Good day. Welcome to Twist Biosciences Fiscal 2021 Fourth Quarter and Full Year Financial Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded. .

I would now like to turn the call over to Angela Bitting, SVP of Corporate Affairs and Chief ESG Officer. You may begin. .

Thank you, Michelle. Good morning, everyone. I would like to thank all of you for joining us today for Twist Biosciences conference call to review our fiscal 2021 fourth quarter and full year financial results and business progress. .

We issued our financial results release as well as the press release announcing we entered into an agreement to acquire Abveris this morning, both of which are 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. .

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 2 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 cannot, at this time, predict the full extent of the ongoing impact of the COVID-19 pandemic and any resulting business or economic impact. .

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. Fiscal 2021 was a defining year for Twist. We diversified our synthetic biology business and expanded our customer base while accelerating our NGS revenue. In parallel, we leaned into biopharma. It will bring the company from solely a service provider in this business segment to a partner of choice. .

In data storage, we continued our engineering progress and are working within the DNA data storage alliance to build market awareness of this novel storage solution. Overall, we've moved from a product-specific focus towards enabling applications across large and growing end markets. .

We have made some important announcements over the last 2 weeks and will take some time today to talk through the strategic directions of the company as well as how the individual pieces fit within our overarching plan. .

Against the backdrop of a global pandemic, we reported record revenue of $132.3 million for the year, an increase of 47% over fiscal 2020. And we reported $159.5 million in orders, an increase of 37% over fiscal 2020. .

For the fourth quarter, with a tough comp against last year where we had a single large order of $9 million, we reported revenue of $38 million and orders of $45.2 million, an increase of 17% and 6%, respectively. .

Diving into the specific businesses. I'll start with biopharma as we announced a definitive agreement to acquire Abveris this morning. Abveris is privately held antibody design and discovery company, focused on in vivo discovery using a novel mouse platform. They have conducted many discovery campaigns for partners with about a 70% rate of return.

They currently have 90 customers operating today on a fee-for-service model. We see Abveris complementing our synthetic antibody discovery capabilities very nicely. .

Following the acquisition, the animal-based antibody discovery method and antibody screening technologies will augment our own antibody discovery and optimization capabilities. Importantly, they have an established customer base with 6 of their discovered antibodies in clinical trials.

The company has 35 employees and will continue to operate in their headquarters in Boston following the acquisition. I believe that in fiscal 2023, the Abveris business will be cash flow positive. .

Taking a step back to look at our overarching biopharma capabilities. Following the integration of Abveris, we will have 3 complementary discovery approaches under 1 umbrella. In the first approach, we have synthetic discovery libraries where Twist has a competitive advantage through our DNA synthesis platform technology.

We synthesize every sequence desired, including only those found in the human repertoire. And screening targets against these levers can generate robust antibody leads. .

Second, another approach is to generate antibodies from an animal immunized with a target and then harvesting and sequencing the resulting antibodies. That is the specialty of Abveris platform. .

Third, we have entered into technology collaborations with several companies to leverage artificial intelligence and machine learning technologies to screen through antibody needs and to refine antibody library. .

With the acquisition, Twist will have all 3 approaches offering a unique and comprehensive antibody discovery and optimization capability to our partners as well as for our internal antibody generation. .

In addition, we have products that support the total discovery process. Our Oligo Pools can be used to identify targets, and our NGS tools can be used to monitor library diversity during planning.

Once a customer has an antibody need, Twist provides tools to develop the lead further through our synbio offerings, starting with gene [indiscernible] and moving all the way through the resulting IgG protein. .

Also in biopharma, as you know, we've been working 12 months of COVID-19 [indiscernible] assets discovered through our proprietary biopharma process. We have been working hard to put together a team with clinical development and commercialization expertise. .

And last week, we launched Revelar Biotherapeutics, an independent biopharmaceutical company. We licensed our lead bispecific antibody to treat COVID-19 to Revelar and have committed to provide up to $10 million in initial funding.

In addition, Revelar can license up to 5 additional targets over the course of the next 4 years, each program subject to additional milestone payments and royalties for Twist. .

While the COVID antibody will not be first in class, we do see the opportunity for this antibody that, one, neutralizes all variants of concern; and two, it could be delivered subcutaneously, which may offer an overall best-in-class molecule.

We know there remains the need for therapeutics that effectively treat long COVID as well as antibody therapeutics that have broad neutralizing capabilities among the emerging variants as global vaccination is far from complete and vaccine effectiveness, unfortunately, appears to be declining over time..

The recent data on oral therapeutics show their promise, though the typically needs to be taken within 5 days of onset and could have safety concerns that may not be seen until more widely taken.

On a peer-reviewed publication, it recently noted that antibody therapeutics also promised to provide long-term protection for immunocompromised patients who don't generate a robust immunoresponse to the vaccines. We believe this leaves space for antibody therapeutics in the treatment regimen. .

We expect COVID will become an endemic disease, and sadly, that it here is to stay.

We believe the best path forward for our COVID antibody is to put it in the hands of a team experienced in clinical development and commercialization and to participate in the upside through equity appreciation, potential maximum payments of over $100 million and mid-single digits royalties on any commercial sales.

Revelar expects to begin clinical trials for this antibody in 2022, subject to receiving regulatory approvals and clearing other development hurdles. .

This [ pins us ] fit our internal biopharma philosophy of minimizing biology risk and quickly developing antibody with an improved pharmacological profile that hits a validated target. .

We expect that Revelar would be a vehicle for development of up to 5 additional non-COVID targets emerging from our biopharma platform. Each approach come with additional upfront milestone royalty payment.

This allows Twist to participate in the upside of any of the 5 additional licensed antibodies whilst mitigating the risk of development through external funding and an experienced management team. .

Strategically, for biopharma, we have a vision of what our DNA synthesis platform can add to this industry. We have now built a base of 34 partners with 41 active and 32 completed programs. Of the 73 total programs, 35 have milestones and have royalties associated with them.

By completing the acquisition of Abveris, we will have more customers and programs coming onboard. And through Revelar, we expect to have Twist antibodies in the clinic in 2022 pending the required approvals. .

Turning to synthetic biology. We reported $40 million in revenues and $20.1 million in orders for the fourth quarter.

Over the course of fiscal '21 and looking into fiscal '22, we have evolved our [indiscernible] to enable us to capture more pharmaceutical and biotech customer needs and address the requirements for the large number of customers who make their own DNA.

We believe the largest and most impactful application of synthetic biology from both the financial and [indiscernible] perspective will be in health care, and we are seeing that play out in our customer base. .

We have a growing number of customers using our genes, Oligo Pools and libraries. Our customers use these products to link phenotype and genotype and ultimately to gain a deeper understanding of biology for the development of new diagnostics and therapeutics. .

During the quarter, we saw some impact from an extraordinary event where we needed to shut down production for a short period of time. During Q3, we determined that unwanted DNA sequences were included in our genes. None of these genes were shipped to customers, but we did experience a delay in some gene orders.

We were able to successfully troubleshoot this issue, clear the resulting backlog within 3 weeks and still reported robust order for synbio in the quarter. .

We did experience a brief recurrence in October that we were able to resolve much more quickly. And we believe we have now identified the root cause and do not expect further interruptions in production. .

This event highlighted our need for additional capacity and dedicated machines, which we are building currently in the Factory of the Future outside of Portland.

At the same time, we have a path to significantly increase capacity at our headquarters in the Bay Area to ensure we can meet the increasing demand from our customers for the next 12 to 18 months. We recognize that we not only need to meet the ongoing increasing demand, but also any surges in demand when large orders arrive. .

Today, we have capacity to make approximately 45,000 genes per month plus [ fragment ] and NGS products.

And we are building capacity in South San Francisco of 80,000 clonal genes per month by December and 90,000 genes per month by April of 2022 to ensure that we continue to meet the needs of our customers while we bring the Factory of the Future online in 2022. .

Turning to NGS. We reported revenues of $21.4 million, a record quarter even against a comp in 2020 where we shipped a single $9 million order. We launched several products to bolster our offering, including the Exome 2.0, the most comprehensive exome offering with best-in-class performance. .

In addition, we introduced our Alliance standard products, which are kits with curated content from key opinion leaders in their respective fields sold through Twist.

This quarter, we have launched a robust clinical exome from the Broad and a pan-cancer panel from AnchorDx, building on our first Alliance Panel, the SNP Diversity Panel with content from the Regeneron Genetics Center. We also announced plans to launch panels with Centogene focused on rare diseases. .

For data storage, we achieved a significant milestone under IARPA's Molecular Information Storage or MIST program. IARPA's evolution team came to Twist in October and provided us with a set of DNA sequence to be synthesized on the 1 micron proof-of-concept chip in a single day.

The sequences were not shared in advance and we passed the test with flying colors. In addition, we confirmed that we can synthesize DNA at individual site on the 1 micron proof-of-concept chip with no cross-talk or spillover into adjacent sites. This was a critical technology demonstration that validates our ability to achieve smaller dimensions. .

We are currently in the design phase for the alpha chip, which will be our first full commercial release chip. In the meantime, we will lay the groundwork to sign early access customers. To that end, in October, we hired Steffen Hellmold previously at Western Digital.

With the significant technology advances that we have made in data storage, we are now focused on preparing for early access product launch, laying the foundation for commercialization of the disrupted and important storage solution.

Steffen will help define our commercial strategy and leverage relationship build over carrier in storage to ensure we offer the right product suite with customers in this space. .

At this time, I'd like to turn the call over to Jim to review our financial results for the quarter. .

All right. Thank you, Emily. As Emily noted, we had another exciting and dynamic year as we continued to scale our platform, and we closed out the year on a strong note. Revenue for the quarter was $38 million, a new record for Twist, which was a sequential growth of 9% and year-on-year growth of 17%.

And this brings our FY '21 revenue to $132.3 million, a 47% increase from FY '20 and slightly above the top end of our guidance of $129 million to $132 million for the year. .

Orders were $45.2 million for the quarter, a sequential increase of 16% and 6% year-over-year. This takes our total orders for the year to approximately $159 million. Gross margin for the fourth quarter was 40.7%, and our total year gross margin was 39% as compared to 32% in FY '20.

We shipped to approximately 2,900 customers for the year and that's up from 2,200 in FY '20. .

And we ended the year with cash and short-term investments of approximately $478 million. .

Health care is now our largest segment and accounts for 54% of our business with revenue of $71.2 million in FY '21 versus $40 million in FY '20. And that's a 78% growth year-on-year, reflecting growth in NGS, biopharma and growing demand for our synbio products. .

Industrial chemicals revenue was $34.5 million in FY '21 versus $29.1 million in FY '20. .

Even though we're operating in a pandemic where many academic labs were impacted globally, our academic revenue was $25.3 million versus $19.6 million in FY '20, reflecting our continued focus on growing the long tail. .

Agricultural revenue was $1.3 million, essentially flat with FY '20. .

Now I'll provide more color on orders. We ended on a very strong note with NGS orders for the fourth quarter of $21.8 million, which brings our total NGS orders for the year to approximately $76 million as compared to $53 million in fiscal '20, which is approximately 43% growth year-on-year from a high comp base we referenced earlier.

This growth reinforces the robust and growing market opportunity, our expanding product portfolio, investment in our commercial organization, expanding our customer base with increased adoption and increasing NGS applications, including liquid biopsy, MRD, RNA controls and clinical applications. .

During the quarter, we received orders from approximately 670 NGS customers. And the top 10 accounts placed orders of approximately $10 million as compared to approximately $7 million for the top 10 in the previous quarter, confirming we're seeing continued diversification of our customer footprint. .

Our pipeline for larger opportunities continued to scale. And we're now tracking 199 accounts, and that's up from 182 we noted in our last earnings call. 88 have adopted Twist and that's an increase from 79 on our -- we noted in our last quarter. .

Now turning to synbio.

We saw robust growth in our synbio orders, which includes genes, DNA preps, IgG, libraries and Oligo Pools, which rose to $20.1 million in the fourth quarter, up from $15.7 million in the third quarter of FY '21, which is a sequential growth of 28% and up from $16.1 million in the last quarter of fiscal '20, with health care segment being the major driver to growth.

.

Now to biopharma. We continued to scale our biopharma antibody discovery business as orders rose to $11.6 million for the year, which is a growth of 123% compared to $5.2 million in fiscal '20. Orders in the fourth quarter were $3.4 million as we continued to build our pipeline of new and repeat customers.

As noted earlier, we have 34 partners with 41 active programs, of which 35 are milestones and royalties. Please note, orders may not translate into revenue but do provide a trend line for each product group. .

Now moving from orders to revenue. As noted earlier, revenue for the quarter was $58 million and brings our cumulative revenue for fiscal '21 to $132.3 million versus $90.1 million in fiscal '20, representing approximately 47% year-over-year growth. .

NGS product revenue scaled to $21.4 million in quarter 4, a sequential growth of 14%. And it's notable that we exceeded the $20.2 million for the same quarter of FY '20, which included the $9 million we mentioned earlier. In Q4, the top 4 customers accounted for approximately 50% of our revenue.

For the year, NGS revenue grew from $44 million in FY '20 to $72.7 million, which is 65% growth year-on-year. .

Our synbio product revenue for the quarter was approximately $14 million, and that's down sequentially from $14.3 million in the previous quarter due to the aforementioned production issue and seasonality in Europe. Total annual synbio revenue was $53 million compared to approximately $44 million or 20% growth year-on-year.

Some of the highlights include shipping to 1,900 synbio customers in FY '21, up from 1,590 in FY '20. .

Our genes revenue was $39 million, and that's an increase from $35.2 million in FY '20. We also shipped a record number of genes of approximately 372,000 and that's an increase from 338,000 we shipped in FY '20. .

Now to biopharma. Our revenue for the quarter was approximately $2.6 million, and full year revenue was $7 million as compared to $2.4 million in FY '20. And during the year, we serviced approximately 43 customers, demonstrating the progress we're making in expanding our platform. .

I will now briefly cover our regional progress for FY '21. Our investment in building out our global commercial organization is reflected in our strong international growth.

EMEA had another terrific year with FY '21 revenue of $44.1 million versus $25.8 million, and that's 71% growth year-on-year and EMEA now accounts for 33% of our worldwide business. .

APAC had a great year and FY '21 revenue grew about 100% to $10.3 million from $5.1 million in FY '20. .

The U.S., which includes Americas, revenue was $77.9 million for FY '21 as compared to $59.2 million for FY '20. .

Now moving down the P&L. Our gross margin for the quarter was approximately $15.5 million or 40.7% of revenue, up from 40% in the prior quarter. Total year margin was approximately $51.7 million or 39% of revenues, up from 32% in FY '20. .

Now to operating expenses. Our quarter 4 operating expenses, which includes R&D and SG&A, was $57.7 million. R&D for the quarter was $19.4 million, which brings our total investments in R&D to $69.1 million for FY '21 and that's up from $43 million in FY '20.

The major contributors to our investments in R&D were compensation due to higher head count and external services, primarily associated with our investment in DNA storage and also increased investment in biopharma. .

Our SG&A in quarter 4 was $38.2 million, which brings our SG&A for the year to $135.9 million as compared to $103.3 million in FY '20.

The increases are primarily higher compensation as we continued to build out of commercial organization, increased stock-based compensation, higher fees associated with the audit and investments in addressing our material weaknesses and increased lease expenses as we expanded our footprint in San Francisco and the Factory of the Future in the Portland area.

.

Our net loss before tax was $41 million for quarter 4. And our total loss for the year was $152 million, which includes stock-based compensation of $37 million and depreciation and amortization of $10 million. CapEx for the year was $27 million, including $13 million for Wilsonville, mostly for equipment deposits and facility improvements. .

Given the supply -- global supply chain challenges, we have strategically increased our inventory to $32 million compared to $12 million at the end of fiscal 2020. .

We ended the year with cash and short-term investments of approximately $478 million. .

Now here are some updates on our FY '22 guidance. As we noted, we saw strong bookings in quarter 4 and are optimistic on our opportunities, and at the same time, there remains uncertainty associated with the pandemic. For FY '22, our revenue guidance is in the range of $173 million to $181 million.

And including the expected completion of the Abveris acquisition in quarter 1 fiscal '22, our revenue guidance increases to $183 million to $193 million. .

Synbio revenue is estimated to be in the range of $67 million to $70 million as compared to approximately $53 million in fiscal '21. Our NGS guidance is estimated to be in the range of $94 million to $96 million as compared to approximately $73 million in fiscal '21.

Biopharma revenue, including our anticipated Abveris acquisition, is estimated to be approximately $22 million to $27 million as compared to approximately $7 million for fiscal '21. .

For the first quarter, we're projecting revenue in the range of $37 million to $39 million, which we believe is prudent guidance reflecting the upcoming holiday shutdowns in Europe, COVID pressures and the impact of the production issue we discussed earlier on the call. .

Our fiscal '22 gross margin projection range is 35% to 37%, and, which reflects the costs associated with our Wilsonville wrap-up. Excluding these costs, gross margin will be 42% to 44%. .

Operating expenses, which includes R&D and SG&A, are expected to be approximately $315 million for fiscal '22 as compared to $205 million in fiscal '21, reflecting increased investments in biopharma, approximately $40 million; data storage, $20 million; our commercial organization, $20 million; and Portland OpEx start-up costs of $10 million plus there's higher stock-based comp and higher depreciation.

.

Our R&D expenses for the year are projected to be approximately $130 million, up from $69 million, primarily due to investments in data storage and biopharma. .

Our net loss guidance for the year is expected to be approximately $250 million. Stock-based comp is projected to be approximately $47 million. And depreciation is expected to be $13 million. .

Our CapEx for FY '22 is projected to be $80 million to $90 million with approximately $75 million investment in Wilsonville. .

In summary, we'd like to thank all the Twisters for delivering another terrific quarter with record growth. We had another exceptional year continuing to execute on our strategy, enjoying broad demand from our customer base and we're significantly stepping up our investment as we continue to tap into new revenue streams. .

And with that, I'll now turn the call back to Emily. .

Thank you, Jim. We accomplished a tremendous amount in fiscal 2021 with execution across all areas of the business. The execution resulted in significant revenue growth and customer acquisition for synthetic biology and NGS, and we continue to see huge opportunities ahead for both markets.

With the recent strategic transactions of Revelar and Abveris, we are well positioned to accelerate our biopharma vertical. And in data storage, the engineering accomplishments we have achieved to date set the stage for commercial planning and market introduction.

While these 4 business areas address very different market opportunities, each relies on our silicon-based DNA synthesis platform, which remains at the core of our competitive differentiation and success. .

Looking ahead, fiscal 2022 will be a year focused on growing market share as well as investing for future success. In synthetic biology, we plan to continue to build our business and expand our customer base.

We expect to launch IgG commercially for pharmaceutical and biotech customer base, building on positive feedback from our early access customers. We remain focused on bringing up the Factory of the Future to reduce turnaround time, especially for genes.

We believe we will begin to see the benefit of reduced turnaround time and adoption for synbio customers who currently make their own DNA in fiscal year 2023. .

For NGS, we expect to continue to grow revenues from our existing products while expanding our capabilities around RNA and library preparation.

We expect to launch a 25 library preparation product we acquired through the iGenomX transaction this calendar year, and we intend to expand our customer base for both SNP microarray conversions and Alliance panels. .

For biopharma, we look forward to seeing our first [ antibody ] in the clinic in 2022, subject to receiving the appropriate clearances. In addition, we intend to find additional partnerships and add programs as well as post opportunities to participate in a greater share of wallet and rapid clinical advancement.

We also expect to out-license at least 1 Twist discovered antibody by mid calendar 2022. .

For DNA data storage, we intend to continue to drive to early access customers and pilot production. Also we will continue to execute on IARPA's MIST program milestones and actively advanced market evolution for this new storage medium in concert with the DNA data storage alliance. .

With that, let's open the call for questions.

Operator?.

[Operator Instructions] Our first question comes from Dan Brennan with Cowen. .

Maybe just, first one, just to start on the impact from the problem cited for synbio in the quarter.

Could you quantify how much that contributed? And is there anything baked in within your fiscal '22 guidance from that?.

I'll jump in and maybe Jim will as well. No, no, we didn't quantify the impact in 2021. We did notice that -- we did note that we actually finished very strong, both in revenue and order for the fourth quarter. And the headwinds from this issue were included in the Q1 guidance and the fiscal '22 guidance. .

Got it. Okay. And then maybe on the acquisition, looks like there's around $10 million to $12 million of revenue kind of baked in.

I guess maybe first question is, how do we think about kind of the -- can you give us a sense of the growth rate of that business in particular? How do we think about the go forward? I know you've kind of given a sense for fiscal '22, but any sense on -- could you give a little more color on the customers that they have and the outlook beyond fiscal '22?.

And then related to that, is there any conflict as you internalize their technology given that Twist is looking to develop its own antibodies? Is there any risk or -- from their own customers that they view Abveris now competing with them?.

So I'll start with the first part of the question and I'll let -- I'll start with the second part and I'll let Jim answer the first part. As far as the competition, no, actually, it's very synergistic. They use individual and dual approach, which generate antibodies that needs to be humanized. And so that goes directly to the Twist platform.

There are some targets that don't have -- don't generate immune response even in the hyperimmune amount there. So that's perfect approach -- Twist approach with customers that want to maximize the heat rate.

And so actually, they do both approaches in parallel, so it really adds -- it's very complementary and it will enable both platforms to build on each other and be synergistic. .

Jim, do you want to comment on the financial question?.

Yes. So Dan, yes, the $12 million reflects roughly about 10 months revenue this year. We're obviously working through the integration, obviously, optimistic. We anticipate seeing significant revenue growth in that business.

So right now, we're estimating roughly about 30% annualized growth from that base, but obviously update that as we continue to develop the business with the terrific team from Abveris. .

One of the advantage is we're adding customers, I mean, roughly 90 customers, which is an expanded footprint for our synbio organization as well. And in this world where it's tough to get talent, we're bringing in some terrific Abveris team, highly talented and really complements what we're doing with our biopharma and synbio business. .

Great. And then maybe a final one, just on NGS. Could you speak through the fiscal 2022 guidance, maybe some puts and takes? If we were to look back in 12 months and that number were to be higher, what are the key levers? And included in that, I'd be interested to find out kind of how liquid biopsy is kind of impacting the NGS outlook for 2022. .

Yes. I mean they ended in a strong note, bookings were nearly $22 million. Number of customers we're tracking -- a large number of customers in our pipeline continues to grow, it's almost -- under 200 now. Definitely seeing opportunity in liquid biopsy. Definitely big opportunity in MRD.

We've launched our exome, as Emily mentioned, so we're expanding our product portfolio. And right now, we feel we're making prudent guidance for the fiscal '22. .

Our goal is to continue to invest in commercial organization to continue to give white glove service, continue to expand the product portfolio, to increase in R&D. So we're optimistic in terms of the long-term opportunity here, and we feel well positioned in working with the larger customers. .

Our next question comes from Tycho Peterson with JPMorgan. .

I'm going to start with Wilsonville, I just want to confirm you're reaffirming the kind of midyear '22 target to open it up. The slide said 2022. .

And then as we think about capacity there, I guess, I mean, you're generally short cycle so you're not necessarily prebooking capacity at this point.

But how do we think about your ability to kind of scale that capacity?.

And Jim, on margins. I know you're talking about 35% to 37% corporate overall.

How do we think about the margin impact as the year progresses around Wilsonville as that capacity gets up and running?.

Yes. So good question. On bringing out Wilsonville, we're starting the initial ramp around our fourth quarter. If you step back, the overall impact for Wilsonville and estimating dollar impact for the year is $25 million. Roughly about $10 million is in our OpEx.

With G&A estimating towards the back end of the year, we're going to have about approximately $15 million -- $13 million to $15 million as we ramp up the facility. So that's been the impact in Q4. .

But if you step back, it has normalized. The margin is in the 42% to 44% range. I mean our goal is to -- for Wilsonville, we see the opportunity to be able to leverage pricing as well as we address the faster genes. So our goal is to scale that business as quickly as possible. That's why we're investing in the commercial organization.

We've made a lot of early investments in terms of the capital tools, we're starting to hire. As you can tell from the conference call, we are being also additional capacity in San Francisco. We're very bullish in terms of the numbers in bio customers. Although there's uncertainty around the pandemic, we feel we're being prudent with our outlook. .

Okay. That's helpful. Emily, on data storage, nice to hear the milestone proof of concept as you get ready for early access launch.

Can you just talk about what's left from a technical perspective before commercial launch? And then are there milestones we should be tracking for that business for 2022?.

Yes. From a technical perspective, the next step is to keep going down in dimension. So last year, we guided that this year, we'll have the 1 micron chip working and we do. So the next step is to keep going down. .

Cross-talk, as we mentioned, is the key technology issue. And now we've been able to make it grow for 5-micron and 1-micron and so we are very confident that we understand the physics and the chemistry and now really to each other. And so that's why we have the confidence to mention that the next super alpha chip will be our first commercial chip. .

So we're in the design phase of that alpha chip. Next phase will be the production. Next phase after that will be the debugging development of the chip. And when that is done, we'll be able to use it with real customers.

In a way that's very similar to what happened this quarter with the MIST program coming to us saying, those are the sequence I'd like to make. The same thing will happen with our first customer. .

In terms of milestones, it's about getting the chip to work, signing early access customers. And as we mentioned in the past, the customers that we'll focus on for the alpha release will be customers that are very desperate, frankly, to get onto a new storage medium and customers that have a forgiving environment.

We know that now it's going to be the fourth platform we launched after synbio, NGS and biopharma. We know that it's important for the first few customer interactions to work in environments where there is room for back and forth and optimization of the process.

And to that extent, Steffen Hellmold is a great executive addition to the team to make that happen. .

Great. Last one, just on some of the business development updates.

I guess first on Abveris, do they get downstream economics? You mentioned 6 antibodies in the clinic, should we think about that as being additive to kind of the milestones and royalties?.

Not at this point. At this point, their platform is entirely fee-for-service. As we combine integrated businesses, I think we'll have opportunities potentially to upsize the economic sale that we're able to gain. .

And then how are you thinking about the opportunity for Revelar with the spin? I mean obviously, the antiviral data from Pfizer and Merck was pretty good around COVID. So how do you think about that in context of your monoclonal antibody opportunity? And then you mentioned, I think, 5 non-COVID programs.

Is the risk longer term that Revelar could ultimately compete with some of your own development efforts on the therapeutic side?.

No. Not the way we structure the business. It's unlikely that Revelar will be working on the same targets as we are. And if they were, we'll definitely have the advantage of having starting first. So it's very synergistic. .

And the COVID assets are enabling us to be in the clinic in 2022, which is great for Twist -- first Twist antibody. We have a great experienced team. And the idea is to syndicate the risk by having the work done at Revelar supported by external funding.

At the same time, as we keep an upside opportunity through equity appreciation and nice upfront milestones and royalties, so it's very much additive. And there's very little risk of working on issues of fit the way it is structured. .

Okay. One last one for Jim before I hop off. You've got $465 million or so in cash on the balance sheet. The burn this year is going to be about $300 million, I think, with net loss and CapEx.

Can you just talk on how you're thinking about the balance sheet and potential needs to raise more capital?.

Yes. We want to keep a strong balance sheet. We see lots of opportunity for the company going forward. And as always, I'm conservative as Scots can. And we're bringing up Wilsonville this year. We're investing in data storage. We do see upside in terms of the growth in the business.

And as we evaluate our opportunities, I'll be making sure we have a strong balance sheet to finance the growth in '23 and '24. .

Our next question comes from Catherine Schulte with Baird. .

I guess, first, maybe just going back to the production issue that you mentioned.

What was the root cause there? Did it impact all of your production?.

And then you mentioned clearing the backlog in 3 weeks, but also called out that there would be an impact to synbio revenue both in the fourth and first quarter.

So when did the disruption occur? And do you think you lost any customers due to the delays there?.

Yes. Thank you for the question. So the issue happened in August. As you know, synthesizing gene is actually very difficult. It's many steps with chemistry steps, enzymatic steps, cell steps. And there was an issue in the combination of reagents and hardware. And frankly, the issue was compounded by the fact that the fab was absolutely full. .

And so part of the issue is when you add capacity, there's no extra hours in the day in 24/7 that you can use. And when you're at capacity, it actually takes longer than it should to clear the backlog.

So that's one of the reasons why we are adding capacity in San Francisco in the meantime, to make sure that when problems do happen we're able to catch up very quickly and make it basically transparent on the customer side. .

In terms of losing customers, long term, I don't think there is necessarily a long-term impact, but it does -- puts us a little bit on the back foot as we start the [ near ] and the conservative guide for Q1. Now that we actually saw it the second time very briefly in October, that really helped us solidify our understanding of the root cause.

And we believe now that it's totally eliminated. It's hard to prove a negative. And so only time will tell. But we're very confident in understanding of -- scientifically understanding what happened and making sure it won't happen again. .

Okay. Got it. And then you talked about expecting to have the first Twist-discovered antibody in the clinic in '22 with the COVID treatment from Revelar.

What about on the partner side? Do you have any indication how many of those 32 completed programs are advancing and when any of those could advance to the clinic?.

So we don't have a lot of flexibility -- a lot of visibility on where they are. We have no indication that any of them is not moving forward. As far as we know, they all are. And so we are due in the not too distant future for Twist antibody to be in the clinic. And so I don't know if the COVID antibodies would be the first one.

But definitely, the COVID antibodies are the ones that we have excellent visibility in them. .

But at the same time, you can see that we reported in the quarter how many antibodies are -- how many programs are completed. The number is increasing quite nicely. And so we're just increasing the short-term goals for more and more Twist antibodies in the clinic. .

Okay. And then last one for me. If we could just maybe go back to Dan's question on NGS revenue guidance for '22. Came in a little bit higher than where we were, so that was great.

Can you just parse out what you expect from existing customers ramping their business with you versus new customer wins just as we try to think about the visibility into that number?.

So good question. Most of the revenue ramp is going to come from new customers ramping as assets their increase in volume with the test. We do track the pilot and validation of revenues. But the bulk of our revenue comes from those in production and we'll expect that to be the same for fiscal '22, and that's what's baked into our forecast. .

We don't break out how much is pilot, how much validation as yet. But with the growth of the number of customers, Q4 bookings, Q4 orders and the types of assays we're designed into, we're feeling good about our revenue forecast for the year. .

Our next question comes from Vijay Kumar with Evercore ISI. .

Congrats on the print. Let me see if I can ask 800 questions on the call. So Jim, maybe starting with your revenue guidance here. Ex the acquisition that you guys did, I think the base revenues were $173 million to $181 million, that's about 30% to 38%.

Considering you guys just did well north of 45% organic against a tough comp in fiscal '21, is that mid-30s or low to mid-30s perhaps conservative?.

And it seems like NGS growth of 30% against a 65% growth in fiscal '21 seems to be slowing down.

How much of this is conservatism versus any factors that perhaps you might be seeing in the business?.

Yes. So in terms of the business, business is going well. We are obviously still in pandemic. You're seeing lockdowns begin to reappear in Europe. We're always -- and Vijay, we're always prudent in our guidance and want to be thoughtful. .

But the NGS business is going extremely well. The number of large customers continues to scale, larger scale. We're investing in our commercial organization. We're launching new products. And at the same time, we want to be thoughtful in terms of the guidance.

Yes, there are some major wins in our sales in terms of the market opportunities with liquid biopsy, MRD as an example. We have an extremely talented team at Twist in terms of innovating new products. .

So I think the -- we'll obviously update the guidance as we get through the year. But right now, we feel good about the $94 million to $96 million. And in addition to that, the NGS market does continue to cool. And as you see sequencing costs coming down, so I think there's good opportunity for us in FY '22 and FY '23. .

Sticking on to guidance, Jim, the Q1 of $38 million that's sequentially flattish. Historically, you guys have grown sequentially. Last year in fiscal '21, if we adjust for the comps, our timing of orders, again, you were up sequentially. .

Why is Q1 sequentially in flattish? And what kind of impact are you baking in from the manufacturing issue? Is that a factor in Q1? And should those revenues be recognized in the back half?.

Well, there's 3 issues. First of all, Europe is a higher proportion of our business. Revenue for the year was about $44 million. So this scaled significantly from $25 million previous year. So the European Christmas vacations and shutdowns has got a higher impact. And also, we've got to be realistic.

We are seeing spots of COVID pressures around the globe, obviously, some of that in Asia. You're reading what's going on in Europe right now. And we're trying to calibrate the impact of production issue. And our belief is the guidance is prudent in the $37 million to $39 million range. .

Understood. The one on free cash flows, your guidance for net loss of $250 million, that's a massive step up from $150 million in fiscal '21. What is driving this, Jim? I mean that's a really big step up. It looks like you guys have about 470-ish of cash on hand.

Is that enough for you guys to break even on the cash flow side?.

We're -- a couple of things. We're stepping up our investment in biopharma. The overall OpEx is increasing from $205 million this year to $315 million. The -- we're stepping up investment in biopharma at roughly [ $40 million ], stepping up investments in data storage by $20 million.

We're continuing to invest in commercial organization ahead of bringing on Wilsonville. And the Wilsonville investment, in terms of CapEx this coming year is about $75 million. .

Yes, we're deploying capital. We're deploying capital because we really see the customer demand coming in the future. We've got a great team from innovating. Customer base continues to scale. So we're looking at this as a long-term opportunity to invest and scale up in the marketplace. .

Got you. And then one last one. Your biopharma guidance of $22 million to $27 million ex the acquisition, right, we're looking at somewhere between $14 million to $ 15-ish million for the year. That's a pretty healthy doubling up of biopharma revenues, Jim. Is Revelar Biotherapeutics a customer of yours? I know you have the equity stake.

And if it is, how much of a contributor is that? What is driving biopharma strength?.

Yes. There's nothing in that step up, assuming for Revelar. We have built up the investment in biopharma over the last year. We're seeing a lot of customers come back. We're in the 70-odd return rate and this is just based on our continuing to invest in the commercial organization and invest in biopharma, you're seeing that step up in growth.

There's an enormous demand for antibodies and we've got the platform. And we're leveraging our DNA platform, our synthesis platform. So we're seeing significant opportunity. Hence, that's why we've got the step up there. .

Our next question comes from Puneet Souda with SVB Leerink. .

So I have a bigger question here on biopharma. First, we saw Revelar. Obviously, prior to that, you have invested into Twist Biopharma and now Abveris.

So just wondering, given that you have oligos and library of libraries, you have now DiversimAb model with mouse model, you have -- seems like Abveris is using Berkeley Lights for clone selection and maybe getting some throughput there.

But if you could maybe just elaborate at this point in time what else do you need for your biopharma capabilities and essentially antibody discovery capabilities, immunization, high-throughput screening, repertoire validation, maybe in expression and scale up? Maybe just walk us through what you need at this point? Or do you have all the components that you are seeking here to build a stronger biopharma antibody discovery business?.

It's a great question. I think we pretty much have what we need. As I mentioned, the 3 big avenues to discover and optimize antibodies are the Twist approach using synthetic libraries; the animal approach, which now we have with Abveris; and then the machine learning AI approach, which we have a number of collaborations ongoing.

So we have access to all 3 tools. And we -- internally, we've already optimized the panning, the sequencing of the head, the reformatting of the antibody, the high-throughput [indiscernible]. So we are pretty much set. And I think the combination that we have is going to be very powerful and we can a very comprehensive set of suite to our customer. .

Okay. That's helpful. And then just -- I'll keep it to 2. On supply chain, Jim mentioned a couple of things. Things seem to be holding well so far.

But just wanted to understand in terms of where we're hearing quite a bit about plastic plates and pipette tips and other products that might be used in Twist products and delivery of products with multichannel pipette -- I mean multi-well plates and multichannel pipes and things like that.

Maybe just help us understand is there anything that we need to keep in mind there? And broadly across supply chains, what are some of the things that you're looking out for?.

Well, we entered into the pandemic last year, we -- the strategy of building into supply chain and we get ahead of the curve. Obviously, we're vigilant in terms of any potential bottlenecks. We did increase our average to [ 32 million ]. And it was interesting.

We did a tour of the facility recently and the feedback was, wow, you guys have got lots of tips sitting around. So we've done it -- so far, we've done a good job on keeping ahead of the issues. Obviously, we're seeing demand increase. We've got a terrific team in the supply chain that have been delivered in terms of the materials.

So it's just a matter of keep grinding through this and executing. .

Our next question comes from Matt Larew with William Blair. .

Just wanted to ask again on gross margins in terms of pacing throughout the year. So I guess just contemplating coming back from the backlog here in the fiscal first quarter and then factor the future ramping later in the year.

Can you just maybe help us with pacing for gross margins throughout the year?.

Yes. I mean the -- as we bring on the Factory of the Future, I mean, we are going to see increased fixed costs. So we're looking at a total spend for Factory of the Future, it's roughly around $25 million. Of that, about $10 million is sitting in OpEx, G&A.

About $14 million to $15 million -- it's about $14 million actually is going to impact us in the second half of the year. With the -- I think in terms of breaking that between Q3 and Q4, it's about a 30% impact in Q3 of that $14 million and the rest hitting in Q4. So you can build those numbers into your model. .

But if we just step back, I mean, excluding the Factory of the Future, we're targeting roughly -- or we're seeing margins range 42% to 44%. And as we get into the first half of the calendar year, we'll give you more updates on what that cost looks like you can normalize the margins. .

Okay. And then you mentioned some growing interest within health care segment for synthetic biology.

So just curious if you could discuss that a bit more?.

And then maybe somewhat relatedly, just give us a sense from what you're seeing in terms of longer and more complex genes in terms of the demand there?.

Yes. So in terms of the health care segment, yes, so we've grown significantly in health care. I mean it's been the area that we've seen with growth. So what's driving that? You get sort of 3 factors on the health care side. You've got the growth in terms of NGS, growth in terms of biopharma.

And then on the synbio side, we saw -- we had lots of questions on the last earnings call, the sequential bookings declined from Q2 to Q3. You notice the bookings did increase from Q3 to Q4, that's driven by predominantly the health care segment within synbio. .

In terms of what does that mean in terms of genes and the gene length, those tend to be shorter genes. So we've seen switch of our gene activity from last year we had higher percentage that was longer genes, i.e., more than 1.8 kb.

This year, we're looking at 1.8 kb and non-clonal genes, they're accounting for in the last 2 quarters roughly 70% of our gene volume. .

What's driving that? The pharma business is driving that. .

Our next question comes from Luke Sergott with Barclays. .

Just real quick, did you guys call out the actual dollar value impact from the shutdown in synbio in 4Q and what's expected in 1Q?.

Luke, no, we didn't. I can tell you just from a sort of cost point of view, it was roughly just under $1 million the impact of this that's due to mostly having to do reruns and waste in Q1. I mean, obviously, we're still working through Q1. The biggest issue in Q1 is just Europe is a higher share of our business.

We did shutdowns, European vacations coming around Christmas. And we're seeing some hotspots in Asia in terms of COVID. And at the same time, we're seeing significant demand coming in, in terms of we had really strong [ quotation ] in orders. .

We'd rather be prudent at this time of year. we feel good about the growth rates and the annual guidance. And want to make sure that we calibrate well for quarter 1. .

Okay. That's helpful. And I guess as I'm thinking about '22 and we're thinking about the NGS tools business, major upside driver, I think, to a lot of the way that investors are thinking is going to come from the liquid biopsy.

Can you give us a sense of how big that business is for you? How we should think about either Guardant's new tests coming in to early '22? Or the AnchorDx in China, how those kind of fade through?.

Look, we don't break out liquid biopsy. Liquid biopsy is a contributor. I mean we've got close to 200 large customers we are tracking. We continue to do well in terms of the number that have adopted, those that have adopted to include liquid biopsy. .

I mean our goal here is to build a broad platform because we're seeing more than just -- there's liquid biopsy, there's MRD. You're seeing other NGS type applications. We had the iGenomX acquisition. We have the microarray to NGS conversion with potential Regeneron coming back.

So our goal here is to keep building the business in terms of number of customers, the number of applications. But obviously, liquid biopsy will contribute, but we're not breaking out the liquid biopsy impact. .

Yes. Okay. Sorry, just tried to get it out of you. Lastly, on the R&D step-up. This is more of just kind of a longer-term idea here. So you guys have the biopharma business, the DNA storage and then the rest of your core business that's looked as the kind of the cash driver here. .

So is there -- give us a sense of how you bucket out that R&D step up.

Is that mostly going to the clinical trial work from biopharma? How is that also keeping abreast of the R&D spend for NGS tools so that you guys can continue to accelerate that growth given it's a smaller business, but can be a lot bigger?.

Yes. I mean -- so just stepping back, looking at the business. I mean we are stepping up overall R&D and the biopharma roughly will be -- we're increasing, additional $40 million in biopharma and $20 million in data storage. So that's, what, $60 million of the total $130 million. .

So in terms of the core business, we're investing substantially more than 20% of revenue in that core business. And we'll continue to keep investing in our core business because we are seeing terrific opportunities in terms of NGS as you've outlined.

Also, we're seeing good opportunities in terms of investing and expanding the synbio platform as we start to launch our IgGs. .

So I think we're bringing balance in terms of our overall investment. I mean $130 million in R&D with biopharma opportunities, as Emily highlighted, and data storage, yes, longer term, but it's becoming more real. .

There are no further questions. I'd like to turn the call back over to Emily Leproust for any closing remarks. .

Thank you very much for joining us today. To close the call, I want to personally wish you a wonderful Thanksgiving. We are especially grateful for all the Twisters who have delivered an excellent fiscal '21 and are already enthusiastic about the opportunities that lie ahead for Twist in fiscal 2022. Thank you very much. .

This concludes the program. You may now disconnect. Everyone, have a great day..