Twist Bioscience Corporation (TWST) Earnings Call Transcript & Summary

Okay. I think that's it. Again, this is Luke Sergott. I work at Barclays, cover the life science tools and diagnostics space. And it's my pleasure to have Emily Leproust, and Jim Thorburn and Angela Bitting with me from Twist Biosciences. They are the -- one of the major synbio players here. And give great color on the industry and everything else you want to -- could possibly want to know about writing DNA. So with that, I'll allow them to introduce, provide a brief overview, and then we can dig in.

I -- Luke, you want me to show some slides?

If you want me -- if you want to, that would be great. So just go ahead and share your screen, and I'll turn off my video.

Okay. Sorry, I thought we were going back into questions, but no problem. Let me share my screen right now. I'm ready to rock and roll. So thank you for the introduction and invitation. So at Twist, we write DNA. And first, I'd say that we'll be making some forward-looking statements. And we're very excited about writing them because we've seen DNA is changing the world for the better. And our customers use our DNA to modify nuclei to produce chemicals in a way that's more sustainable, but it's a lot cheaper. And they modify plants to improve trader plant or deliver nitrogen at a route of plants, libeling for fertilizers. All therapeutic drugs via antibodies, vaccines, cell therapy, they need DNA as a starting point. In diagnostics as well for the new generation of diagnostic assays. DNA is at the center of that. And last but not least, you can store data in DNA. And last -- in Q4, we sold DNA to Netflix. And so from the silicon platform that we've been to write DNA, where we've built 4 different businesses. 2 of them are tools. So they provide great growth and a slow down sale protection because we have happy customers. And then we have 2 options or big potential upside in discovery and data storage. So those are still earlier, although we are starting to deal with them, but there is a potential side. The market that we're going after are big. It's about $3 billion for the core. Synbio and NGS market growing 20%, 25%. And I enjoy discovery, it's many billions of dollars in data storage. The market is $35 billion. So lots of opportunity for us. The next few slides, I'll do a very quick dive in each of the 4 business to kind of introduce them. In synbio, we sell genes, so we make cloning obsolete. We initially differentiate ourselves on price, but since then, we've added scale, user experience service, speed and now improving and offering other flavors of DNA. We are even shipping protein. And we've announced our Factory of the Future, which will increase capacity and decrease the turn around time. In NGS, we are in test like liquid biopsies and cancer diagnostics and population genetics, rare disease detection, and the main differentiator there is quality. So the price of our kit is the same as the competition, but because of the better uniformity that we can achieve an equal, we reduce the cost of sequencing by 50%. And so the cost of synbio is lower. And so if you're going to run a million samples, there is a lot of cost savings that we bring. So we bring rapid customization, meaning that in liquid biopsy, for instance, in R&D, you need to do a lot of development of panels. And so we can ship panels much faster than the competition. And then last but not least, we are the only company that provides a 1-day turnaround time from DNA to the sequence. In drug discovery, our model is that partner comes to us, and they give us their target, and we give them a drug that is really going to preclinical development. And we are not a CRO. We get paid upfront, of course, but we also get paid milestones and royalties. That is because we have some unique approach. One is, we have more DNA than anybody else, who have more shots and goals; two, those DNA sequence are never random. They are human derived and fully human, meaning that we follow the rules of the human recorder. So it's better mutant. So more mutants, better mutants. And then finally, we have automated and mentored a lot of the steps. So we are more productive, and so we can do things that others can't do. Now as we are gaining confidence in our biopharma approach, we have picked 7 targets that we are developing for sales with the idea of licensing them in the future. And then last but not least, in terms of our businesses is data storage. The technology where we started at the 50 micron feature worked. We had many demonstrations with the Microsoft and the United Nations and the Montreux Jazz Festival and Netflix, but it was still -- while it worked, it's expensive. And so we have -- we're on a technology road map to decrease the size from 50 micron to 10 micron to 1 micron and then to 150-nanometer pitch, which price will be on par with hard drive. And so I'd like to say that last year, we got a 10 micron to work. We have the 1 micron in hand, and we guided that this will work this year. And we'll have the 150-nanometer pitch in hand next year. So with that, to conclude, we have lots of very, very aggressive goal for the year. I'm not going to go through them, but we are a company where we really want to push the envelope in each of those 4 businesses. And a quick summary of Twist is that we have a platform through IDN. We're going after a large and growing market. We always go after a differentiated value proposition. We don't do mid issues. And so right now, we are building a portfolio of growing businesses, and those business models have been validated. And over the last 17 quarters, we have been delivering very high revenue growth, and that track record is a testament to the execution and innovation of all the Twist. So with that, maybe I'll stop for questions.

All right. That's a great lead-in. And I just want to focus more on the platform capabilities of the business, right? So you guys started with just writing the DNA and positioning yourselves at the high science oligo business, right? And that kind of spun into the NGS tools and the enrichment kits, and then you leverage your capability there to do the drug discovery, the GPCR antibody development. And then the DNA storage was always viewed as immune shot, the moon shot. As those are coming to fruition, give us a sense as you look across the different industries outside of traditional tools. So industrial customers, consumer, one of my favorite synbio companies is Spiber, right? They did the spider silk. Give us an idea of the opportunity set available to you to leverage your platform to really provide solutions and to build out capabilities similar to NGS tools for this fiber kit or something like that as you go forward?

Yes. So we have a platform, and we see ourselves as the enabler. And so we're -- when we go into an area frequent coating flavor of DNA, we do it in a way that we try to provide overwhelming force to take that market. But as the demand evolves, as our technology gets refined, we're able to offer new things. So to your point, for instance, when we started a -- or selling our genes, it was just 1.8 kbs. Since then, we've gone up to 5 kb. After that, pharma companies, we are telling us that it was great to get 1 microgram of DNA, but if I could get 100 micrograms, that will advance their work. So we'll launch our library preps. Recently, in December, we've launched IgG. So now if you're a pharma company, you have to buy DNA and do the production of protein yourself. We are going to do that for you. And so we try to be responsive to what the customers need and go up the value chain in what they want. So they all become bigger part of their workflow. So over time, we've leveraged that base platform, where if you want 1.8 kb or 5 kb gene or protein or NGS pits, all made on the same chip. So that platform is the core that we were able to be responsive to the workflow that -- for people do in-house and take more of their wallet share. And what that means is that not only the revenue potential we get from them is higher, but we increased quite a lot the stickiness of what we offer because it's not a standard product, it's something that is almost tailor made for them, and that is highly appreciated.

Okay. It's a -- as you think about those industries progressing, it's a good framework to think about. And I want to get a little bit into the data. I mean you guys deal a lot -- I mean, you're more than just an oligo and a DNA writing company, right? And you deal with large amounts of data. Is there an opportunity outside of the storage, obviously, for you to get into data analysis? And as you think about you shrunk the cost and the time of the front end of sequencing, is there an opportunity that you see from a service provider to -- for data analysis and to really kind of expand that wallet share instead of just being a tool provider?

Yes. So definitely. So I'll take an example of something that we had done. It was the methylation, we see methylation a really big opportunity going forward. It's -- the methylation is super important in cancer. And so far, big companies do methylation because they had giant armies of bioinformatics people. And the hard part in methylation is upfront probes design, where you have to design probes for every stage of methylation. And so if you have a 0% mutation or 50% or 100%, the seeds are going to be -- is a modified or not. So you either on the probe with 4 bases of a probe with 3 days or something between. And so that heavy lifting upfront of the data manipulation is complicated. And now we've built that software package, such that customers just have to come to us. They just tell us the reasons they want, and we are going to manipulate that data to create all the probes possible to capture all the mitigation stay possible. And that's quite a heavy lifting. And then we have the prep and the capture. And so that means that customers will be able to -- it's a one-stop shop. They don't -- all they need is the gene scientist, and we'll do the rest. And so that's one area where not only we are a hardware company, a platform company, which were slow, to your point, supplement software where it makes a difference to facilitate the customer getting to the answer, and ultimately, it facilitate the rate at which we get the revenue.

Okay. That's -- yes. So it's kind of addressing it on both ends. Okay. When you think about the NGS tools that TAM you guys laid out at $700 million. Is there opportunity for you to expand this outside around the sequencing ecosystem? So you mentioned kind of the IgG. Is there -- like can you create an enrichment kit for the 10x single cell gene expression, things like that to help advance and drive those costs down as well?

Yes, definitely. There is a lot of opportunities. We've mentioned even, for instance, MRD. MRD alone can be another $700 million business. So we are not going to launch a Twist with MRD. But by enabling all the MRD companies, we'll be able to make that market and create market share for ourselves. And to your point, there is still a lot of areas where on top as we have decided not to go into. Quite often a couple of times a year, we sit back and we say, what are all the things we could be doing? And then we foresight, and there's a hundred things we could be doing. And so we focus on the top 5 and 10 that really well. So for instance, now that methylation is launched, we have a bunch of resources that are freed up to go down the list of things we could do. But so far, we have nothing in single cell sequencing. We have nothing in special sequencing. We have nothing in RNA sequencing. But it doesn't mean we can't do anything, it means that we decided to focus on areas that -- where we could create a big opportunity. But -- and as resources becomes available, then we can expand. And so definitely, there is growth. And then I'll finish by saying that SNP microarray is another example. SNP microarray is another $500 million opportunity that we have. Now we've shown most recently with Regeneron where they gave us the 9 ml in our Q4 quarter that we could provide some -- an asset that is cheaper than the microarray and that's stable state. You can't get in, if you can't be cheaper than the microarray, number one. And then on top of it, we work with them to make the asset better. And so that's another $0.5 billion market that we created. So that's some of the questions we have to answer for sell, which is when we launch the next product should be helpful to the SNP microarray conversion, where we have very little completion or should we do something that single cell sequencing. Eventually, we can do everything, but we try to be disciplined in our approach to go after one strategic opportunity and really dominate it and then move on to the next one.

Okay. I want to hit on all the 4 key drivers here. So I'll pivot to the drug discovery business. Give us an update us on the internal targets or the guidance targets of how many companies you're looking to port over to that platform this year? And as you're thinking about bringing on larger pharma, are you starting to get any interest in risk sharing? So maybe some economics on the approved drug? And then also, on your 7 internal candidates, are those still up for partnership and grabs? Or is that more of just a point of care? I mean proof of concept.

Yes. So it's going really well in biopharma. We -- last year was a great year. We got 13 partnerships, 8 of them with milestones and royalties. Last quarter, we added 2 partnerships with Manson royalty. So we can't convince people to pay us maximum royalty. And the good thing that we see is that when customers come back, they actually give us the easier things, and they are willing to pay more. So the rate of business is really good and the economy that we get is better, and that's a testament to the strength of what we provide. I think the -- one of your question was when will we see the fruit of milestone and royalty, if I understand correctly. And I agree that you're focusing on that is the next great catalytic event for Twist. So we don't know out of the 13 companies we signed last year, we don't know which one is going to be in human first, right? And that was the strategy last year -- sorry, let's try to get as many companies as possible because that increases the odds of getting there sooner. Once we've given the molecule to them, it's 18 to 24 months to IND and being in the clinic, but we don't control the timing that the partner is controlling it. But definitely, we -- I think we were talking to the right people. For instance, one of our first customer, [indiscernible], just got acquired by Merck recently. So we are the bleeding edge of -- enabling the bleeding edge of the science, and it will happen. I don't know if it's going to be [indiscernible] or Takeda or Neogene, but someone will be first, and it would be a great catalyst given for Twist. And then on the 7 targets that we're developing, the goal is still to license or spin one out in the next 18 months. There -- the first step is to find the antibody. And for a few of them, we -- now we feel like we have the lead that could be spun out. And then the next step is to do all the work of licensing out. It's not a one quarter thing. You know it's a business development effort. A lot of those BD people are very crowded with COVID right now. But as the pandemic subdue, we think that those targets will be appealing to companies. So we are right in the game, and I think that would be another great important moment for Twist to show that we can monetize antibodies that we've developed on our own.

Okay. And I guess, I mean, when you talk about the COVID, I'd be remiss not to talk about that. So give us an idea of how the recovery is progressing with your customer base? And then with you guys -- I mean, I don't think you guys shut down, right? I mean you guys have been open for the whole time. You were providing a lot of the kits and things that are related to the testing. So give us an update on what you expect for the remainder of the year from those revenues? And then how the recovery has been going on with your customers? Do you want to take that, Jim?

Yes. Sure. Thanks, Luke. Actually, the last year has been continued progression for Twist. We've seen our customer base grow from roughly 1,300 to over 2,200 progressing well in terms of all our business segments, NGS, Synbio, two well biopharmas as emily has highlighted, and we continue to make technology progress on data storage. We quickly moved into the shelter in place environment last March. We've been working at home. Emily remains to be nonessential. So that means I get to spend more time on Zoom and thinking and supporting the growth in the business. We just announced a $90 million investment in Portland, Oregon and that's going to give us increased capacity. That facility will come online next year. It will give us potential revenue footprint of about $500 million a year. It was a faster cycling plan to be able to support our expanded portfolio. We've seen great progress in terms of NGS, as Emily highlighted, last year, revenue just over $90 million, where street numbers are $110 million to $118 million this year. We will give updated guidance in our next earnings release. We had a very strong first quarter. NGS doing well. Margins are up. In Q1, our margins as we continue to scale our business, we continue to leverage our fixed costs and see higher gross margins. And that turn allows us to invest heavily in R&D, and we're increasing R&D investment this year to roughly about $60 million. Building edge a commercial organization, we're close to 200 resort people worldwide now. And we're making terrific inroads in Europe and expanding in Asia.

Okay. And so as you think about the -- and just last one, I guess, is on the capacity expansion. Is that going to be for a particular business line? Or is that going to just be -- you're bringing on 4 printers, and it's going to handle everything?

We're going to be supporting our synbio business, mostly investing in synthesize. It's going to allow us to scale and to providing supporting large pharma anything from DNA preps, IgG, scaling up our platform and allowing us to tap into new revenue streams. As you know, we're particularly bullish, great article to reference is McKinsey. I wanted to because of the fabulous work done last year and really -- I highlighted this $3 trillion to $4 trillion opportunity. We're getting positioned to graft that market.

Yes. I remember my past work on the DNA storage was pretty compelling. So with that, that's all the time we have. Thank you again for coming on today, and we look forward to keeping in touch soon.

Thank you, Luke.

All right. Bye.