Singular Genomics Systems, Inc. (NASDAQ:OMIC) Q1 2023 Earnings Call Transcript May 13, 2023

Operator: Greetings. Welcome to the Singular Genomics Systems, Incorporated First Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Philip Taylor. You may begin.

Philip Taylor: Thank you, operator. Presenting today are Singular Genomics’ Founder and Chief Executive Officer, Drew Spaventa; and Chief Financial Officer, Dalen Meeter. Earlier today, Singular Genomics released financial results for the 3 months ended March 31, 2023. A copy of the press release is available on the company’s website. Before we begin, I would like to inform you that comments and responses to your questions during today’s call reflect management’s views as of today, May 9, 2023, only and will include forward-looking statements and opinion statements, including predictions, estimates, plans, expectations and other information related to our financial and operating results, plans and strategies. Actual results may differ materially from those expressed or implied by these statements as a result of certain risks and uncertainties.

These risks and uncertainties are more fully described in our press release issued earlier today and in our filings with the Securities and Exchange Commission, including our most recent Form 10-Q and 10-K filings and the Form 8-K filed with today’s press release. Our SEC filings can be found on our website or the SEC’s website. Investors are cautioned not to place undue reliance on forward-looking statements. We disclaim any obligation to update or revise these forward-looking statements. Please note that this conference call will be available for audio replay on our website, at investor.singulargenomics.com, in the Presentations and Events section. With that, I will turn the call over to CEO, Drew Spavanta.

Drew Spaventa: Good afternoon, and welcome to Singular Genomics’ First Quarter 2023 Earnings Call. It was another productive quarter, and we look forward to updating you on the progress made across the business. We will focus our update on the following 4 key areas: one, commercial execution; two, market opportunity; three, operational execution; and four, our innovation pipeline. Starting with commercial execution. I am pleased to report another positive quarter of commercial progress for the company, including new G4 shipments, an increase in the order book and increasing system utilization in the field. I am proud of the team’s work during the busy Q1. We shipped 3 G4 systems during the quarter. This included 2 academic labs and a commercial clinical lab.

We are encouraged to see the G4 getting traction across different customer segments, which we believe is a testament to the value proposition of the speed, power, flexibility and accuracy. Our customer service and support team was actively engaged with system shipments, installations and trainings during the quarter, contributing to sequential quarter-over-quarter revenue growth as we recognized revenue on 3 G4 instrument placements in addition to shipping 1 reagent rental during the quarter. Customer feedback continues to validate the G4’s value proposition as it relates to use cases in the field. For example, the University of New Mexico noted that, Overall, we are very pleased with the performance of the G4 and with the support we have received from Singular Genomics.

Our core facility has many users doing different kinds of projects, and the G4 fits perfectly into that setting. We have successfully used the G4 for bulk RNA-Seq, 10x genomic single-cell RNA-Seq and for epigenetics assays like ChIP-Seq and CUT&RUN assays. In addition, I recently had the opportunity to visit several customers and prospective customers in the Boston area. The feedback on the G4 was positive, and they were impressed with the fast run times, flexibility of 4 flow cells with individual lanes and quality of the system, noting the consistency of data across flow cells in a run. Early customer utilization and the ramp into consumable pull-through is still in its early stages, and we expect this to increase over time as customers gain experience with the system and move more of their work onto the G4.

Consistent with the launch of any new and complex technology, we intend to continue implementing enhancements to the system which are designed to further improve usability and robustness. We expect this to support increasing utilization and consumable pull-through for systems in the field over time. I want to sincerely thank our early customers for their continued partnership and support in our mission to accelerate genomics for the advancement of science and medicine. Turning to market opportunity. We remain confident about our TAM, or total addressable market, and the G4’s product market fit. We continue to believe that over half of the roughly $6 billion NGS market today is broadly addressable by mid-throughput sequencers, such as the G4.

This portion of the market is predominantly made up of about 2/3 research and translational labs and 1/3 clinical labs running applications such as targeted panels, RNA-Seq and single-cell RNA-Seq. The G4 addresses these customers’ needs and provides a compelling alternative in a market that is today largely served by a single NGS provider. Our sales funnel is strong and growing, with triple-digit qualified sales opportunities. A qualified sales opportunity fulfills these 4 criteria: one, there is a specific need; two, there is budget available; three, we are engaged with the decision-maker; and four, there is a near-term timeline to purchase. While the funnel spans a variety of market segments, we are seeing early traction with academic core labs.

Core labs are often managing varying sample volumes and output requirements from a wide range of applications. The combined speed, power and flexibility of the G4 can enable these labs to optimize sequencing runs, scaling up or down based on the needs of their PIs’ experiments and delivering results in less than a day. Beyond academic core labs, the speed and flexibility of the systems make them ideal for clinical research and commercial labs. We recently showcased the G4’s performance capabilities, along with some innovative methods and applications, at the American Association for Cancer Research Conference in Orlando. Here, we presented posters and data sets demonstrating the G4’s ability to deliver data with more speed, power and operational efficiency than any other sequencing technologies in the market for applications in cancer research, including rapid somatic and germline variant detection.

While the clinical market segment represents a smaller part of the sales funnel today, we expect this to grow over time as we increase our installed base, grow the number of customer reference sites and establish the G4 in the market. Turning to operational execution. Our focus has been on optimizing the supply chain, streamlining the manufacturing process and continuing to improve the usability and robustness of the G4. We continue to execute on a foundational set of capabilities and infrastructure to support our next phase of growth in the second half of the year and into 2024. In operations, we are taking steps to improve our G4 production capabilities. These steps include increasing redundancy and alternative suppliers for certain critical components and working with vendors to refine specifications and improve component testing.

Internally, we are implementing additional QC testing for incoming parts, reducing the time required to build and bring up the G4 instrument and enhancing field service and support. We recently received ISO 9001 certification for our dedicated manufacturing facility in San Diego, a milestone accomplishment that represents our commitment to continual improvement in product quality. Turning to our innovation and product pipeline. We are excited about the pipeline of innovations, including improvements in performance and specs on the G4, higher-throughput consumable kits and specialty application kits with novel content and workflows for specific applications. We have started shipping F3 flow cells to early-access customers. The F3 flow cell will expand our consumable offerings on the G4, doubling the number of reads and throughput for the most widely run applications.

In addition, earlier this year we announced the launch of our Max Read kits for single-cell sequencing. This kit is designed to allow users to get up to 800 million reads per flow cell, or 3.2 billion reads per run. Max Reads provide a novel method to achieve NovaSeq-level pricing for single-cell sequencing on a benchtop system. We look forward to offering this kit in early-access format later this quarter, with a full commercial release in Q3. With the F3 and M-Series single-cell kit both widely available in the second half of 2023, we expect to see an uptick in G4 system demand, as these highly differentiated kits provide significant value to a wide set of customers in our target markets. We also expect an uptick in reagent pull-through, given the higher data outputs and corresponding kit prices of both the F3 and Max Read kits.

And finally, we continue to progress the PX system, with a focused team working on the PX instrument and methods development. We are also engaged with several potential TAP, or technology access partners. We are collaborating with these KOLs to demonstrate novel applications utilizing the PX’s high-throughput in-situ sequencing technology to provide spatial information in single cells and in tissue. At this stage, we are busy in the lab working on the system and look forward to sharing additional updates as we continue to develop. Before turning the call over to Dalen, I would like to provide some directional commentary on the 2023 outlook. We continue to believe a moderated deployment of systems in early 2023 is appropriate to lay the right foundation for sustainable success and prepare for a scaling phase in the second half of the year.

We are seeing a positive start to the year with respect to the commercial engine. Our sales funnel is strong, and the number of qualified opportunities is growing. We are getting early traction in the academic segment, with 6 of our 8 G4 systems in the field being placed in academic labs. We believe budget cycles in this customer segment will be more back end-loaded during the year, resulting in purchases in the second half of the year. In addition, customer interest in our F3 and Max Read kits remains high for many of the opportunities in our funnel. We believe this will be a significant driver of adoption as they become more broadly available in the coming months. Now I’ll turn the call over to Dalen to go through the details of our first quarter financial results.

Dalen Meeter: Thank you, Drew. I’ll start by covering the Q1 2023 financials. Then I’ll provide additional directional remarks on key metrics for the rest of 2023. Revenue for the first quarter of 2023 totaled $863,000, made up predominantly of the revenue recognized on an additional 3 instrument placements during the quarter. Operating expenses for the first quarter of 2023 totaled $25.4 million, compared to $22 million for the first quarter of 2022. These totals included noncash stock-based compensation expense of $3.1 million in Q1 2023 and $3.6 million in Q1 2022. The year-over-year increase in total operating expenses was driven primarily by scaling SG&A headcount to support our growth for the G4 launch. Net loss for the first quarter of 2023 was $23.6 million, or $0.33 per share, compared to $22 million, or $0.31 per share, in the first quarter of 2022.

Our weighted-average share count for the first quarter used to calculate net loss per share was approximately 71.9 million. And cash, cash equivalents and short-term investments, excluding restricted cash, totaled $226.1 million. Turning to comments on 2023, the G4’s value proposition is being validated through instrument placements and field discussions with our target customer market segments. Our team is supporting early G4 placements, installing new systems, training and supporting customers and working to drive consumable utilization. As expected, pull-through is in the early stages, and we anticipate learning more about early customer utilization patterns over time. As mentioned by Drew, we expect sales to be concentrated in the second half of the year, resulting from budget cycles and commercial releases of the F3 and Max Read kits.

Regarding operating expenses, we are steadfast in our focused expense management. While we do expect ’23 investment to modestly increase in areas directly related to the G4 success, we intend to manage existing resources to provide cash runway into the second half of 2025. Thank you, and back to Drew for closing remarks.

Drew Spaventa: Thank you, Dalen. In closing, I’m proud of the progress our team has made during the quarter with our earliest customer placements. The G4 value proposition is resonating, and commercial interest is growing in our target markets. We are taking the right steps to build the foundational infrastructure to scale our operations over the course of the year. We have a strong product portfolio of system improvements, new kits and an innovation pipeline that positions us well for the future. Our team remains confident and committed to driving long-term value by executing on our product launch, prioritizing key activities and investments to ensure continued innovation, meticulously managing expenses and building a business with sound fundamentals and a path to profitability over time. Now let’s open up to the questions. Operator?

Q&A Session

Operator: [Operator Instructions] Your first question is coming from Tom Stevens, at TD Cowen.

Operator: Your next question is coming from John Sourbeer, at UBS.

Operator: Your next question for today is coming from Michael Ryskin, at Bank of America.

Operator: This concludes the question-and-answer session and conference call. You may disconnect your lines at this time. Thank you for your participation.