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Welcome to the Twist Bioscience’s Fiscal 2023 Third Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to turn the conference over to Angela Bitting, SVP of Corporate Affairs and EGS Officer. Please go ahead.

Thank you, operator. Good morning, everyone. I would like to thank all of you for joining us today for Twist Bioscience’s conference call to review our fiscal 2023 third quarter financial results and business progress. We issued our financial results 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 directions. And then, we’ll open the call for questions. We would ask that you limit your questions to a maximum of two and then re-queue as a courtesy to others on the call. As a reminder, this call is being recorded. The audio portion will be archived in the Investors 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 in 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. We’ll also discuss financial measures that do not conform with generally accepted accounting principles, including adjusted EBITDA. Information may be calculated differently than similar non-GAAP data presented by other companies. When reported, a reconciliation between GAAP and non-GAAP financial measures will be included in our earnings documents which can be found on our Investor Relations website at www.twistbioscience.com. 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. The third quarter of fiscal 2023 highlights continued management of our business with a particularly strong quarter for the core business. We reported a record revenue of $63.7 million, exceeding our guidance of $60 million to $61 million, and with orders of $63.8 million, setting the stage for future growth. Beginning April 1st, we shipped the vast majority of SynBio products out of the Factory of the Future as we shifted production for this business line. And today we’re celebrating record revenue driven in significant part from manufacturing at this new site. Taking a step back, in December 2020, we signed a 10-year lease agreement for the space in the height of the pandemic. We made a $100 million investment to build out the site, which we knew would be instrumentally in our next set of growth for SynBio product line, specifically clonal genes and gene fragments. Our team completed the Factory of the Future on time and on budget, even amid global supply chain challenges, significant distributions of the pandemic and macroeconomic pressures. The successful completion and our operation of our second manufacturing site demonstrate the ability of our team to plan and execute on the difficult projects and lay the ground work for future growth. We shipped about 159,000 genes out of Wilsonville this quarter, and that number will continue to expand. By point of comparison, we shipped less than 12,000 genes out of South San Francisco in the same period, and these were genes that had started production before we began pressure testing the Factory of the Future in April. For the core business, we continue to expand our customer base and take market share. In SynBio, our consistent turnaround time of 10 to 14 business days for clonal genes and 3 to 5 days for gene fragments resonates with our customers. In addition to scale, in the past, price was our primary differentiating feature, but today we see almost every customer review highlights fast turnaround time as a key benefit. We will continue to drive speed as we move towards the planned introduction of fast gene in the fall timeframe. Between today and the launch in the fall, we’re working on four key activities. First, releasing the software module of the internal manufacturing execution system to minimize the time that genes are idle and then testing the implementation of that software. Second, refining the molecular processes to reduce processing time where we can safely be done. Third, retraining the manufacture associates, so we adjusted a new cadence of the streamlined production process. And fourth, hiring our e-commerce platform to be able to transact with dynamic pricing. In addition, we are working on the marketing side to prepare a robust launch target in current and future customers. I’d like to note that when we launch, we believe this will be a disruptive product, and we also believe there will still be efficiencies to gain in the future, further improving our turnaround time for genes and fragments. While the Factory of the Future is producing the vast majority of our SynBio products, our South San Francisco site continues to manufacture all of our NGS panels, delivering excellent results for the quarter. We continue to receive positive feedback from customers. Some highlight that using our chemistry target enrichment saves them approximately 50% of downstream sequencing cost, reducing the customer COGS overall. In this macroeconomic environment, that value proposition resonates. We continue to bring pilots in head-to-head trials against our competitors. In addition, we were pleased to see several positive proof points for the liquid biopsy field over the last quarter. We are substantially tied to the commercial success of our customers in the field, and we believe this important test will continue to demonstrate their value in detecting cancer and recurrences early as well as guiding treatment decisions. Expanding our market opportunity during the quarter, we launched a robust RNA seq portfolio, and the initial feedback is very positive. We have many customer trialing the products and have received initial orders. As we believe this product portfolio opens up the RNA research markets with workflows, we are particularly excited about this launch. Across our products, it takes time to drive revenue growth. Products we introduced today do not produce immediate revenue but grow over the next one to four years. Through the introduction of innovative products that meet industry needs, we have carved out a niche for the core business that we expect will continue to radiate and extend within the markets we serve. Overall, the core business continues on its growth trajectory, and we have delivered very good results again this quarter. Turning to Biopharma. Revenue and orders both came in below our expectations. We should remind that we were experiencing internal integration challenges, and those issues have resulted in the lower numbers for the quarter. Our lagging indicators or those that we see today underscore our headwinds, which include deal-timing, open headcount for the sales team and internal integration challenges. We have seen some market impact from the restricted biotech funding environment, though we also see strong interest from top pharma companies throughout the world, particularly in APAC and EMEA. These relationships take time to foster and close, impacting deal timing, particularly for the quarter. In addition, we have key open headcount for Biopharma business development managers, which has been open longer than we anticipated. On a positive side, we know that where we have commercial talent, we secure deals. We are looking to roughly double our current sales team from Biopharma from five to ten. It does take time to onboard and ramp up. So, this is not an immediate fix for revenue, but we play the long game. We continue to see interest in our robust Biopharma services, particularly the newly launched Twist Gold Standard offering, which combines in vivo, in vitro, in silico discovery approaches, and we continue to make progress on internal processes that we believe will set us up for operational success as the deals increase. Moving from our Biopharma service offering to our internal asset monetization, we have focused our efforts and prioritized five programs and we’re in discussions around all fronts. As Jim will cover next, we expect to fall short of our previous guidance for Biopharma for the year, but I want to reiterate that we will continue to evaluate, analyze and manage the business to ensure value creations over the short, medium and long term. For data storage, we expect to demonstrate an end-to-end gigabyte Century Archive workflow by the end of calendar 2023. Following on this, in calendar 2025, we expect to launch a terabyte Century Aircraft solution. Moving to corporate development. We are now three months beyond our substantive action to accelerate our path to profitability through the shift in manufacturing and resizing the Company. While the full cost savings will not be realized until the fiscal first quarter of 2024, the organization is adapted to the changes. With the reductions we have made across the business, we wanted to ensure that we also have the ability to hire key positions. Rob Werner joined us as our Chief Accounting Officer in late May, bringing a wealth of technical accounting expertise on global accounting experience. Chet Gandhi joined us in late June as our Chief Information Officer, bringing expertise in a range of areas, including application and solution architecture as well as data analytics. We are looking forward to our both executives who will accelerate our transition into the next phase of skilled profitable growth. With that, I’ll turn it over to Jim.

All right. Thanks, Emily. We had a truly outstanding quarter with a record number of customers served despite a more difficult macroeconomic environment. Revenue for quarter three was $63.7 million, which is year-over-year growth of approximately 14% and a sequential increase of 6% and ahead of our guidance of $60 million to $61 million. Orders were $63.8 million for the quarter, an increase of approximately 7% year-over-year and declined sequentially by 1%. Gross margin for the quarter was 34.3%. Our customer base continues to grow, and we shipped to approximately 2,200 customers as compared to 1,900 in the third quarter of fiscal ‘22. We achieved this growth in a quarter when we transitioned to the Factory of the Future, and we’re truly proud of the organization’s ability to execute this major transition. And we concluded quarter three with cash and investments of $357 million. Now turning to NGS. Our NGS revenue for quarter three was a record $33.2 million, representing 14% sequential and 19% year-over-year growth. Our third quarter orders were $33.2 million, a sequential increase of 19%. Our NGS orders year-to-date grew to approximately $92 million, about 22% growth over the same period in fiscal ‘22 with the revenue for the top 10 customers accounting for approximately 39% of our NGS revenue and we served approximately 560 NGS customers in fiscal quarter three. Our pipeline for larger opportunities continues to scale, and we’re now tracking 279 accounts, up from 270 noted in our last earnings call, 134 have adopted Twist as compared to 131 last quarter. Now let me turn to SynBio, which includes genes, DNA preps, IgG, libraries and oligo pools. Revenue rose to $25.9 million, another record, representing sequential growth of 7% and year-over-year increase of approximately 17%. Orders for the quarter were $27 million, and that’s a sequential decline from $30.9 million and is consistent with annual trends where SynBio customers place blanket purchase orders in the March quarter as they set up their new budgets. SynBio orders year-to-date have grown to approximately $85 million, up from $66 million in the same period in fiscal ‘22, which is 28% growth as we continue to take market share. In Q3, we shipped to approximately 1,800 SynBio customers, which has grown from approximately 1,500 in the third quarter of fiscal ‘22. Of note, our customer base for SynBio includes large pharma and biotech companies as well as academia. Our genes revenue increased to $19.3 million as compared to $17.4 million in the third quarter of fiscal ‘22, which is year-over-year growth of approximately 11%. As we highlighted, we transitioned our gene production to the Factory of the Future this quarter and shipped approximately 171,000 genes in fiscal quarter three, an increase of approximately 5% year-over-year, and we want to recognize our operations team for a terrific execution. Our oligo pools and library business continues to do well. And now moving to Biopharma. Biopharma revenue for the third quarter of fiscal ‘23 was $4.6 million, down sequentially from $7 million. Orders for the quarter were $3.5 million, down sequentially from $5.3 million in the second quarter. This decline is primarily due to challenges Emily described has also reflected in the number of active programs, which declined from 93 to 78. We’re addressing these short-term challenges and are actively rebuilding the commercial team. I’ll now cover our revenue breakdown by industry. Healthcare revenue for the third quarter of fiscal ‘23 was $34 million as compared to $29.4 million in the same period of fiscal ‘22. Industrial chemical revenue was $16.8 million in the third quarter of fiscal ‘23 as compared to $16.7 million in the third quarter of fiscal ‘22. And academic revenue was $12.4 million in the third quarter of fiscal ‘23 compared to $9.5 million in the same period of fiscal ‘22. Moving to our regional progress for Q3 fiscal ‘23. EMEA revenue rose to $19.1 million in Q3 fiscal ‘23 versus $15.5 million in Q3 fiscal ‘22. For APAC, overall revenue increased to $5.7 million compared to $4.8 million for the same period of ‘22. And U.S. revenue increased to $39 million in the third quarter versus $35.8 million for the same period of fiscal ‘22. And moving down the P&L. Our gross margin for quarter three was 34.3% as compared to 30.8% in quarter two, which reflects a sequential revenue growth, leveraging our fixed COGS and the initial impact of our cost reduction announced in early May. Our cost of revenue for the third quarter was $41.8 million as compared to $41.7 million in the previous quarter. And as we continue to transition some of our operations from San Francisco to the Factory of the Future, in the current quarter, we expect to see the full benefit of our cost management in the first quarter of fiscal ‘24. Our operating expenses for the fiscal quarter, including R&D, SG&A, change in fair value, mark-to-market and restructuring costs was approximately $82.7 million as compared to $86.3 million in quarter three fiscal ‘22. To break it down, R&D for the fiscal quarter was $24.5 million, a decline from $36.8 million in the same period of fiscal ‘22, primarily due to a decrease in Revelar spending as Revelar was deconsolidated as of September 30, 2022. Excluding the impact of Revelar, the decrease was driven by $3.8 million in cost reduction activities as well as a decrease of $2.3 million in stock-based compensation expense. R&D does include D&A, storage R&D spend of $6 million and Biopharma R&D spend of in the third quarter of fiscal ‘23. SG&A in Q3 was approximately $46.1 million as compared to $53.7 million in Q3 FY22. This decline is primarily due to a reduction in stock-based comp of $7 million. Factory of the Future pre-commercialization costs including SG&A were approximately $1.1 million associated with a number of labs that are in pre-commercialization phase, and we anticipate they will be operational by the end of fiscal year. Restructuring costs for the quarter were approximately $13 million, including $9 million for employee severance. In addition, we incurred noncash restructuring costs of approximately $4 million for assets and leasehold impairments associated with the transition of our SynBio activities from San Francisco to the Factory of the Future. Stock-based compensation for the third quarter was approximately $10.8 million. Depreciation and amortization for the quarter was $8.3 million associated with the commercialization of the Factory of the Future, an increase from $7.1 million in the previous quarter. CapEx investments in quarter three was approximately $4 million, which brings our total CapEx cash spend for the first nine months of fiscal year to $25 million. I will now cover our outlook for the year. As we’ve highlighted, the launch of the Factory of the Future is going well. We had a strong quarter of operational performance, our SynBio and NGS businesses are doing well, and we’re addressing the challenges with our Biopharma antibody business. For FY23. Our year-to-date revenue as of the end of the third quarter was approximately $178 million. For the fourth quarter, we’re increasing our guidance to the revenue in the range of $63 million to $64 million, and that’s up from the previous guidance of $62 million to $63 million, and therefore, increasing our fiscal year ‘23 guidance to $241 million to $242 million range, and that’s up from $235 million to $238 million. For FY23, we are projecting SynBio revenue of approximately $98 million at the top end of our previous guidance range of $96 million to $98 million. We are projecting NGS revenue for FY23 to be approximately $120 million, which is an increase from $113 million to $114 million in our previous guidance range and reflects stronger orders we discussed earlier. We expect Biopharma revenue of $23 million to $24 million, and that’s a downward revision from $26 million, reflecting our previous comments of Biopharma challenges. For Q4, gross margin, we are projecting approximately 36%, which includes costs in San Francisco associated with operations that we are migrating to Portland. Normalizing out these costs, we’re projecting a 2% margin increase from 36% to 38% for the fourth quarter. On the expense side, we’re projecting research and development expense of approximately $26 million, SG&A expense of approximately $47 million for the quarter, and restructure expense of approximately $1 million. For full fiscal ‘23, for gross margin, we expect approximately 36% for fiscal ‘23. Our operating expense guidance for the year is approximately $308 million as compared to the previous guidance of $313 million to $319 million. We’re now projecting R&D expense of approximately $109 million as compared to $112 million to $114 million in our previous guidance. We expect SG&A of $189 million as compared to the previous guidance of $197 million to $200 million, primarily due to the impact of lower stock-based compensation. Mark-to-market is projected to be a credit of $6 million. Onetime restructuring costs of $14 million, including both severance and noncash. Other income and expense for the year is projected to be approximately $12 million. Depreciation and amortization is projected to be approximately $29 million, and that’s unchanged from our previous guidance. And our projection for stock-based compensation declined to $32 million from $43 million. Operating expense for DNA storage, we expect to be approximately $40 million, and that’s consistent with our previous guidance. And for fiscal ‘24, we also expect $40 million operating expense for data storage. Net operating loss for the year is projected to be approximately $220 million, inclusive of onetime charges of approximately $14 million for restructuring. CapEx for the year is projected to be $35 million, and that’s a decrease from $40 million previously. And ending cash is projected to be approximately $325 million compared to previous guidance of $320 million. Before concluding, I want to briefly recap the impact of restructuring activities we announced in May. We estimate overall annual savings to be approximately $40 million, including $23 million from operations due to the transition of our SynBio operations to the Factory of the Future and approximately $17 million in R&D. And we have built these savings into the guidance we provided. In summary, we’re commercially shipping from the Factory of the Future. We continue to gain market share, agile customer base and are focused on managing our cost structure as we scale. We anticipate exiting the fourth quarter of fiscal ‘24 at adjusted EBITDA breakeven for the core business with adjusted EBITDA breakeven for Biopharma and no delay, so we continue to manage all our business areas actively. We define adjusted EBITDA as EBITDA excluding stock-based compensation. As I finish my remarks today, I am sure that many of you have read our 8-K filed concurrent with these earnings. And I want to say that after five years as CFO at Twist, I’m excited to apply my operating and semiconductor background in a new way to facilitate our next phase of growth. I am a big believer in the opportunities that lay ahead for Twist and look forward to continuing to contribute to our success. And with that, I’ll turn the call back to Emily.

Thank you, Jim. As many of you know, Jim joined us when our revenue was approximately $5 million per quarter, and his strategic financial activity has been integral to get us to where we are today, having reported over $63 million in revenue for the fiscal third quarter. Having spent the last five years in the CFO role, I am pleased that Jim will continue to provide guidance for our commercial scaling and operational leverage efforts as well as using his semiconductor background as we advance development of data storage. I’d like to personally thank Jim for all he has done to date and look forward to his contributions to other areas of the business. We will conduct a search for the CFO position. And as soon as this is field, Jim will transition into the new role. In closing, the core business is reaping with growth opportunity for profitable and scalable growth ahead. We have made good progress towards the launch of fast genes, which will be available to customers in the fall of this year. For this important growth driver, we are targeting the $1.4 billion DNA makers market. This is a market made up of scientists and researchers in large pharmaceutical companies and academia that currently make their own DNA. They make DNA instead of buying it as they need it faster and more cost effectively than we believe it can be delivered from virtually any source today. In return for delivering fast genes, we will charge a premium price. Optimizing our current clonal genes and fragments workflow through software and operational efficiencies, we will be able to make all of our fast genes at the same COGS as standard speed genes with the incremental price power from fast gene dropping directly to the bottom line. We expect to be seeing revenue for fast genes in the first quarter of fiscal 2024, and it will be a gradual build as we leverage our digital marketing infrastructure and tools to reach the long tail of the DNA makers. For NGS, our workflows continue to be included in more and more assays, and we believe the growth of our NGS opportunity will be sustainable for the foreseeable future. We launched a robust RNA workflow for research scientists, an area where we have a significantly smaller footprint today that we believe we can grow and expand. In Biopharma, we have work to do to turn the business around. We have interest in the offerings, both for our services and our out-licensing opportunities, and we are working to scale the commercial team. For data storage, we’re working towards delivering an end-to-end gigabyte Century Archive workflow and subsequently, the terabyte data storage solution with early release to key customers in calendar 2025. And with that, let’s open up the call for questions.

Thank you. [Operator Instructions] Our first question will come from Vijay Kumar with Evercore ISI.

Congrats on a good gross margin execution here. Emily or Jim, maybe my first question on the orders here, down sequentially on a dollar basis. It looks like Biopharma down, NGS slowed down. When you look at those orders, can you maybe talk about customer conversations you’re having across SynBio, Biopharma diagnostic end markets? As you’re exiting fiscal 3Q, how were those conversations progressing? And given high single sort of trajectory here in orders, is that an indication for how we should be thinking of revenues for fiscal ‘24?

Vijay, it’s Jim. Thanks for the question. If you stand back and look at the business, in terms of orders, on SynBio, your point is correct. Orders did decline sequentially. And we saw that pattern last year and the previous year, saw a decline from the March to June quarter. So, there’s a couple of reasons for that. One is we’re making progress in terms of penetrating large pharma. And what we see with a number of customers as they have their budgets allocated for the year and the secured blanket purchase orders with us to give us an indication of their business for the year. I think if you step back and you look at our growth and you look at where we are quarter-to-date orders versus same situation last year, we’re up roughly about 20-odd percent. We are seeing a strong customer growth. The Factory of the Future is going well. And we’re continuing to gain market share. So, as we look forward for next year, we see the launch of the fast genes. We see the growth in terms of NGS. NGS this year is going to be about $120 million, which is in line with the original November projections that we issued at the end of last year. So overall, business is really -- as Emily highlighted, the business is reaping. I guess, we have a short-term issue in Biopharma, which we’re addressing. We’ve got a great integrated offering. So overall, I feel good about the business. I feel good we’re positioned with fast genes, and we continue to gain share.

Understood. And I did see you had a slide on fiscal ‘24 assumptions, Jim. It looks like your cash burn projector for fiscal ‘23, it’s about $180 million, that’s stepping down close to $100 million, $105 million for next year. When you think about the step-down in cash burn, how much of this is being driven by your assumptions on revenue growth versus gross margin improvements versus OpEx coming down for fiscal ‘24? Some qualitative comments, I think, will be helpful.

Yes. So, you got a combination of three areas. One is we’re managing our costs. I mean, as you look at the numbers in terms of exiting this year in terms of R&D and SG&A, we brought that down. Originally, for the year, we’re anticipating R&D of $130 million. We’re now down significantly below that. SG&A, we’re managing. In terms of overall cost, we announced actions in May this year. We estimate that’s going to save us about $40 million a year. As we exit this year, we’ve got about $325 million cash in terms of next year, our key focus. And this is why I’m transitioning to my new role is we’re going to manage our cost structure as we go forward. We’re going to drive top line growth, and we’re going to get to adjusted EBITDA breakeven for the core business in Q4 of next year. And we feel good about the opportunities and feel good about executing to that plan.

Jim, are you seeing OpEx on a dollar basis will be down next year versus fiscal ‘24? Is that the assumption?

What the assumption is we’re going to be managing OpEx as we go forward, and we’re going to be leveraging our cost structure. So, the goal is as we increase our revenue next year, we’re going to see improvement in terms of our gross margin, and we’re going to get to adjusted EBITDA breakeven at the -- for the core business at the annualized revenue of $285 million by quarter four next year. So essentially, the takeaway is you can take a look at our Q4 cost structure. We’re going to manage roughly to a number that gets us to that adjusted EBITDA breakeven. For DNA storage, we’re going to be managing the DNA storage to $40 million OpEx next year, which is the same as this year.

We have a question from Matt Sykes with Goldman Sachs.

Maybe just first, Emily, on the Biopharma business. I know you took some restructuring actions last quarter. Jim referenced some sequential slowdown in orders. And I think you pushed out the EBITDA breakeven for the guide next year. Just how are you thinking about the business today? I know we’re dealing with a lot of cyclical pressures. But from a structural standpoint, from a competitive position standpoint, how are you feeling of that business? And what are you looking to in terms of commit investment to that business over the next year or two?

Yes. Thank you, Matt. So, as you know, we serve the Biopharma industry in two ways. One, we sell products and that we record in our SynBio segment. And then we sell service that we record in Biopharma Solutions. And in the SynBio side we sell products, it’s going fine. So, our view of the market is that it’s all going well. And so, we have a particular issue in our Biopharma services. And when we analyze and look at particular territories, if we have commercial talent in a territory, we win business. It’s not a surprise because to your point around competition, we have a very competitive offering, the combination of our in vivo, in vitro, in silico solution is extremely competitive when we have commercial talent. And so, the execution issue that we have in Biopharma Solutions right now is that we do not have enough commercial talent to cover all our territories. We have five currently. And the most important thing for me, the one that I am focusing on the most is making sure that we hire talent in all the territories. And if we can replicate what’s happening in the successful territories, I’m quite confident that the business will grow the way we expect it. So, in terms of milestones I’m looking for is first hiring of the talent, training them, then getting orders, then getting revenue. That’s the sequence of event in which we’re going to turn the business around. And as Jim mentioned, we are managing it actively and we’ll continue to do so.

Great. Thanks for that. And just for my follow-up, just on -- for Emily and Jim, just on the transition, Jim, your transition. Maybe just talk about the timing. Why now? And in terms of -- I know you hired a search firm, but are there thoughts on internal versus externally, exploring all possibilities? Just kind of want to get a sense for on timing, why today? And then kind of what your thoughts are in terms of replacement?

Yes. In terms of timing, business is in good shape. I mean, the key issue, a challenge over the last year was bringing up Factory of the Future. That’s going well. We’re seeing a lot of interest. And we have line of sight to get to adjusted EBITDA breakeven Q4 next year. So, the timing from an overall commercial and business point of view is good in terms of that line of sight. And Emily, maybe you can answer the rest of the question.

Yes, yes. I think in terms of the search, it would be an external recruit at this point where we’re just starting the process. I haven’t talked to anybody yet, but it would be external.

Our next question will come from Puneet Souda from Leerink Partners.

So first of all, Jim, good luck in the new role. A couple of questions. I would say, first one on Biopharma. Emily, if you could step back a little bit on -- about this business and talk about -- I mean, look, you had meaningful cuts here. You’re replatforming. You are not reaching breakeven in that business in 2024 as you expected. You’re lowering your guide again. The Biopharma discovery CDMO peers are calling out benefit from rationalizing of trials that’s ongoing out there. So, it appears at a high level that you’re losing share as well. So, wondering when you look at the business overall, how does this fit into the Twist growth profile and outlook in the longer run? You’re obviously doing well in the NGS core business of serving customers on the research side and the growth side. But just trying to understand how Biopharma fits into the overall strategy and picture for the Company, longer term?

Yes. No, thanks for the question. So, as a reminder, in our Biopharma services, what we sell are discovery services, so discovery of antibodies, bispecific HS, EDCs, some TCR, some cell engineering, so -- but we are selling services for the early stage of the drug pipeline, so drug discovery, some optimization, some development. But typically, we stop at the preclinical stage. And actually, on the SynBio side, when we sell our fragments, our genes, our oligo pools to those same customers, we are also selling to those customers for the discovery development optimization. And so, the benefit to Twist of having both the product and the service is that when we get in front of a pharma customer, small biotech, large biotech, pharma, we’re able to sell the full menu, we’re able to sell our customers. And if you’re going to do the work yourself by using our gene, gene fragments, IgGs from SynBio, you’re going to be more effective, more productive in your efforts for the antibodies and drugs, and that is working. That message resonates well. And then what we are saying at the same time is -- and by the way, if you have a target for which you are not able on your own to find a therapy or if you have too many targets and you’re not able to prosecute all of those internally, outsource those targets to us, we’ll discover the antibodies for you as a service and then go into the Biopharma service business. And so, we are serving the same customer. And having both menu of products and services is synergistic. Right now, it’s benefiting more the SynBio side. As I mentioned, we have some commercial execution issues in some territories on the Biopharma service. But adding the two together, we see it as a net positive. And again, I’m quite optimistic as I see the territories where we have commercial talent, it works. So, if it works once, do it again. And of courses, we’ll monitor the activity, but we are quite optimistic for the future.

Okay. Good. Then just a brief one on the writers. Can you just remind us how many writers you have currently operational in Wilsonville, and what do you expect that number to be by year-end?

So right now, we have a four writers in South San Francisco as well as four writers in Wilsonville. They’re all operational. In Wilsonville, we have space for 12 additional writers. At this point, we don’t have writers on order. So for the foreseeable future, those 4 plus 4 are going to serve our needs.

We have a question from Luke Sergott with Barclays.

On the -- so quickly here on the liquid biopsy partnerships, can you tell us how to think about when we should start seeing -- if you guys are on the MRD. But as that MRD ramps across that space, how do you think about the growth in the NGS side? And can you just remind us or give us some type of directionality on the economics that you guys achieve per sample?

You want to take that, Jim, or you want me to take it?

You can take it, Emily.

Thank you, Luke, for the question. So as a reminder, as you know, we get baked in into liquid biopsy MRD assays. And as we win those pilots, as the customers get validated and as they go commercial, we are tied into their commercial success. And the way I see it is they use our reagents in their production as -- and so every time they analyze a patient, they use some reagents from Twist. And so, we participate as a function of their revenue ramp. In terms of the dollar amount that we try to get, typically, we think that around 10% of their COGS is a fair value. Sometimes we get more. And it also depends on the extent of the chemistry they use from us. Some customers, they only use the DNA for the capture. And so that’s how we win from -- we win based on the quality of our DNA. And then in many cases, we’re able to extend to the other components of the chemistry, and sometimes we sell the full solution, all the reagents from the sample to the sequencer. So the barcodes, the beads, [ph] the adapter, the enzyme, the buffer, everything. And at that point, we’re able to expand the percent of the COGS that we can commend.

And then as a Factory of the Future starts coming online, when can we expect you guys to start taking orders there? Is that next quarter? And then, as the initial demand and interest is coming online there, how are you guys -- are you seeing more interest for the genes, the pools? Like, which of the products are you guys getting most initial interest on right now?

Well, all the segments are going well, libraries and some -- in many case, libraries are going really well. Fragments, as we have started to accelerate the speed at which we can ship fragments. Right now, fragments are also doing really well. And what my expectation is, as we launch fast genes in the fall that also should be a great driver of course. So, I’ll say, depending on the customers we touch, there is something for everybody to like. And that’s a testament to the quality of the product, how priced right they are. And the user experience that they get from Twist. I often say that the DNA is free, people pay for the user experience. And from the time they get on the website to the time they get the invoice, it is very frictionless, beautiful and intuitive experience. And that is the key element that is often missed of our success.

And on the fast genes, just a quick one. Are you guys starting to take orders next quarter for the fast genes?

You’re getting me in trouble because it’s only two questions -- as soon as it’s launched, we will...

One moment for our next question. It comes from Steven Mah with TD Cowen.

Thanks for the questions. Just a follow-up question on the Biopharma business. I think you guys said that the number of active programs have dropped. Are those dropped programs -- are they mostly from emerging biotech partners, or was the program loss across the board from your partners? Just trying to get a sense of where we’re seeing most of the weakness in your Biopharma business?

So, maybe we should clarify that as we finish a program, we are done. And so, we drop it from the list of active programs, and then we get paid within the invoices. And so, the fact that the active program dropped means that we finished more programs than we started, and that is a reflection of our orders right now decelerating. And so, the revenues will decelerate following those orders. But as I mentioned, we’re highly focused on hiring commercial talent because where we have talent, we win deals.

Okay. Thanks for the clarification. Yes, maybe then on like the new partnership front, and yes, I appreciate that you haven’t been -- you’re not fully resourced. But have you seen a push for more partnerships with less upfront and more back-end economics? And is that impacting your calculus on new partners and program adds?

Yes. That’s a great question. We -- as a guiding principle, we are not subsidizing the research of our customers. And so, we always want to have the fee for service to pay for our work with good margin. And if we can get talent with milestones or royalties, that’s a great benefit. But we are highly focused on making sure that the upfront payment is a fair exchange for the value that we provide. So, I’m not hearing of a pressure on that upfront fee. I think once we are able to have the commercial tenant, be able to articulate the value of what we bring, I think the fee for service is very much in line with the value that our customers perceive we provide.

Our next question comes from Catherine Schulte with Baird.

I guess, first, going back to fast genes. I think you said you talked about seeing revenue from those in the fiscal first quarter of ‘24. Just based on your conversations with customers, what kind of premium do you think they’ll be willing to pay for a faster turnaround time?

Yes. Thank you, Catherine. It’s a great question. So, what we have seen is definitely they’ll -- the passive value of the faster gene is going to be different for academic customers compared to industrial customers. And so probably, actually, I think, for the first time in Twist’s history, there’ll be a different price for academia as there would be for industry, just because industry is willing to pay more for those faster genes. And then in terms of what that premium is going to be, we have set up what we call dynamic pricing, which will enable us to do price discovery with those customers to be able to get the optimal price that maximizes the volume and the gross margin that we can extract. So, we are not quite willing to guide it yet, but we’ve put in place the commercial mechanics to be able to make sure that we do not leave money on the table in those markets. That’s what the dynamic pricing is going to bring us.

And then, you had a nice step-up in gross margin this quarter. Are you still confident in 49% gross margin for fiscal ‘24?

So good question in terms of step-up in gross margin. That reflects a couple of things. One is the initial impact of cost reductions. Second is as we leverage our cost structure as you saw a sequential revenue growth. In terms of outlook for fiscal ‘24, we are focused on getting to adjust EBITDA breakeven. And in terms of -- I mean it’s a good question in terms of fast genes. I mean, I’m particularly excited about fast genes launching. It demonstrates the capability of the Factory of the Future would be we get premium pricing. And as we get premium pricing, that’s going to reach our margins. Our long-term focus, I mean, over $500 million of potential annualized revenue based on our capacity at both San Francisco and Factory of the Future. And I mean, as we approach the $500 million, we’re targeting gross margins in the range of 55% to 60%.

And our next question will come from Rachel Vatnsdal with JP Morgan.

Just one from me today. I wanted to follow up on APAC and China. So last quarter, you guys had flagged that you were starting to see a rebound in the region, but then it looks like revenue stepped down sequentially there this quarter. We’ve heard some concerning updates across the industry out of China. So, I was wondering if you could just walk us through what are you seeing in China and broader APAC? And then how did those orders really trend this quarter? Thank you.

Yes. So, good question. Overall, in terms of -- year-over-year, we’re growing in APAC. In China, revenue did step down from our September quarter last year to our December quarter went down to 1.4. We saw a pickup in revenue to approximately $2 million in the March quarter. We saw revenue about $2 million. Clearly, there are issues in China in terms of demand. However, overall, we’re predicting about $7 million for China this year, which is flat with last year. That’s coming in slightly below what we had estimated overall. We had anticipated targeting roughly $9 million this year, but we have seen pickup from Q1, and we are seeing opportunities, and that’s driven by the value of our portfolio. I mean, the major products we’re shipping in China, our NGS and oligo pools, and we’re also seeing some other opportunities emerging. So, we have a great facility there, and we’ve got a great sales team. And although other people are seeing a sequential decline, revenue is approximately flat from March quarter to June quarter.

Our next question will come from Matt Larew with William Blair.

The first question would just be a follow-up to Luke’s around preparation for fast gene launch. Emily, you walked through four key activities that are in play here to get ready for the launch. Maybe as you think about progress to launch and potential upside or key factors to ramp in Q4, maybe stack rank confidence level and progress on those items that you’re targeting? And should we expect contribution in the fourth quarter here given a fall launch, which I think according to my Google search starts September 23rd?

Thank you. Great question. Even if we launch on the first day of fall and it ships in five days, it is possible that there could be some contribution in September, but that’s not what we are looking for. I think the main contribution will start in Q1. In terms of the stack effort that we still have to continue. What we’ve told the team is that we do not want the e-commerce to be the long pole in the tent. And so to the extent that the work in the lab gets done sooner, the e-commerce is going to be ready before that. And so it’s purely what happens in the lab that will drive the timing of the launch. We’ve launched products -- many, many products. That’s one of the strengths of Twist is we have many different levels of DNA. And we have a good sense of what needs to be done. We are on track, very optimistic with the things are going and it will be driven by actions in the lab, not by e-commerce.

Okay. Then, obviously, fast genes sort of the next new product. But in May, you launched an RNA portfolio and last May, you launched IgG. So, just curious what kind of traction you may be seeing with this IgG and perhaps initial feedback or opportunities that you’re seeing with the RNA portfolio?

Yes. So the initial feedback from RNA portfolio has been positive. We are seeing orders for people to test. And then from there, we will expect reorder and ramp. Stepping back to the IgG launch, frankly, it’s been average. The product for IgG is not quite highly differentiated. And so, we expect that the differentiation from fast gene is going to be greatly influencing the ramp. As you know, the more differentiated you are, the faster you run. So, we think fast gene will run faster. And as we make genes fast, we’ll be able to bring that benefit to IgG. And so we think that we could get a double benefit of not only having fast genes but also being able to improve the differentiation of our other products that are derived from genes. And so, our IgG are also going to accelerate in speed.

And our last question will come from Sung-Ji Nam with Scotiabank.

Congrats on the quarter and to Jim on the next chapter. So, maybe on the -- I had a question on the RNA sequencing portfolio, congratulations on launching that. Could you talk about kind of what the market potential there is relative to the DNA sequencing market and kind of what the current competitive landscape looks like?

Yes. Great question. So we think the market is probably about as the similar size, very different customers. On the DNA side, we are targeting diagnostic companies that are using our DNA to analyze samples and provide a clinical report. On the RNA, we are mostly going after academic customers. Although over time, I think RNA seq could go into the clinic. But right now, it’s mostly academic that we are targeting. The differentiation that we bring with our product on RNA seq is one a much faster workflow, so you can go from sample to sequence significantly faster with less hands-on time. And so, in academia, that is very useful. In a setting where maybe if it’s an automated setup, it doesn’t really matter or it matters less, but in academia and on time is key. And then we also with our RNA Exome, we’re able to enable customers to significantly reduce the number of freeze that are wasted on part of the RNA sequence space that is not interesting, like housekeeping genes and tRNAs and so on. And so therefore, it lowers the cost per sample. And again, that’s a strong resonance with academia to lower the cost per sample. So those are the two differentiations. And we are a very late entrant in RNA seq, like we’re probably number 12, I guess, in the market. But in true discussion, [ph] we came in with some differentiation. And I think that’s going to enable us to take market share.

Great. That’s super helpful. And then thank you for all the color on the Biopharma end market. Just curious for your liquid biopsy and MRD customers. Are you seeing relative stability from the funding or spending perspective for that segment of the market?

You want to take that?

Yes, yes. So, I mean, NGS is going well. And we’ve got -- building the pipeline NGS customers in terms of overall positioning, our customer saves in terms of sequencing costs significantly. So we continue to win and gain share. So overall, I mean we give our customers -- I mean, we had a great value proposition, and we haven’t seen any significant issues. We continue to look forward to growth in that business, driven by increasing test volume and increasing adoption of liquid biopsy. And the number of customers that adopt us continues to increase. So, I mean I’m bullish on where we are with NGS. And it just reflects in my role as CFO, first year in NGS, our revenue was $3 million, now we’re $120 million. And there’s more and more applications emerging. And as cost of sequencing comes down, it’s going to end up to be, I mean, a huge, huge opportunity for Twist and benefits the world as well. And yes, I’m excited about where we’re going to go.

Thank you. I’m showing no further questions in the queue. I’d like to turn it back to Emily Leproust for closing remarks.

Thank you very much for joining us today. We are driving towards adjusted EBITDA breakeven for the core business and see significant opportunities ahead. I am very excited -- very exciting time at Twist, and I look forward to reporting our progress in the months ahead. Thank you very much for joining.