Twist Bioscience Corporation (TWST) Earnings Call Transcript & Summary

All right. So for our next panel here, happy to welcome Twist Biosciences for next fireside chat. With us, we have CFO, Jim Thorburn and Chief Commercial Officer, Patty Finn. Welcome.

Yes. I'm the CFO, and I've got the dull Scottish accent. Patty is Chief Commercial Officer and has got a more aggressive accent.

All right. So maybe dig in then from that there. So I guess Twist's portfolio touches on several fast-growing areas across antibody discovery, NGS, Synbio. I guess maybe talk from a high level, where do you see the largest near-term and maybe long-term opportunities across the portfolio?

Well, we just ended -- we just announced our quarter last week, last Friday seems like a long time ago. Revenue was $56 million for the quarter, and we had bookings orders almost $60 million. So in terms of orders, $60 million, with $30 million for NGS. NGS product line is going extremely well. We're seeing demand coming from liquid biopsy. We see demand coming in from clinical oncology diagnostics. So it's really a broad customer base. The interesting thing is for this year, our NGS business revenue, we're projecting is about just under $100 million, $97 million. That's up from $73 million last year, up from $44 million previous year. So we got wind in our sails on NGS. That's driven by the strength of the portfolio, the value proposition. We reduced sequencing cost for a customer by roughly 50% and from fast time from sample to sequencer. Also, the team has been doing great in terms of Synbio. We're seeing a pickup in customer base in Synbio. Synbio is our genes business. It's our IgG business. It's oligos and libraries. And that's been well documented over the years. We've got a great relationship with Ginkgo, which I'll turn it over to Patty, who can add more to that.

Yes. I mean, we just continue to grow, a nice new deal with them that started April 1, broadening out the product portfolio, changed some of the financial commitments around that, which were good for both sides. And it's onwards and upwards with them. And what we've built so far together is quite remarkable in terms of the DNA that's designed, ordered, synthesized and delivered, like it's in the order of billions of nucleotides. So that's a remarkable scale over the period of working together. So we just look forward to continuing to serve them effectively as we go forward.

Yes. We're projecting our Synbio business to be roughly about $80 million this year. That's up from $50 million last year, so good momentum there. In terms of our biopharma business, which is our antibody discovery business, we're projecting revenue about $26 million this year. We just had another strong quarter with orders. We are seeing a couple of customers in the short-term canceling, but we have such a really strong platform, a really strong service offering. We feel good about where we're at there. And as the -- as perhaps there's going to be more and more constraints because of the cash situation, we feel very well positioned to support our customers because of our service offering.

Thanks for that great overview there and a lot of different pieces of the business, maybe to dive it deeper. But I guess starting first on Synbio, can you talk a little bit more on the factory of the future, how have you invested in this program, how does it fit in the growth strategy and then maybe the path to breakeven there?

Yes. So factory of the future, exciting next phase for Twist. The overall -- we are building a new facility outside Portland, Oregon and Wilsonville. It's approximately 110,000 square feet. We started the project in December 2020. So we signed a lease -- 12-year lease, and we're lucky to get into that time because we've got the escalation -- inflation escalation clause of only 3% a year. We've got the ability to extend the lease for another 10 years after that. So we feel good about that footprint. We've also, invested about $50 million in tenant improvements. To date, we've invested a total of $73 million in the factory of the future. Total investments can be, from a CapEx point of view, it's going to be roughly about $110 million. So in terms of where we're at, we've actually hired from our San Francisco site. We've got 2 sites in San Francisco and factory of the future. Factory of the future comes online, shipping revenue in January next year. We're going through testing. We've actually hired 40 people from our San Francisco site to move up to the Factory of the Future. So we're well positioned in terms of ramping that, the factory. So the outcome is that we'll have faster turnaround time. We'll be able to scale the business to potentially $500 million a year looking at the combined footprint. It allows us to go after the fast gene market. What does that mean? It opens up the 1.4 billion makers market. And that's a market that we've really haven't touched. So it gives us a lot of opportunity in terms of being able to scale the Synbio business over the next 3 years to 5 years. As we look at the economics revenue, we're projecting adjusted EBITDA to breakeven at $300 million with gross margin about 50% for that business. So we feel good about line of sight there and getting to $300 million revenue because this year, for the core business, which is NGS and Synbio, the revenue is about just under $180 million and that business was growing in excess of 40% a year.

Yes. Thanks for the overview there.

And it also, enables the product strategy just maybe to touch on. So right now, our average gene price is around about $100 roughly a unit. And with the scale and speed, that then allows us to look downstream from a piece of DNA. Like if you start to play, for example, just something simple like how the DNA is prepped to then feed the customer, there's an incremental $100 worth of value there. And then as we carry on further down the line, whether it's protein or IgG, then the value we're providing to our customers moves closer towards $500. So we think about the unit economics of selling a tube cross $100 at a time. The new facility would turn around time, and that breadth and scale will allow us to lift the economics of what goes into that [ sauce ], of the tube that we ship. So a very strong component of our organic growth strategy in addition to opening up the market.

Seems like a lot of value there. I forgot to mention earlier. If you'd like to ask a question, there's instructions on the tables and we have an iPad up here that we can take them. But maybe digging in, so Twist announced a new 4-year supply agreement with Ginkgo. I think you touched on it earlier in your opening remarks. Just maybe talk a little bit about the relationship with Ginkgo and how that's evolved?

Yes. It's just been fantastic partners. I think Jason back, [indiscernible] much over 8 years ago, saw an operating advantage in partnering with Twist. First thing we put together was a question of, okay, who can break who? And I think we've grown quite beautifully together. Our second contract went up in scale and now this contract we just put together just is a continuation of that good work. And what we've built historically has allowed the 2 companies to dock together very closely. And then the sorts of volumes of DNA that they order, if you can imagine, filling out that Excel spreadsheet, proof reading that and shipping it over to Twist, that's quite a meaningful challenge. So now the companies have beautifully docked. They have a lot more users that can utilize a Twist platform within the Ginkgo facility. And So therefore, that's commensurate with increasing volume, improved turnaround time. And then with that comes slightly tweaked economics. It's good for both sides. The idea being that it's used or pay or take-or-pay, but also, it's an opportunity for us to open up the entire Twist platform to Ginkgo as their product needs change over time. We're there to serve them rather than being bound by just gene volume. So delighted to serve them, have been a great partner so far. And we look forward to continuing to share in the success as we go forward.

Yes. So from a revenue point of view, over the 4 years, it's about $58 million in terms of revenue, that's still minimum. But also, we are providing potential upside from -- so when we're looking at the whole Factory of the Future, we're looking at what Ginkgo's involvement would be in that, so litmus test for us. And we made the commitment for the Factory of the Future and Ginkgo then signed up for the 4-year contract.

And I guess, any way to quantify then the number of relationships or the ex-Ginkgo then opportunity within Synbio?

Yes. Continue to execute well. I mean, I think the technology is doing the sort of classic crossing the chasm. Our customer list continues to expand. You're seeing more and more people think about what does the Twist platform enable, and it's not a cost saving thought here. It's a more shots on goal. And so if you're going to design a new pathway, a new enzyme, a new therapeutic, the shots on goal are relevant. And so we just continue to see adoption across multiple market segments. I think Jim's comment earlier, the impact of the factory of the future and improving that turnaround time, and that opens up a part of the market we don't serve as effectively to do, the tail of the market, but then also, some of the higher volume users, for example, in pharma, will benefit from that turnaround time. And there's definitely a premium to be had for getting them the product sooner.

Yes. I think the point is Ginkgo is a meaningful partnership and at the same time, it's not material to us because we have built out the customer base, whether it's in therapeutics, pharma and other industrial chemical. The academic segment has actually been growing pretty steadily for us as well. So we continue to add products to the Synbio portfolio. And the Factory of the Future will allow us to actually continue as Patty highlight to move up the food chain.

And so maybe wrapping up on Synbio, when we look out maybe 3 years, 5 years, what role is Twist playing there and how do you see that market evolving? And then I think you mentioned the $1.8 billion TAM there. How penetrated do you see that?

Yes. I mean the Synbio offering is, I think, we're focused -- our customers are focused on really difficult challenges facing mankind today. So the energy challenge, whether that's the dependency on a barrel of oil, whether it's the food yields and ever decreasing arable land versus an increasing population. We look at things like how ultimately disease is going to be treated. It all was underpinned by synthetic DNA. So I think if we dream out and look at how our customers and partners help against those challenges, that all comes back to an ecosystem where it starts with synthesis platform. I think that scale just puts us in a beautiful spot to really help enable our customers solve these problems.

I mean, all our products just leverage the platform. So it's continued just adding on and expanding the portfolio woods. And so from an economics point of view, if you look at our margins last quarter, that was reflected in leveraging our fixed cost, expanded the top line. NGS was a healthy contributor and so our gross margins got to 45%.

Great. So maybe that's a great lead into the NGS segment. So in June of this year, Twist launched the rapid turnaround customizable panels for MRD detection in cancer screening. Any initial feedback on there so far? How it's been received and any traction you're seeing in our feedback from customers?

Lots of good interest from people you would expect. I think it's going to be a class-defining product. It leverages where Twist is incredibly strong. So 500 and 60 some orders at a price point that's incredibly enabling is what Twist is good at. If you look at the sort of tumor informed follow-up on disease, we think it's -- that really -- that's going to have to become the #1 tool going forward. It's early, and we're very respectful of the adoption cycle. That's a very serious product and you don't want it to be wrong, right? So there's a bunch of testing. There's a bunch of verification, a lot of validation and work to be done. And ultimately, we see those volumes build out much like we've seen in some other segments. So right now, very early stages, not something that we're seeing is huge for the upcoming quarter, but the interest continues to build and we'll just do a controlled and sustained rollout across the community over the coming years.

And another announcement, I think, over the past month or so was the collaboration with DNAnexus to provide data analysis software on NGS workflows. Can you maybe walk through that partnership and what unaddressed needs are you meeting there?

Yes. I mean the core premise is more and more samples are going to be -- I don't know the market has shown that or the sequencing market has shown that for the last couple of decades, right? The costs come down, people sequence more stuff. And so the volume of data continues to go up. Twist competency is in the enrichment upfront of the sequence. We're not really downstream. You've got quite a fragmented market. And so we have a number of partnerships that help customers process data that comes off the sequencer, and that's a very good add to our partnership list. What we like about them is they have scale and they've got the multi omics approach. So it's just, again, encouraging the community to more effectively process samples.

Any way to size the kind of the market that you're looking at there with that opportunity?

That's a tricky one. I'll come back on that one.

Try to stop you a little now. So maybe kind of -- and Jim, you did touch on this earlier, but maybe just a little more detail. So if you look across the NGS segment, there's a lot happening there, expanding product line, expanding customer base. Maybe can you just walk through the NGS revenue guidance for the year and kind of what you're assuming for puts and takes?

Yes. So in terms of NGS revenue guidance for the year, we're projecting about $97 million. So we started off the year at revenue guidance $94 million to $96 million and got lots of questions. Why so conservative? Why aren't you guys forecasting between $97 million and $100 million? Last year, you did $73 million. So what we highlighted was that in the first half, our NGS business was going to be a little flatter based on the timing of some of the contracts we're seeing and based on our engagement with customers. We work very closely with our customer base. We track about 250 large customers, and we define those large customers as revenue $250,000 and above. So as we're engaged with them over the last couple of years, the whole NGS process goes from pilots through validation and their workflow to scale up, then adoption. So it can be an 18 months or maybe sometimes what longer, Patty?

It can be longer. Right.

Yes, the relationship. So as we go through the year and we're building our plans, we're estimating, along with our customers, when they're going to need the volume of product and it can vary from quarter-to-quarter. So we saw the trend. First half would be quieter than historically we had -- we've seen. The second half was a big pickup. And as you saw this last quarter, we booked about $30 million for NGS. And the revenue was just under $28 million. So for the year, we're going to see revenue about $97 million. What was important is we continue to see the pickup in terms of large customer adoption. We continue to see opportunity in terms of other areas such as in controls. We started launching synthetic controls at the beginning of the pandemic. That's actually expanded into monkey pox control and oncology controls. Although the customer account did decline in that space, the actual revenue increase in the controls is not material, but it's an RNA product and it's very interesting how we managed to add to our customer base. And about 20% to 30% of them have actually bought additional products. So in terms of NGS, it's very much getting -- working with customers in terms of pilots through R&D. We give them a lot more shots on goals and then figuring out how we partner with them in terms of getting adopted in the workflow and you gave some great examples how we did that during the pandemic.

Right. I mean the teams adapted and thrived, pushing out the competition is tricky if you can't go into the lab because of lockdown. But we found fairly -- a relatively straightforward workflow from Twist, but also, things like the use of virtual tools to help actually do on-site training -- or sorry, remote on-site training of the install, and so that's been well received.

And I guess maybe just digging in there a little bit more on the NGS consumables market. There is a competitive space, some pretty established players. Anyway to think about who you're displacing within the market and any additional details around product differentiation?

Yes. So the differentiation point is a good one. I mean it's an economic question. We're not a cheaper product for the target enrichment. Where we save the customer money is on the cost of sequencing. So better uniformity in enrichment, which again comes off the synthesis chip, leads to less over sequencing. So better use of the sequencing real estate. And when we look at the competition, that performance resonates. Customers have got plenty of samples to sequence. So those economics matter. You can see with the emergence of the new sequencing platforms that are coming up, the cost of sequencing is going to continue to come down, number of samples are going to go up, and that's where our uniformity and again, use of real estate becomes incredibly important. So if you're -- we'll see Agilent, IDT out there. We enjoy the product bake-off. We've got a very favorable, I guess, the technical specifications that the customer seems to like in a bake-off. So that will just continue until those people are on that platform -- are on our platform.

And I guess maybe any updates on the enzymatic products Twist is launching and how do these fit into the portfolio?

Enzymatic synthesis, I think Emily's comment has been quite good on that. I think there'll be applications so that the chemistry is right. And when we see those opportunities, we'll be happy to use enzymatic synthesis. Right now, I think we see enterprise data storage type applications, where our customer base is going to be more comfortable with an aqueous-based chemistry. It's probably a good place to start. We're reviewing the landscape. We consistently look at what state-of-the-art in terms of DNA synthesis and we have our own chemistry ongoing. I think we talked about the scarless chemistries that has potential to deliver long fragments. So our work will continue there, but it will be the application space that truly drives how we commercialize. So for right now, our gene volume, our DNA synthesis volume is absolutely enormous. And so that's underpinned by good old 1985 phosphoramidite chemistry. We have that honed on the platform. The quality of the individual oligonucleotides we're producing is best-in-class. And so for the moment, that's a perfect chemistry for us.

And I guess, maybe could you talk a little bit about the Alpha chip? And any update on the timeline there and the size of the revenue opportunity?

So when you're talking about the Alpha chip, you're talking about the data storage chip. So yes, we've got proof-of-concept, 256 million Oligo chip. In fact, I've got it in my bag for anyone who is interested in seeing it afterwards. So it's small. So it's going well. In terms of overall, the next phase is how do you take it to the next level and have 3 billion Oligos in that chip. So the next phase of development is to take it further downstream. What's interesting there is that we recently launched a White Paper. I think it was last week. Is that right, Angela? Yes, last week. It just highlighted the opportunity in the marketplace. And as you go forward, you look at the amount of data that's being generated, can be growing depending on which number you look at between 30% and 40% growth per year. Moving forward to 2030, 2040, there was a massive gap. And that's not going to be supported by tape. It's not going to be supported by hard disk drives. So we see that based on where development is right now, we've got a great opportunity of being able to intercept that market space. And we've -- I mean, I think it's a bit later on in the discussion, we can talk about the alliance and how that's progressing. But overall, from a technology point of view, debug the technology, continuing with the proof-of-concept has gone well. Alpha chip is actually going through development right now, and there will be more updates in the next year.

And maybe one question here we have from the audience. Back to the Synbio. Does Ginkgo's acquisition of Zymergen add any value or change the relationship with Twist?

Yes. I mean, it adds another customer to it. So increases the potential volume genes. And just reconfirms that we've got another opportunity to expand our relationship with Ginkgo. And they -- just as well, Ginkgo's signed the deal with us, and they're going to be actual pivotal in one of our leading customers for the Factory of the Future as well. So we see more opportunities like that. So I think it's good news. And it increases its quota for the next year.

Yes. [ Contagious ] question, that one.

So maybe just touching a little bit on pharma. Last month, you announced the opening of the facility in Boston for the in vivo antibody discovery services for the biopharma industry. What is your outlook for this part of the business? And just can you provide an update there?

From a product standpoint, it's a great add. If you look at now the Twist total discovery offering, the synthetic library is a fantastic leap off point at the vivo capability. We hit all the targets we're given. I think it gives us a lot more confidence, a lot more range and a lot more diversity in terms of what we offer to our pharma partners. So we are really delighted to acquire Abveris, very similar DNA in the company to Twist, very customer-centric, very passionate about what the customers are doing. So I think we're off to a good start there. Turn it over to Jim in respect to pass over.

Yes. So in terms of combined business, I mean -- so what's interesting is Twist Boston has about 53, 54 customers last quarter, running roughly 70 projects. Going through that customer base, I mean, we've got a lot of high-quality customers from large pharma to well-funded smaller biopharma companies. And what they are recognized for is the quality of their service, speed and turnaround, and that complements what we're doing in the overall biopharma business. This year, we're projecting about $26 million in terms of revenue. This quarter is about $8.5 million for combined Twist plus Abveris. Last quarter, the bookings were about 8.8%. So good news, we're adding customers and is getting a tougher economic environment. However, we believe that the quality of our services, the team we have, and we decided additional Beacon capacity. We're going to be well positioned to support pharma needs. And as they continue to look at potentially evaluating what they're doing in terms of outsourcing, we believe that, that's a great opportunity for us.