Nautilus Biotechnology, Inc. (NASDAQ:NAUT) Q4 2022 Earnings Call Transcript

Nautilus Biotechnology, Inc. (NASDAQ:NAUT) Q4 2022 Earnings Call Transcript February 25, 2023

Operator: Good day, and thank you for standing by. Welcome to the Nautilus Biotechnology Q4 and Full Year 2022 earnings conference call. Please be advised that today’s conference is being recorded. And it is now my pleasure to introduce your first speaker today, , Investor Relations of Nautilus Biotechnology. Please go ahead.

Unidentified Company Representative: Thank you. Earlier today, Nautilus released financial results for the quarter and full year ended December 31, 2022. If you haven’t received this news release or if you’d like to be added to the company’s distribution list, please send an e-mail to investorrelations@nautilus.bio. Joining me today from Nautilus are Sujal Patel, Co-Founder and CEO; and Anna Mowry, Chief Financial Officer. Nautilus Co-Founder and Chief Scientist, Parag Mallick, will be joining us for Q&A. Before we begin, I’d like to remind you that management will make statements during this call that are forward-looking within the meaning of the federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated.

Additional information regarding these risks and uncertainties appears in the section entitled Forward-Looking Statements in the press release of Nautilus issued today. Except as required by law, Nautilus disclaims any intention or obligation to update or revise any financial or pipeline projections or other forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast, February 23, 2023. With that, I’ll turn the call over to Sujal.

Sujal Patel : Thanks, Alex. Good morning, and thank you to everyone for joining us today. On this call, we’ll share our results for the fourth quarter and full year 2022 and provide an update on a range of recent activities. The progress I’ll be sharing with you today is due to the extraordinary work of our growing teams in the Bay Area and Seattle and now in San Diego, where we’ve opened an office in the University Town Center, one of the largest and most talent-rich biotechnology and pharmaceutical hubs in the country. The new office will initially have a focus on instrument engineering, reagent development, software engineering and bioformatics positions. Eventually, we anticipate some percentage of our commercial team being based there as well.

This expansion of the Nautilus geographic footprint reflects our continued progress and focus on short-term development milestones and longer-term commercialization goals. Through these and other efforts, we remain ever motivated by our goal to revolutionize Proteomics in the name of improving the lives and health of millions of people around the world. Our entire team is motivated by this goal, fully aligned and committed to doing what it takes to make this goal a reality. When I reflect on 2022, I see it as a year of accomplishment and a foundational progress. Progress that will bear fruit as we move through 2023 and towards our plan to launch our proteome analysis platform, instruments and reagents in mid-2024. Here are a few examples. We made solid progress against our core scientific goals in 2022.

Our major focus last year was on development activities such as increasing the scale and robustness of our consumables, both reagents and blood cells. This progress goes hand-in-hand with advancing the quality and customer readiness of our offering. Critical to those advances were our efforts to strengthen the core of our R&D leadership team in 2022 with the addition of Sherry Wilcox as VP of Affinity Reagent Development and Ken Kun as VP of Reagent and Platform Development. Ken and Cherry has helped us build out a world-class development team, which will continue to pay dividends in 2023 as we move towards commercialization. 2022 also saw continued focus on advancing our commercial instrument. The process of taking an instrument from concept to build to commercial use involves a number of important phases that are closely orchestrated collaborations between diverse teams.

I’m pleased with the progress I saw last year in this regard. Throughout the entire R&D organization, we continue to successfully transition to a manufacturing posture across all elements of the platform as we build towards commercial availability. That work continues and will accelerate in 2023. Early in 2022, we sought to augment our internal probe development efforts with external partnerships. When it became clear that some of those partnerships were underperforming compared to the volume and quality of probes we were seeing from our own internal efforts, we made the decision to put our resources where they would yield results in the most capital-efficient manner. Our internal affinity reagent development pipeline continues to proceed well.

Data we shared at conferences throughout last year demonstrated that our internal teams are able to generate probes that are extremely strong binders across a range of short epitope targets. These wide-ranging transitions and improvements, coupled with advances in our on-platform workflow, have allowed us to radically increase our experimental scale. Our internal target for 2022 was to be able to execute on experiments up to 75 cycles. We’ve not only demonstrated experiments of this scale, but we are now routinely performing experiments at this scale. The progress achieved throughout 2022 enabled us to present 6 posters at the HUPO World Congress in early December, covering all aspects of our platform, ranging from Affinity raging development to our single molecule deposition approach.

Photo by National Cancer Institute on Unsplash

One of these posters demonstrated decoding of a model protein from an experiment of 24 multi-affinity probes across 70 cycles. This data demonstrated the full end-to-end integration of our experimental and computational workflows. These were exciting results that continue to expand confidence in our science, and we look forward to building on these results in 2023. Also in 2022, we nearly doubled our patent portfolio to over 40 pending patent families filed in the U.S. and abroad with a total of 11 granted U.S. patents thus far. In 2023 and going forward, our IP strategy will remain global in reach as we seek protection in the U.S. and in foreign markets where we expect to commercialize our platform. These and many other accomplishments in 2022 make me excited for our future.

While we recognize that much work remains to be done, I’m firm in my belief that these and other foundational efforts will continue to pay off in 2023 and beyond. An important part of revolutionizing Proteomics is inspiring others to join us on this journey. And it was with that goal in mind that we announced in Q4, what we’re calling the Nautilus First Access Challenge, a contest designed to enable researchers from a broad spectrum of disciplines to uncover new biological insights and explore new areas of the proteome at massive scale. The response from researchers across the globe has been incredibly rewarding. It has unlocked the type of creativity we hope to see when we offered them the chance to explore their samples, unbounded by the inherent limitations of both traditional methods and of emerging affinity-based and peptide sequencing methods.

We’re very excited to review the proposals we’ve received. The deadline for submissions has passed, and we will announce the winners at the U.S. HUPO 2023 Conference in early March. Stay tuned in the very near future for more on the first access challenge and how it has revealed pent-up demand for comprehensive proteome coverage. Our existing collaborations with Genentech, Amgen and MD Anderson also represent partners who are joining us on our journey to revolutionize proteomics. Recently, we announced a new partnership with the translational genomics research institute, to explore the utility of the Nautilus platform by studying specific protein targets in diffuse intrinsic pontine glioma, DIPG, a rare and often fatal childhood cancer. The goal of this partnership is to better understand the epigenetic mechanisms at work in DIPG by interrogating the proteiform landscape of specific proteins at a single molecule level.

Proteiform is not possible to detect by peptide-based protein analysis methods. Work should kick off early this year, and the expectation is that the team will publish its findings when completed. I’m very excited about the work we’ll be doing with TGM and I’m especially excited by the broad set of use cases our collaborators are deploying our platform against. From childhood cancer to, to neurodegenerative diseases, we are seeing interest from researchers across a wide spectrum of applications and use cases. Our team heard many such use case ideas when — as I mentioned earlier, we participated as a primary sponsor of the Human Proteome Organizations World Congress in early December. Aside from engaging conversations during our 6 poster presentations, our booth was buzzing with researchers and PIs discussing how our platform could enable researchers to ask and investigate fundamentally different questions than ever before possible.

It was exciting to hear proteomic researchers many with deep, long-standing ties to mass spectrometry, enthusiastically see the potential of our platform to serve as a valuable complement to their traditional analysis methods. Conversations at HUPO and many others throughout the year, the strong submissions to our first access challenge and the enthusiastic response of our research partners, all serve to strengthen my belief that Nautilus will bring to the market a highly differentiated platform with a wide competitive moat, a platform that delivers an unmatched value proposition to researchers seeking to unlock the extraordinary potential of the proteome. These researchers have expressed over and over again a desire for a single molecule solution, one that overcomes the inherent limitations of both traditional methods and of emerging affinity-based and peptide sequencing methods in terms of sensitivity, scale and reproducibility.

I’m excited to get our platform into the hands of researchers and assist them as they drive forward their innovative, impactful biological research. As we previously discussed, my management team and I continue to proactively adapt to the gravity of the current financial and economic climate. We are tightly managing our resources to maximize our runway well into 2025 and balancing that with investments that will enable us to drive our scientific progress forward. For more on that, let me hand the call over to Anna for a look at our Q4 and full year 2022 financials. Anna?

Anna Mowry: Thanks, Sujal. Total operating expenses for the fourth quarter of 2022 were $16.3 million, which was $500,000 less than the fourth quarter of last year. This result is a testament to our diligent focus on controlling our spend. This past year, we continued investing in the business, growing our headcount and making significant progress internally while decreasing our expenses overall. Research and development expenses in the fourth quarter of 2022 were $9.6 million compared to $9.9 million in the prior year. General and administrative expenses were $6.7 million in the fourth quarter of 2022 compared to $6.9 million in the prior year. Overall, net loss for the fourth quarter of 2022 was $13.4 million compared to $16.7 million in the fourth quarter of last year.

Our bottom line was helped by our prudent cash investments in debt securities, resulting in net other income of $2.9 million versus $127,000 in the fourth quarter of last year. We continue to take full advantage of the opportunities created by having a strong cash balance and generating earnings from our investments is another source of funding we are maximizing. For fiscal year 2022, operating expenses were $63.6 million compared to $50.5 million in 2021. That increase of 26% was driven by growth in personnel costs, along with an increase in expenses tied to our first full year of operating as a public company. Net loss for the full year was $57.9 million compared to $50.3 million in fiscal year 2021, an increase of 15% year-over-year. Net net loss includes $5.7 million in net other income compared to $183,000 in fiscal year 2021.

Finally, turning to our 2023 guidance. As we have consistently said, we expect to continue to grow our spend but in a conservative intentional manner. This year, we expect our overall operating expenses to grow by approximately 40% from 2022 levels. However, you can be sure that we will manage our growth in spending tightly to ensure we preserve our ability to invest in the commercial expansion leading up to our platform launch in mid-2024. Our time line for product launch are unchanged. As we’ve said previously, we anticipate meaningful early access engagement and associated revenues to begin at the start of 2024. Revenue tied to the platform launch is expected to begin in mid-2024. We ended the year with approximately $314 million in cash, cash equivalents and investments, which represents a trailing 12-month cash burn of approximately $48.5 million.

While that cash burn will certainly increase going forward, we continue to anticipate our cash runway extending well into 2025. With that, I’ll turn it back to Sujal.

Sujal Patel : Thanks, Anna. Anna’s report clearly demonstrates our unwavering commitment to responsible financial forward ship of this business and using our resources prudently and to our advantage during these challenging times. We’re excited about what lies ahead for Nautilus and the difference our platform can make in biological science. Our mission to positively impact the health and lives of people around the world remains our guiding light and the standard to which we hold ourselves. I’m grateful to our team, our investors, our strategic partners and our research collaborators for joining us on this journey to revolutionize proteomics and empower the scientific community in ways never before thought possible. We made good progress in 2022 and look forward to building on those successes as we move through 2023 on our way to a commercial launch and beyond. With that, I’ll turn the call back to the operator.

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Q&A Session

Operator: Our first question comes from the line of Max Masucci with Cowen and Company.

Max Masucci : First one, you exited the year with over $300 million in cash, low cash burn. So with the valuation re-rating in the public and private area to a degree, and with a few small M&A deals recently in the specialty tools space, has your appetite for M&A changed at all recently? And if the answer is yes, what types of assets could potentially advance your development in commercial time lines?

Sujal Patel : Max, it’s Sujal, let me take your question here. And so you’re absolutely right that the M&A environment generally in the Dx and tool space and the wider biotech space has picked up. We fundamentally believe that the product that we are building has a value proposition that is spot on for the customer base, and we have a very wide competitive moat relative to all existing traditional approaches and emerging or purchasing in proteomics. And so with that — while I would never say never with that, we really don’t see any near-term M&A or even smaller strategic types of assets that we would go after. We’re really focused on leveraging our balance sheet to go and complete the development of our platform, to build our commercial organization and that on. We’re always open to synergistic technologies out there, but I don’t really see anything on the horizon or anticipate that will get use of cash.

Max Masucci : Great. Makes sense. And then just in this market environment, we have increased scrutiny on near-term catalysts and milestones that can be used to track progress. So I guess, bigger picture question, what would you consider the biggest advancement for the company during Q4 or maybe even in the second half of the year? And what should we be keeping on our radar for catalysts and updates in the first half of ’23?

Sujal Patel : Yes, Max, this is Sujal. Let me take the first part of that, and I’m going to kick that to along to Parag just give you a little bit of detail on your question around the biggest highlight from the quarter. As you look at Nautilus’ scientific conference schedule for 2022. One of the things that you would observe is that at each scientific conference, we had either a manuscript that we talked about archive or a poster presentation or a talk that we gave. And as we went through the year, we slowly introduced to the scientific community more and more data about our platform and more and more sophisticated experiments. And as I mentioned in our prepared remarks, that culminated in a really interesting experiment in Q4 that I would consider the greatest highlight and we demonstrated that as a poster and a talk at U.S. — sorry, excuse me, at the World HUPO Congress in December.

Why don’t I hesitant to, just to address just really briefly what that– what that poster was about and talk to you a little bit about that.

Max Masucci : Yes. That would be — sorry, go ahead. Go ahead.

Parag Mallick : I think — so I’d like to just start out. 2022 was a tremendous year for our organization. We really built out the development side of our organization and brought the scientific community on our journey of — with a series of milestones, as Sujal mentioned, presented at different conferences. And the largest milestone for me that we presented was really the scaling of our processes, demonstrating that we can comfortably run 70, 80 cycles and do that on a routine basis with dozens of multi-affinity probes that were developed by our in-house pipelines. And that really demonstrated the complete end-to-end sample prep all the way through instrument analysis through data analysis, aspects of our platform. And to accomplish this, we had to improve the scale of our reagents.

We had to improve the quality of all of our consumables. We also had to improve our instrument to be able to support runs on that scale. And so over the coming year, we expect that scale to continue the improvement in quality of reagents and maturing towards our commercial launch. Sujal?

Sujal Patel : Thanks, Parag. Max, just to answer the last part of your question of what to expect in 2023. Nautilus has had in 2022 and will continue to have in ’23, a strategy of bringing the scientific community and our potential partners, collaborators and customers along on the journey as we complete the development of our platform. And so as we move through conferences on the scientific side through 2023, starting with the U.S. HUPO conference in early March, you should expect us to continue to add talks and continue to have poster presentations and manuscripts that continue to show our progress on the scientific front. And I think that, that progress will indicate our progression towards that goal of a mix 2024 launch of our instruments and reagents and our system.

Max Masucci : Yes. And of course, congrats on the poster at HUPO and the 70 cycle run on a platform. I would be curious to hear any feedback you received the Annual Congress? I guess, generally, throughout 2022, as you rolled out new manuscripts and posters, how the feedback has sort of evolved among the scientific community?

Parag Mallick : Yes, that’s a great question. We’ve seen really just tremendous enthusiasm for the platform. It has been at HUPO, we met with a very large number of key opinion leaders, talked about their anticipated needs, their excitement about the platform, the sensitivity, the scale. And it’s — I think that was underneath well in the first access challenge that we saw just incredibly creative applications from around the world. And so I think what we’re seeing overall is — and one of the other points I’ll just mention about HUPO at our seminar really great questions, strong engagement, standing room only. In fact, lots of people sitting around the walls. And it was just fantastic to be able to share our journey with the scientific community and to have that kind of feedback.

Operator: our next question comes from Matt Sykes with Goldman Sachs.

Matthew Sykes : Maybe I just want to start on that last question and be a little bit more specific on some of that feedback. Sujal, you mentioned you spoke to a lot of mass spec users. And I’m just curious, as you spoke to them and gathered feedback, what are some of the things that they’re excited about on Nautilus relative to what they’re doing on mass spec? Is it throughput? Is it depth of analysis? What types of specific feedback you’re getting from them that can kind of give you comfort that there is a competitive advantage relative to the mass spec being work done in proteomics that’s going on today?

Sujal Patel : Matt, this is Sujal. The comments you heard earlier were from the Parag, but why don’t I start here? And then I’m going to pass it to Parag to give you some more specific feedback from what he heard in December. From a broad perspective, the way that we ensure that our product is going to hit the market correctly is by a a constant and wide range of activities that engage with our potential customers. And that is one-on-one conversations, voice of the customer studies, it is pricing studies, it’s engagement at scientific conferences, it’s engagement with inbound activity and is — as well really spending time and understanding what are the applications scientists are interested in and then how does our technology apply.

The first access challenge, of course, underscores that as well because that was an opportunity for them to tell us how our platform would apply to their research. What we hear time and time again is that traditional methods, meaning generally mass spectrometry and then emerging affinity-based and peptide sequencing method. Really, the challenge with us is a challenge in terms of sensitivity, scale and reproducibility. And so to give you an example, on sensitivity front being able to analyze intact protein molecules without having to digest them into peptides gives you 2 log sensitivity advantage right off of the top and is critical for this next phase of proteomic that’s coming over the course of the next 5 to 10 years. Scale is another one of those things that’s been quite a very important to these customers.

Our platform is being designed with a chip that can mobilize up to 10 billion proteome molecule. That leads to the ability to quantify across an extremely wide dynamic range, which is critical when you’re in a wide range of applications. For example, in pharmaceutical development, where you are looking at a medical plate that has samples, which are lysates, those might be 100 to 1,000 cells, which is the typical in each of those wells. You need a chip that’s 10 billion protein molecules large in order to be able to analyze those with the greatest step. And there are no platforms that are within many orders of magnitude that are existing today or conceived. And so it’s those aspects that researchers have really been — really been captivated by.

And in the conversations that I’ve had, customers readily are able to see how our specifications and what we’re building would be impactful and differentiated for their biological research. Parag, why don’t you want to add some specific commentary in December from the HUPO event?

Parag Mallick : Thanks, Sujal. I think one of the key aspects as we look at this field in this space, is that we find that even current mass spec users recognize the need for complementary tools so that they’re really asking the right question using the right tool. And they recognize the key aspects of our platform, comprehensive analysis, sensitivity, dynamic range, reproducibility, run time and ease of use are really important factors when they’re thinking about their study design. One of the aspects that we’ve done as well is really a series of deep interviews in 2022 with 40 or more key opinion leaders, most of whom are mas spec users. And those design criteria for the platform, the ability to get to a single molecule incredibly sensitively, the ability to look at proteoforms because you are not digesting the proteins and are able to look potentially at multiple modifications on the same protein molecule.

Those are capabilities that they’re excited about unlocking novel biology.