SOPHiA GENETICS SA (SOPH) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to JPMorgan Healthcare Conference. Last day today, we have a lot of presentations still to go. So I hope you've had some coffee and ready to go. I'm Josh Bowers from the London Healthcare team. It's my pleasure this morning to welcome Jurgi and Ross from SOPHiA GENETICS. As with all the other presentations about 20 minutes, and then we'll open it up to Q&A. Over to Jurgi.

Thank you, Josh. So it's a pleasure to be here today to present at the JPMorgan Conference 2024. Before I start with our story. So I'm Jurgi Camblong. I'm the CEO and one of the cofounders of SOPHiA GENETICS. And today, I'm going to speak to you about the story of SOPHiA GENETICS, our strong execution in 2023, and our plans to further execute in 2024. Before I start, as it is traditional, I need to give you a moment to quickly read our cautionary notices. So when we started our journey back in 2011, the 3 cofounders of SOPHiA GENETICS, we had a clear idea on where precision medicine would go and how there would be one day world of data-driven medicine. And our strong belief that was with new data types that will be produced to better understand disorders, there would be an opportunity for a tech player to basically bridge a gap between science and technology. And while sitting in the cloud, breaking information silos across institutions that would produce data of patients as well as breaking information silos across data modalities, so that's the bigger the network, the more data computed, the more collective intelligence would be created and hence on the basis of the patients today be in a position to better inform decisions for patients tomorrow. So while this was a bold statement when we started 2011 with no technology, I think, our credentials have demonstrated that this world exists today and probably will become a new norm in the future. Before I go in details within SOPHiA GENETICS, I would like to take a moment to highlight you some of the innovations that we believe have been paving that potential world of data-driven medicine along the last 20 years. Back in [ 2003 ], a long time ago, we, I think, were all excited about the first human genome sequence, and this sounds very, very long time ago but was a very important event because thanks to the ability of understanding how the genomics functions, we have been able, since then, through a lot of discoveries and science effort to understand the key drivers of important disorders, such as cancer. From 2003 to 2011, it took actually 8 years to move from the first human genome to have an industry player, Illumina in that case, distribute sequencers, MiSeq into the hospitals to enable hospitals to sequence patient data locally close to the patients and take informed and good decisions. 2012, 2014 were years where some reference labs developed very sophisticated solutions. And by doing so, demonstrated the value of profiling the tumor of patients so that either from the tissue or from the blood, one could understand what was driving cancer, better diagnose patients, have a better idea of prognostic and have better information to be able to take clinical and medical decisions. I think there is no question that today, CGP testing and liquid biopsy testing have demonstrated clinical utility. And beyond that, we've seen other actors that went beyond genomic data by computing and combining in reference lab phenotypic data, together with genomic data to be able to even better understand what is driving cancer. 2018 was a year where Illumina launched their first CGP in the market, TSO 500. So basically 6 years after Foundation Medicine had done that in a [ central lab ]. And we believe that this was a very important movement because that it was for the MiSeq launch into the hospital. It demonstrated that eventually one day, every hospital around the world, every reference lab will be able to produce genomic information and do precision medicine at home. We believe that today, we are already in an era of data, where platforms will become more and more important. And while by breaking information silos, as we do, we will be able to deliver better and better insights to clinicians, to take smart decisions as well as leverage on the data that are being gathered to inform the biopharma industry on how to develop more targeted drugs. While this is, I think, something that is very important for humanity and in particular, important to give equity of care to patients around the world, doing testing as close as possible to where they live, it's actually a good business as well. Today, we estimate that our total addressable market is a $40 billion TAM, $25 billion in the clinical market and $15 billion in the biopharma market. And that this total addressable TAM can be addressed with the capabilities we built since 2011 as we have been developing our cloud-based consumption analytics platform, SOPHiA DDM. Since 2011, we've invested $400 million in the development of SOPHiA DDM, the workflows, the algorithms, the security requirements to really be able to scale that. And today, I'm really proud to tell you that these efforts have enabled us to build unique factory capabilities that are powering up our algorithms and biogenomics, is our radiomics factories and multimodal factories. And as you will see later in my presentation, as we have been computing data, we have been able to have a very sophisticated data sets of clinical genomics patient profiles in our data warehouse, which today gives us a competitive advantage. Thanks to this data diversity, we can continuously improve our algorithms. And as we deploy them in the clinical market, better help the clinicians as well as the pharma industry. Recently, we had -- sorry. Recently, we made -- we call that with our customers. We made...

NPS.

Yes. Well, we asked our customers what they thought about SOPHiA GENETICS. We made the survey. And we end up demonstrating that the NPS was really state of the art. So our customers are in love with SOPHiA DDM. 75, It's really strong, not only for any company, but in particular, for a tech company. And we believe that this NPS reflects the capabilities of our platform in being able to accurately compute data while data are being produced by different workflows, reflects the universality of our platform that enables hospitals to properly compute and produce data without making big CapEx investments. We believe that this represents as well our performance when it comes to security and privacy of the data scalability and interoperability. And in that regard, I think it's very important to acknowledge that in the world of today, it's very important to be able to have bidirectional communications between systems so that the patients get the best information out of it. And we're very proud to have highlighted some of those, including what we did with [ Gustave Roussy ] this year. So we ended up 2023 strong. I can't disclose any forward-looking revenue for Q4 and either full year. But I can give you some data when it comes to the number of analysis, which is a proxy of our performance as well as the number of customers we have landed during the year. So we ended this year with 315,000 patient profiles computed within SOPHiA DDM. We added 87 core genomics customers to our platform in a full year and ended the year with over 750 plus institutions using SOPHiA DDM. Not only we ended up the year strong, but actually, we ended Q4, very strong. Out of the 87 customers that we added, 35 were signed in Q4 and are going to start producing by H2 of next year. So you should expect volumes to continue to grow on the base of the signatures. And we ended up this quarter, while I'm not going to yet give specific numbers, with over 80,000 patient profiles that were computed in the platform. So to be able to achieve that, one of the recipes that SOPHiA GENETICS has deployed and applied along the years has been to be very close to customers. And this has not enabled us only to develop a very accurate platform, a universal platform, but as well to have in our platform a set of applications today over 300 applications that enable us to support biopharma academic hospitals as well as reference labs in rare and hereditary disorders and oncology for multiple applications, all along the patient journey and for any type of organ and, in particular, any type of cancer type. We've never highlighted what has been our performance in terms of compute of the data for a specific type of applications. And today, we decided that we will give you a sense on what type of data in terms of disease applications are being computed over time within our platform. So we ended up 2023 with a strong growth, double-digit growth for all the disease areas where we have been involved. The volume of data compute in rare, inherited disorders grew 19%. The volume in hereditary cancer grew 25%, the volume of patient computed for HemOnc grew 26%. The volume of patients computed for solid tumors grew 32%. And while for us, it's -- liquid biopsy is pretty new, we're really happy to see a strong growth in 2023 on liquid biopsy with a year-on-year growth of volume of 362%. So given our platform is consumption-based, the analysis you see here a good proxy of our revenue. And so in Q3 2023, we announced that we had strong growth. So we had a 40% growth year-on-year on a reported basis and 37% growth of revenue year-on-year on a constant currency ex-COVID basis. And we believe that this is the type of growth that SOPHiA is going to be able to sustain in the future as more disease applications require, for example, DNA sequencing and multimodal capabilities become more and more important to take medical decisions or inform decisions in deciding how to develop drugs. While the performance for 2023 was strong, we're very excited about 2024. And today, we decided we will highlight 3 key drivers. The first one is solid tumors. We see that over time solid tumors will require more and more complex signatures to be identified like HRD. And we believe that the platform like SOPHiA will become even more important, thanks to our AI capabilities. We see a strong growth opportunity for 2024 with liquid biopsy. And last but not least, we have right now significant momentum in the U.S. with recent wins, and we believe that this is something that will be a catalyst for 2024 and beyond. So going to specific applications. I would like to explain you how quickly we can develop and deploy applications in the market. Recently, we published in cell reports medicine, our GIInger deep learning algorithm, which has been the algorithm that enabled us to strongly grow on HRD testing over the last year. It took us about a year to develop this algorithm that we deployed in our platform in February 2022. And in 2023, we've seen this algorithm used by over 47 customers and we grew the volume of HRD testing by 180%. This is a trend that we expect might continue in 2024 for different reasons. First, biopharma is really requiring decentralized testing, in particular for complex signatures such as HRD. Two, we start to see positive traction of SOPHiA DDM for HRD testing into new geographies and of last year, we had announced that The Institute - Gustave Roussy in Paris, which is one of the top 5 cancer centers around the world had adopted SOPHiA DDM for HRD testing. Early this year, we have been announcing actually today that The Royal Marsden, part of the NHS hubs has as well deployed SOPHiA DDM in-house for HRD testing. And beyond, I would say, marquee names that are basically validating the quality of our technology. We do see for 2024 growth opportunities, given that our algorithm is technology-agnostic as platforms like [ MGI, Element ] and others will be deployed, we believe that we will see more usage of our platform for HRD detection. So stay tuned for 2024 when it comes to HRD growth. And beyond 2024, we believe that this growth will be sustained as HRD score may be applied to other cancer types beyond ovarian cancer. To finish, on HRD, I would like to highlight that for us, this was the first time we were working with a pharma company to deploy our capabilities into the clinical market. We did that very well and very quickly with AstraZeneca. And as I turn now to another application, which is liquid biopsy, I want to highlight that we're going to apply the same recipe. So back in October 2022, Memorial Sloan Kettering had given us exclusive rights to one of their technology called MSK-ACCESS that they wanted to decentralize beyond the Memorial Sloan Kettering lab. And we've been industrializing that solution as we did for HRD. And we gave already some color of the performance of this technology a few months ago. This effort led to a tripartite agreement between Memorial Sloan Kettering, SOPHiA GENETICS and AstraZeneca to push liquid biopsy testing powered by SOPHiA with MSK-ACCESS across many continents and so we are very excited about this potential for 2024. End of 2023, we had announced that in the U.S. BioReference Labs was the first adopter of MSK-ACCESS powered by SOPHiA. And today, we're announcing that another very important lab Dasa, which is actually the third largest lab in the world, largest in Latin America is as well adopting SOPHiA DDM powered -- excuse me, MSK-ACCESS powered by SOPHiA DDM for liquid biopsy applications. Turning to our third driver, U.S. We ended up the year adding BioReference Labs. I want to remind you that we have very strong marquee names that are customers of SOPHiA DDM in the U.S., most of them being academic centers, comprehensive cancer centers, university hospitals, but some of them now being as well reference labs. And this morning, we are announcing that Tennessee Oncology, one of the largest cancer care networks in the U.S. is adopting as well SOPHiA DDM for multiple applications, including MSK-ACCESS for liquid biopsy testing. So while the deployment of new applications in the market and the deployment of SOPHiA DDM into new market is important, in the end, this enabled us to animate our flywheel effect, the more usage of the platform in the clinical market as we deploy new capabilities, new applications in new regions. The more data, the more we can as well help either researchers or the biopharma on discovery and development activities. And we believe that this flywheel effect will accelerate in the next years. And as an example, I would like to highlight as well the fact that the biopharma has right now realized that this flywheel effect can benefit them as it was in the case of Boundless Bio with whom we've started on the development phase for their clinical trials to target specific patients that have a signature called extra chromosomal DNA but with the understanding that if together, we would validate the signature for their indications, they could then use our platform to deploy the testing in 750 hospitals as a turnkey in the deployment phase. So this area, I think, is just the beginning, but we believe is going to accelerate in the next years because sequencers are more powerful because new data modalities become relevant in the clinical decision, because computing cost as well is decreasing. And I would like for the first time to give you a sense as well on how ourselves we think about data at SOPHiA GENETICS and how the data amount we've been computing over years have evolved. So from 2021 to 2023 we've been expanding the network of our customers and computing more patient profiles, Actually, the data volume has grown 51% on a compounded annual basis. of this growth, 30% of this growth in terms of terabytes, comes from more patient cases and 70% comes from more complexity into the data, which means more genes, more depth, more data modalities. This is for us extremely encouraging because it's demonstrating that the platform will be leading this industry and that this platform will need to be powered with very sophisticated algorithms as signatures become more and more complex. So turning to multimodality. Last year, we had announced that Memorial Sloan Kettering adopted SOPHiA DDM as a partner to deploy their 80,000 clinical genomics database, which is a unique data set that MSK has been able to develop over years with comprehensive genomic profiles, liquid biopsy, digital pathology, radiomics features and clinical data. And this week, we announced that another partner just joined this effort. This is Exactis. So it's a foundation that is representing 18 hospitals within Canada and through Exactis and MSK, now we're going to accelerate this data movement and hope to see other foundations, other hospitals, other networks join our multimodal platform to eventually share data with each other. So while this is, I would say, the future and clearly, it's still a bold mission. I want to highlight that we're not alone in our journey and that we have multiple partners so that we can execute the adoption and the deployment in our platform, both in the clinical and in the biopharma market. Today, I've been talking about our strong performance in 2023 when it comes to the top line with 40% year-on-year growth on Q3 2023. I've been talking about our strategy for 2024, but I would like to finish saying that we are committed to sustainably grow at SOPHiA GENETICS and that we are on a path to profitability. It is now 5 quarters out of the last 7 continued quarters that we have been improving our operating margin. We've been able to grow 40% year-on-year, Q3 on Q3 while decreasing cash burn by 42% and end up Q3 2023 with very strong adjusted gross margins of 73%. Right now, our cash position is $132.8 million. And today, we are very confident to announce that our path to profitability will be reached in -- over the next 2-plus years. With that, I would like to thank you, and I would like to as well tell you that we count on you as investors, as partners in our journey to democratize data-driven medicine. Ross and I are now ready for your questions.

Maybe I'll kick it off, Jurgi, if you could give us a little bit of more color on your multimodal approach and how that differentiates you with other approaches?

So we started building our multimodal capabilities about 3 years ago, and we did that around 1 specific cancer type, which is lung cancer, stage 4 -- non-small lung cancer stage 4. And this enabled us really to build our multimodal capabilities. And so to give you some numbers, in 2 years' time, we've been able to deploy this platform for lung cancer in 30 centers around the world, including Mayo Clinic followed 2,000 patients and demonstrated that by doing so, not only we're trusted by the hospitals of computing data beyond genomic data but as well that there was a value on it, right? The value to cohort patients and the value eventually to be able to define a prognostic score in that case to guess how a patient might respond to immunotherapy. So this is something that I think is pretty unique and that's been able to be achieved so quickly in 2 years' time, thanks to the $400 million investments we made in our platform to build up our factories and that has been as well one of the important elements to trigger the interest of Memorial Sloan Kettering as well as Exactis on putting their multimodal data as well into our platform. And to end, last year, we've been public as well of a partnership with a biopharma company, AstraZeneca, where our factories are being used as well to compute the data of AstraZeneca in the context of a specific clinical trial. So I would say that these different steps have been very important to demonstrate the value, the trust of our platform for both the clinical market and the biopharma market. And I would say, as the therapeutic array has become more and more nuanced, I do believe that this type of capabilities will become more and more important.

Okay. And then I saw your current cash balance, $132 million where does that get us? And how far along your path of profitability does that reach?

So I will start by reiterating that we're committed to profitability that we have enough cash to reach profitability and that our plan is to be profitable in 2 plus years. But I don't know if Ross, you want to give some more color?

Sure. So obviously, we've been trying to balance what we would consider the path of sustainable growth. Inherently, if you look at our long-term growth guidance, 30%, 35%, we've been tracking at least in the third quarter above that range, but certainly for the year, as we pointed to, we continue to feel comfortable with our performance. But I would say, in a challenging backdrop, we were not able -- not only able to deliver those strong revenue results, but we've shown very significant gross margin expansion, which, again, I would say, gives us really nice ability to then lever that to the operating line and ultimately cross over to profitability. And so what we wanted to get across today was certainly, to Jurgi's point, we have sufficient capital, we intend to cross over to profitability in 2-plus years and have a nice comfortable cash buffer as we do so. And so we've been running the business to be able to sustain that growth momentum that is also underpinned by very strong industry dynamics, but do so in a disciplined way where we can be sustainable, self-sustaining and profitable. And so I think, again, this is an incredibly important period for us from an execution perspective, we did end the year strong. And so as we look to '24, obviously, we'll update folks when we guide typically with our fourth quarter results. But in the end, we wanted to give some color around that path and that crossover because I think, particularly in the current environment as an executive, it's very important to be cognizant not just of your market potential and objectives, but also doing so within your capital means, which is what we've done.

Great. That's clear. In terms of liquid biopsy, it's exciting. We're hearing a lot of chatter about it. What are you seeing from your customers? Can you give us a bit more color on what you see in the future events.

I would say the clinical utility of liquid biopsy now has been demonstrated, right? But it took quite some time. And the utility today, it's for specific type of cancers, lung cancer and prostate cancer. But we believe that this will go beyond diseases and applications and that liquid biopsy will not only be used to diagnose patients for those type of cancers when a biopsy is not feasible. But beyond that as well to monitor longitudinally patients as they are being treated, right? And I would say in October 2023 at ESMO it was very clear that there is a strong trend towards the adoption of liquid biopsy by many hospitals around the world. And the big expectation from the pharma that decentralized liquid biopsy testing is happening for multiple reasons, one, for finding patients that may be eligible to drugs; two, for being able to identify patients that can be recruited into clinical trials; and three, for discovering perspectives. So we are very, very enthusiastic about that trend. We don't think we'll be the last one. Today, we didn't cover MRD, but we believe that MRD at some point as well will follow the same trend. So we try to explain that this comes in waves of innovations. We saw the centralization of hereditary cancer testing or solid tumor testing, now we are in the phase of liquid biopsy testing. And in the future, when we come to a specifically genomic testing, there will be other type of tests that will demonstrate clinical utility and again, we'll be deployed in a decentralized way, and we require a platform like SOPHiA DDM to compute those data.

Yes, I would just add commercially, liquid biopsy will launch in a full routine basis for us in the first part of 2024. And so the fact that we already have great brand customer names signed up, and we have a very strong pipeline, is a testament to, one, the quality of the product. Obviously, everyone knows the MSK brand name other than the market-leading product, Guardant360, I think this is probably the most recognized application in market. And so there's a lot of excitement, not just here in the U.S., where we've had some really nice wins, but on a global basis. So if you start thinking about, again, pharma's interest in therapy selection, the, I would say, advantages in some instances, right, of a liquid versus solid application. We're quite confident that this will become, for us, one of the more important growth drivers over the next certainly 24 months. and you'll see more from us over the course of this year. And so the product is off to a fantastic start, and we're very excited about updating you on its progress over the course of this year into next.

Great. And you mentioned the U.S. and your success over here and with your partnerships with large pharma. What -- where are you in terms of penetration here in the U.S. with the DDM platform? And how fast do you think that can grow?

Well, it should be our biggest market, right, in the clinical business. Just taking a step back, we started commercializing our platform back 2015 in Europe and we didn't move away from Europe before 2019. But since then, we've seen a lot of traction. And one of the testimonial of this traction is the marquee names that are using SOPHiA DDM today. Definitively a market where we can do better, a market where I think right now, there is a lot of sensitivity as well on return on investment and efficiently producing and computing data even for players who are producing cloud data at scale. So I refer to specific type of reference labs. And the fact that we ourselves are being among the only one industrializing a platform like SOPHiA DDM are uniquely positioned now to support them, not only to enable them to launch new applications, not only to enable them to manage their existing business, but to do so while decreasing a lot of their cost. And in that sense, the recent pressure that the market put on the OpEx has been pretty positive for us because it's opening up new sales opportunities into this type of customers.