgG that customers want. Again, that's an opportunity for us to boost our margins. We're always looking for opportunities.
As we go up the value chain, either in Fast Gene or Long Gene or Impossible Genes, so IgG RNA product, we can see that those are more differentiated, harder to make products. They still all help us dominate because of the silicon chip. They come from the silicon chip. Because they are harder and higher value product, we'll be able to charge a premium for it and improve our margins.
Got it. Okay. Thanks, guys.
Thank you. One moment for our next question. Our next question comes from Rachel Vatnsdal with JPMorgan Chase. Your line is open.
Hi, thanks for taking the questions and fitting me in. First up on DNA data storage, you mentioned that you're launching that offering for early access customers late next calendar year. Can you just talk about how much of a contributor you expect that DNA data storage offering towards the $350 million revenue guide in fiscal year 2024? Can you remind us what is the gross margin profile for that DNA data storage offering expected to be? Thanks.
We don't break out the data storage revenue contribution in the $350. Long-term gross margins for data storage could be quite compelling. Initial models indicate anything from 60%-65% gross margins. Why is that? One is because of the technology. We do have a leading position in the marketplace, and your expectation is we're gonna leverage our investment under IP, and that will be reflected in our gross margins. What was the other part?
Great. As a follow-up.
Okay. Sorry, Rachel.
Yeah, you answered both of them. Just as a follow-up on that, you had previously mentioned that you were developing the enzymatic approach to support a full commercial launch for that DNA data storage. Can you just give us the latest update on your enzymatic offering? What milestones do you have left before you can have that enterprise chip fully developed? Thanks.
Yeah. Thank you. It's a great question. We're not giving an update at this point on enzymatic synthesis except to say that we are incorporating the chip, the SIM card chip that we have, with the enzymatic synthesis to help drive our DNA data storage process. We are reemphasizing that enzymatic synthesis is going to be a key strategy of our data storage product offering. We are not giving any technical update at this point.
However, what we are looking for is developing the process and to be able to add bases, to do it at high quality, to do it at high speed, and most importantly is to do it at low COGS. Jim just mentioned our margin profile. It cannot be done with standard enzymatic synthesis where the NTPs is not tethered to the enzyme. The only way to get low COGS and high margin is to tether that NTP to the enzyme. We think our approach is a winning approach. We'll pick the most appropriate time for us to get the biggest bang for our buck in terms of releasing technical details. We like what's happening and we like our progress, but we'll reserve details for another day.
That sounds great. That's it for me. Thank you.
Thank you.
Thank you. One moment for our next question. Our next question comes from Matt Larew with William Blair, your line is now open.
Hi, thank you. This is actually Madeline Mollman on for Matt Larew. One quick one from us. Within biopharma, you've talked about it taking between 18 and 24 months for partners to go from working with you to filing an IND application. Since you've now been doing this program for over two years, could you talk a little about when you are expecting to start to see some downstream milestones and royalties?
Yes. Thank you so much. Actually, we have a robust effort internally to track the progress of those assets. We have our own model on our view of the value. At this point, we're not quite ready to announce any of those milestones or royalty, but as we've said in the past, those would be upside to our plan. Stay tuned. It's definitely something that we track with our partners because we definitely are looking forward to both the monetization as well as the scientific validation. One last point I'll make. That being said, again, we are not in the business of subsidizing our partners. As a reminder, we do make about 50%-60% gross margin on the upfront fee that we charge. The milestones related we get will be upside and additional monetization on top of the gross margin that we made on the work that we did.
Great. Thank you.
Thank you. Thank you for your questions. At this time, I'd like to hand the conference back over to Emily Leproust for closing comments.
Thank you very much for joining us today. I'd like to wish you all a wonderful Thanksgiving holiday next week, and hopefully we'll see some of you live in Portland following the holidays and others virtually at the Evercore Healthcare Conference in December. With that, thank you very much.
This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.