Good morning, everybody. Luke Sergott for Barclays at Covered Life Science Tools and Diagnostics. Up with me, I have Adam Laponis, CFO, and Patrick Finn, the kind of Swiss Army knife at Twist, I'd say, but officially Chief Operating Officer. It's a pleasure to have you guys up here. It's a little change of pace. I'd love to kick off and talk about just a recent announcement, new product you guys offered, and then it's a good segue also into getting the NIH. You launched Express Genes for the academic market. Talk a little bit about that and the strategy that you guys see.
Thanks, Luke. Great to be here. It's the Express Genes for academics. We announced this week that we are offering for a limited-time basis Express Genes at zero premium. Really, when we look at what's going on in the marketplace today, we see an opportunity to go on the offensive, really around how do we help meet the needs of customers, and how do we do it in a way that allows us to give them more shots on goal and take some share. If you look at the markets we've played into the last three-ish years, where biotechs had some significant funding challenges, we've been able to hire quality, faster speed, and better service really drive share gains in that space in a challenged funding environment.
We know we are underpenetrated in academia, and although we have seen stability in the months since the election in that segment, we do think there's an opportunity to accelerate our share gains given some of the turbulence around funding.
Yeah. I guess on the academic, you just mentioned that you guys were under-indexed to that market. Talk about why that is and kind of where your focus has been, and now trying to get into the market, obviously with the noises that are going on with the NIH and the cuts there, what you guys have been seeing from orders and labs and early uptake with your existing customers before the Express Genes.
Yeah. No, sure. If you look at the customer base we serve, there are many companies out there that have over hundreds of thousand customers. We have a few thousand. We knew early on that we wanted to go after where the biggest opportunities lie, and that was with some of the larger accounts in pharma and other areas. Now that long tail of academia, we have really honed our digital presence. We have got a great sales team, and we have got the right product now with the speed of Express that can really meet the needs of that long tail. We think we are ripe to take share. We have seen since the launch of Express a year ago, every time we run a promotion on Express, we have seen an increase in take rate and an increase in adoption.
We think there's a winning proposition here to really go after that market in a time when they need our help.
That's right. Just to underline what Adam said, the power of speed, the Express Portfolio really does allow us to push more aggressively into that market, partnering that with digital spend, then also the tools to make it easier to transact with us, B2B type interaction, integrating well with procurement systems just strengthens our channel and makes that customer experience a little bit stronger. We do see opportunities for great improvement. If you look at spend constraints, our value proposition is really straightforward. It's more shots on goal for dollars spent. The second thing is if this truly does ripple through to a point where there's essentially fewer PhD students, less postdocs, then our value actually becomes even stronger in that, well, friends don't let friends clone, and so therefore we're going to be able to pick up a great deal more work for that segment.
To be continued.
All right. I guess on the, your exposure to NIH is small, too, directly, but the overall exposure is going to be much higher. Talk about global exposure versus just US, and then what you've been seeing there from early on within those customers.
As you can imagine, we watch this pretty closely. About 19% of our business globally is in academia, but a little less than half of that's in the US. The NIH, so I'll call it just 9% or 10%. The NIH itself, the direct spending, what we can see and tease out is about 2% of the global business. We have been watching those order trends pretty closely, and we haven't seen any disruption in the order trends since the change of administrations.
Within that customer class, when you think about where you have a bigger presence, I mean, the time to customer, the length, the accuracy, I mean, that would feel like that you would be more exposed to a big genome center or somebody that needs the probes or the genes a lot faster. Talk about, could you segment out that US exposure by particular customers or application type?
That's a good question. It's pretty broad. I think the unique element of Twist is we serve thousands of customers. Particularly in the academic space, it's a long tail of folks in labs across the world. It's a lot different than the major genomic centers where they might be buying hundreds of thousands of dollars a box versus a single lab buying a $100 or $200 gene. There is a dynamic here. I think we're different in the sense of we're not selling major capital equipment, and we're not plugging a box into a wall and doing a big procurement contract. This is something that is the standard reagents you're using in your everyday lab use. We think there's a dynamic difference, but we do see a variety across academia of who's using our products. It spans the gamut, I'd say.
Okay. From when you launched the Express Portfolio, I mean, you have not just Express Genes anymore, but you launched that, and that was always going to be targeted towards the more industrialized user, right? I mean, just from what it offers from a needs perspective. The thing was that, okay, once you penetrate that market, you'll start going to academia. Do you just view this opportunity to get in with just Express Genes as just like, hey, we'll strike when everybody's on their back foot and go after them and continue that commercial violence that you guys talk about? Or is this like you started to penetrate that industrial market a lot faster than you were expecting? Kind of.
I think the surprise, we had a core hypothesis when we launched the Express product offering, thinking the industrial segment or the healthcare segment would receive it more welcome or be more welcoming to it than the academic segment. What we found was it's across all segments, which is actually very, very interesting. Obviously the time it can take a student to do their own cloning experiment, if we're too slow, we don't solve the problem. Now that we're down at sort of four to seven days at scale, that fits quite beautifully. Of course, in the enterprise selling, more terms per year is just good for business. That has been very well received just for existing customers.
Again, with our speed at scale, which none of our competition has, we are definitely starting to see that be more broadly adopted, particularly in the healthcare segment. What it also allows us to do is then move along the value chain a little bit and essentially have wallet share. It is not just about the gene, as you were saying. We can then move downstream into prepped product. For those in the antibody space, we can be producing IgGs and doing characterization work. The value, as we walk along, goes from essentially like $100 worth of DNA all the way through to high hundreds of dollars, depending upon where we leap off. It is a very, very enabling platform. Just from a competitor standpoint, I do not really think about ever being on the back foot. Twist is not built for being on the back foot.
We are built for offense. That really does allow us to push into markets where we are in customer segments where we are underserved right now or underserving right now.
Yeah. I know we've been hammered on the academic government side a lot on the SynBio, but when you look at your NGS tools and how that's kind of you guys are looking for close to 24% growth at the midpoint within that business and one or your 2Q. Think about, walk us through what you're seeing from the NGS side, whereas the SynBio side, you're not going to see as much pressure. The thinking is as you're selling into these larger genomics-oriented centers and there's CapEx spending or there's projects being wound down, your NGS tools piece would take a bigger hit.
Yeah. I mean, we're continuing to be very bullish on the NGS product offering. We have some customers at various different cycles of essentially commercialization on the platforms, but we're seeing growth at our mature customers who've fully adopted and are now commercializing product on the back of the technology. Our value proposition resonates more than ever. What the technology and why we win in the sequencing space is our price point for target enrichment remains the same as everybody else. We save you sequencing costs through more effective and efficient enrichment. That value proposition resonates across the board. We will continue to drive that out into the market with the platform being easy to adopt, and it scales quite beautifully as our customers get stronger and bigger and come to market. The second part that we're seeing, we massively underserved the front end of the sequencer.
Expanding out the menu of products we've got up front of the sequencer means, again, we've got a serviceable opportunity that just continues to increase. Things like an RNA-seq product offering that's starting to get some traction in the market. We're obviously very excited about what's coming in the MRD space where we've got tremendous value to bring to the customer base there. We've just launched a beautiful new product called Flex Prep for high throughput sample preparation. It's an incredibly straightforward workflow that we think we'll see ultimately the beginnings of the end of the microarray as that starts to transition towards sequencing. We like what's happening. Menu expansion, more workflows, and leveraging our core strength from enrichment.
Can you walk through your kind of customer base as how that looks versus the regular company or the overall company from the different markets? I'd love to understand better from a liquid biopsy perspective. You guys just mentioned MRD, right? I mean, this is the whole idea of these guys are focused on driving down costs. Why not every one of them should be using your enrichment kit on the front end?
You just send them like Emily Leproust. Yeah, yeah, agreed. Yeah. We've seen some very, very good examples. Again, saving sequencing costs. We have seen companies that partner with us do well. We've seen some examples in a rare and inherited disease where company share prices have exploded from sub-penny and gone up 100X and so on when you use a Twist platform. We've seen those that haven't used the Twist platform kind of go out of business. We think that really helping our partners drive margin into their business and, quite frankly, supporting their financial viability is part of the magic. We agree that it is a very, very enabling platform. It's quick to design your panel. It scales quite beautifully. As you go through research, discovery, verification, validation, then ultimately your commercial scale-up, we're there to stand behind you.
From a, is there a tissue naive versus tissue informed? Is there a particular area where you guys think that you have a better edge?
Great question. Across the board, we're really excited about what we bring to the customer base. If there's a whole genome or skim-seq type play, we have a new library construction kit that's underpinned by our own proprietary ligase. Super efficient, leaves no molecule behind, which we think in a diagnostic setting is very important. If you go to a situation where it's a fixed panel, like an exome- type scale panel for your MRD experiment, I think our reputation is well known and the economics are clear for our partners. If you go to tumor-in formed bespoke panels, we believe we have a best-in-class offering. Nobody else can do what we do with the speed and the quality and the economics we provide to deliver on bespoke panels. We don't play in the current market leaders. I mean, PCR-based methodologies is not us.
When you look at the emerging or the emergent companies that are looking to come in and disrupt and play in the market, we think they'll do well on the Twist platform.
Sounds good. As you think about outside of MRD and the other liquid biopsy applications, I assume that you also have products and you guys are scaling up with those customers as well. As you think about the NGS tools business growth going forward, still targeting around 20%, I think 23% for the quarter, but scaling up into 20%. As that continues to build, should we think about this as kind of being the jump-off point or as we think about getting out in the couple out years?
Yeah. I think we look at the great question. I think the fundamental strategy at Twist is we aren't just looking at the next quarter. We're looking pretty far down the line. When the company IPO'd many years ago, our NGS business was a couple million dollars. We're talking about liquid biopsy. Some of those bets we knew were going to pay off. It was just a matter of helping the customers through their R&D, clinical, and now commercial adoption phases. We see that same type of opportunity in MRD. I think Patty hit on some of the microarray conversion opportunity. There's a number of things we see coming down the pike as it relates to the long-term growth opportunity. I think the core tenet is we don't want to do anything to slow down the growth.
We want to make sure that we're investing not just for the current quarter, but we're investing for the long term as well. As a team, I think we've done it. As the relatively new member of the team, it's been amazing to watch how much of the thinking is not just a quarter or two out, but it's a year or two or three out. We're putting bets in play that we think will play out for a number of years. I expect good things to come.
Yeah. All right. That's a good segue. Let's talk about, I mean, when these guys IPO, the pushback was all this will never be a profitable business. So you had a really strong step up in the margin on the quarter. Feeling is that you pulled forward a lot of what you had available for the year. You guys even said on the call that shouldn't expect the 250 basis point or whatever it was sequentially step up there every quarter. Talk about what you guys have left for the year to leverage the pool. You're just a very dynamic environment, obviously, right? You're starting to offer some discount on Express Genes and academia. So there'll be some obvious ahead of it. Just walk us through what you guys are seeing.
First off, I think there's a lot of credit to Patty and the entire organization for the hard work that's gone into all the efforts to drive now the continuous process improvements that's ultimately becoming a tailwind and a cultural shift to Twist and how we do business. All that said, though, the majority of our margin gains in the last six or seven quarters has been from the continued growth of the business. What we've said is every dollar of revenue growth, we're seeing 75%-80% of that drop to the gross margin line, whether that be because of the new product introductions or it be because of the continued commercial execution. We're seeing that being the primary driver of our margin expansion. We don't expect that to slow down anytime soon.
The positive news of the last quarter, I think the timing of some of those continuous process improvements, that can vary. Those will come in chunks. There is absolutely a lineup of things we're going after, most of which we won't talk about because they're meaningful to things like capacity unlocks. They're meaningful to helping improve our turnaround time. They're also meaningful to cost savings on a micro basis, but on a macro basis, we'll keep hitting on the big ones. We've got a lot more to go. We're also fighting the treadmill of inflation. There are reagent suppliers who are at, we love our employees. We like paying them more every year. We're going to balance that. I think the long-term view is we have a long way to go on that margin expansion.
Once we get to the 50% by Q4 of this year, we won't stop. We'll keep going.
We also made a good investment in supply chain. I think if I look at the improvements in the organization over the last few years, when you partner that with decent growth numbers, it puts us in an interesting position if you're supplying to us. When you're posting high double-digit growth when everybody else is struggling in our space, it creates a nice negotiating point. If you want to stay in the Twist ecosystem, we're looking to have our partners help us out a bit there. It's good.
I would not like to sit across from you on a negotiating board.
Sorry. It's win-win all the time.
Two bloody no's. Yeah. I guess as you think about that, because you guys are in growth mode, right? You're not going to, when we talk about productivity and stuff, you're not, you're actually adding people to the organization. How much of this is on automation? When you think about the NGS tools versus the SynBio piece or Express Genes, where are you getting these productivity initiatives? Where are you getting the biggest lift right now?
The way I think about it is the same talent that was used from engineering and the scientific perspective to build out the factory in Oregon shifted to focus on the Express Genes and turning the turnaround time is now leading the charge on this wave of continuous process improvements. What you think about as in growth mode early on, everything was about how do we help serve the customer faster and grow the business faster. We gold-plated a lot of things. We're now going back and looking at that and saying, you know what? We can do 25% better there. We can do 50% better here. We can tweak the dials in this. I think the best example of that last year was the writers we have across the manufacturing sites. We have a 13-minute cycle time in between printing each oligo.
With a chemistry change and a process change, we were able to change the dials and move that to a six-minute cycle time. It doubled the writer capacity, reduced reagent use, allowed us to innovate with 500 base pair direct synthesis. It's actually leveraged our employees because the same number of employees running the writers can now produce twice the number of oligos in a given day. It's impressive to watch that thinking at work. My sense is we're still in the early innings of what that team can do.
Yeah. Look, it's also such a good comment. It's something that's a wee bit understated. Obviously, we're led by DNA chemists, which is a very useful thing if you're going to be a DNA synthesis company. Our strength in automation is very understated. We do have a competitor manufacturing in China that recently was boasting about having 400 PhDs working on producing genes. I think it's well known over time with industrialization of methodologies where the unfair advantage is. We're going to continue to use our skills, extreme automation in our platform. We think that's going to be an operating advantage over the coming quarters, years, and decades.
Speaking of China, a lot of noise from the Biosecure Act. The thinking was that obviously customers, this would be another lever you could pull when you're on the negotiating tactic and saying, why use a lot of these customers? Have you guys started to see any type of flow there now that that has kind of calmed down and doesn't look to have as much teeth as it appeared to have?
Yeah. I'll paraphrase or repeat Emily's comment. We're going to win each account by winning. What she's clearly saying there is obviously we care about customer acquisition, but we truly care about customer retention. That comes from just delivering a fantastic product and experience for the customer. Win by winning is absolutely the right way to look at this. You can see the investment in the portfolio with speed and menu expansion. I think what we're seeing is certainly a raised awareness, certainly the supply chain discussions we're having. You can see the customer base thinking about supply chain and supply chain security for sure. Also, even just from an auditing standpoint, customers have audited the competition and then come to us. I think we do see the beginnings of it.
I think it will continue, but it's only sustainable if we're delivering best product, which we're going to be relentless in delivering. I don't know if you wanted to add to that.
I think Patty hit it right. If anything, we are starting to see, we're seeing tailwinds. It's not a headwind, but we haven't seen a tariff implemented until very recently. There's been the diminishment requirements, so we think it's early days. I think our focus on it is meeting the customer needs, executing. We see that we're taking share and we'll continue to do it. We think that any kind of, I'll call it trade war kind of activity, is going to be a tailwind to us given we manufacture everything in the US.
More incremental than an actual like, hey, this just happened. Got you. On the DNA storage, just a quick change of gears there. The prototype is ready. Are you guys going out to have some commercialization this year? Is that the right timeline? Update me on the timeline and then kind of what the big question is, obviously, R&D and the amount of spend that you guys have past profitability. You're very adamant, not going to need to raise again. Look at that DNA storage piece. It just still seems like this big moonshot.
You say it well. I think as a leadership team, we are very excited about the opportunity and the asset we're creating in DNA storage. The flip side of that is our North Star is we're not going back to the capital markets to raise more money on our path to profitability. What we're doing is we're actively managing our pace of investment. The DNA storage business two years ago was spending about $50 million at the year of OpEx. Today we're spending about $25 million. That titration is slowing the progress of that business. We know if we, because it is an engineering challenge at this point of how do we continue down the progress of going from the terabyte chip to the gigabyte chip to the terabyte chip. We know that that engineering work takes energy, takes time, and takes investment.
By constraining the rate of investment, we're changing the pace of that. We know that there's more work to do. We do think we're building that valuable asset. We're excited about it. We're not going to deviate from our North Star of we're committed to not coming back to the capital markets before we get to profitability.
The commercialization port, if we were thinking about maybe coming this year, that's probably not.
We have not put a date on it at this point. The work continues. It is really around that next generation design with the CMOS chip.
You're just waiting for that terabyte chip because that's the.
That will be the point where we believe there's an opportunity to commercialize the product.
Okay. Up till then, it's just kind of just developing. You're not going to go past the, you're going to stretch that out. On the same thing as on the biotech side, you guys had a decent, I guess you sold off the licensor, which was the whole point of building this business out and the whole model. Talk about where you are within that business and interest in other licensing or clinical trials or unlocks that you guys have from the portfolio of active programs that have finished or that have royalties. How is this, where are we in this business build perspective?
Yeah. Look, we're managing that business personally myself over the last couple of quarters, looking at some antibody discovery capability. We're seeing, first things first, it's a very important product to our general business. When we sell into the biotech and pharma segment, whether we sell your gene all the way through to a full antibody discovery and characterization project, there's a very nice continuum of value that we bring to the customer base. Coming back to the licensing question, what we're seeing there is most of the assets that we've turned over and managed to get deals done, they're incredibly early. It's really preclinical. The timeline then essentially, I think it's fairly extended to get to a point where those milestones will engage or will start to happen. We continue to watch the space, stay close to our customers.
As each quarter goes by, some of the assets will get closer to advancing. That is kind of the state of the universe right now. The actual discovery business itself, we are starting to see some signs of life in terms of the leading indicators of upcoming success and growth. We will continue there. Again, ties to the rest of the product portfolio very effectively.
Awesome. Signs of life. I love to hear it. All right, guys. Thank you.
It's good.
Appreciate it.
Cheers. Much appreciated. Thank you. Cheers.