Singular Genomics Systems, Inc. (NASDAQ:OMIC) Q4 2022 Earnings Call Transcript

Singular Genomics Systems, Inc. (NASDAQ:OMIC) Q4 2022 Earnings Call Transcript March 2, 2023

Operator: Greetings, and welcome to the Singular Genomics Systems, Incorporated Fourth Quarter 2022 Earnings Conference Call. Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Philip Taylor. Sir, 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 December 31, 2022. A copy of the press release is available on the company’s Web site. 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, March 2, 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-K or 10-Q and the Form 8-K filed with today’s press release. Our SEC filings can be found on our website or on 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 singulargenomics.com on the Events page of the News and Events section on our Investors page. With that, I will turn the call over to CEO, Drew Spaventa.

Drew Spaventa: Good afternoon, and welcome to Singular Genomics’ fourth quarter 2022 earnings call. We are pleased to update you on a very important and productive quarter as well as a milestone year for our company. We will focus on three key areas: first, business highlights and key accomplishments from 2022; second, new data and product announcements; and third, the 2023 pillars of success. Starting with business highlights from 2022, first and foremost, we delivered our first quarterly revenue as we brought the G4 to market and shipped five instruments to customers, a key company goal and a major milestone achievement. Initial customers span a variety of market segments, including academic core labs, a commercial lab and a hospital research lab.

Feedbacks from customers has been positive, and the value proposition is resonating. Three of our five initial shipments were to academic core labs, including Harvard’s Beth Israel Deaconess Medical Center, the Medical College of Wisconsin and the University of New Mexico. At Harvard, the flexibility and speed of the G4 has been a key in allowing them to utilize a single instrument to run single cell and spatial experiments with varying sample volumes and output requirements. At the Medical College of Wisconsin, the team has been impressed with the high quality of the sequencing data and single day turnaround times. At the University of New Mexico, the flexibility of the G4 is ideally suited to address their diversity of applications. It is exciting that our initial customers have been able to demonstrate the G4’s industry-leading combination of power, speed, flexibility and accuracy.

To achieve this important commercial milestone in Q4, our team addressed the challenges experienced with scaling, manufacturing and supply chain we discussed mid last year. The team moved swiftly to qualify alternative suppliers, redesigned certain components that have long lead times, implemented supplemental QC testing to ensure complex subcomponents from suppliers with meeting specifications and reliability metrics, and advanced our final assembly, integration and testing of instruments. The end result ultimately reduced the time required to build and bring up a G4 system by 25%. In addition to achieving our G4 shipment goals, we had several other key accomplishments for the year to note. We continue to build out our North American sales team with nine key territories to continue driving demand and growing the funnel of leads and opportunities.

We expanded our marketing presence at 14 industry trade conferences and talks, including ASHG, AGBT, AMP and PMWC, increasing our brand awareness and communicating the value proposition of the G4. We signed partnerships with 12 library prep and analysis partners, bringing the total as of year-end to 18. This is designed to remove barriers to adoption of the G4 and facilitate a seamless integration into existing library prep workflows and data analysis pipelines. In operations, we successfully completed an ISO-9001 audit of our dedicated manufacturing facility and commissioned state-of-the-art clean rooms and lab space for scaling production of enzymes, nucleotides, flow cells and reagents. We progressed R&D work on our G4 instrument and consumables road map to bring improved flow cell specs and new kits to market.

Lastly, we progressed the PX, our second system in our product development pipeline. This system is developing the capabilities and methods for high-throughput in-situ spatial and single cell analysis, building several prototype systems during the year and, more recently, signing our first partner for the technology access program. All of these accomplishments play an important role in establishing a foundation for cross-functional success going forward. I want to thank the entire team at Singular for their amazing contributions made in 2022. Turning to new data and product announcements. It was all on display at the AGBT Conference in early February. We hosted a successful customer and KOL event with over 60 lab directors and scientific leaders in attendance.

The event provided an opportunity to develop relationships, solicit feedback on the value proposition of the G4, generate new leads and drive opportunities forward. We presented 14 new data sets, 11 with industry-leading genomics partners, collectively showcasing high accuracy of the G4 system across many diverse applications including single cell sequencing, whole genome sequencing and thematical exome sequencing. These data sets reinforce the G4’s ability to fit into a robust and diverse set of workflows, putting the G4 speed, flexibility, accuracy and power on display. We launched our Max Read kits for single cell sequencing with enthusiastic customer response. The Max Read single cell kit will allow users to get up to 800 million reads per flow cell or 3.2 billion reads per run at the low cost of $200 per sample or $1 per million read.

Max Read provides a novel method to achieve NovaSeq level pricing for single cell sequencing on the bench top system. The flexibility of the G4’s flow cells allows users to scale their run up or down based on sample volumes at the same favorable economics. We intend to begin shipments in the second quarter. In addition, we were pleased to announce that Singular joined the 10x Genomics compatible partner program, demonstrating the G4’s compatibility with the 10x Genomics Chromium single-cell platform. The flexibility of theG4’s four flow cells and four independent lanes matches precisely with the most widely used sample configurations on10x’s genomics chromium runs, providing an efficient way to optimize run sizes for single cell experiments.

And lastly, we improved the specifications of the G4 F2 and F3 flow cells for both accuracy and read counts. Accuracy was raised to 80% to 90% greater than or equal to Q30. The throughput range of the F2 and F3 flow cells was increased up to 250 million and up to 450 million reads, respectively. All data sets and product specifications are posted on our website, and we encourage you to visit and see for yourself. The third topic I’d like to talk about today is how we are thinking about success this year, the 2023 four pillars of success. First, commercial execution. This means executing on and measuring the following key items: G4 system placements; reagent pull-through; and customer satisfaction. We have a good start with initial G4 placements in the field, customers starting to sequence, and we are receiving positive feedback and beginning to collect the data to set and deliver on each of these metrics.

Second, G4 TAM quantification. This means establishing G4 product market fit in specific market segments, applications and customer types with the goal of credibly framing the G4 TAM and measuring our progress in capturing market share. Third, operational excellence. This encompasses goals in the manufacturing side where we have objectives to improve supply chain, manufacturing efficiency, quality and system performance and reliability. While challenges were overcome, and progress was made on supply chain and manufacturing in 2022, this is a key area of continued focus with scale up this year. Fourth, innovation and product pipeline. We have an exciting pipeline of innovations, including improvements in performance and specs on the G4 platform, new reagent kits offering higher throughput, higher accuracy and longer read lengths, G4 specialty application kits with novel content and workflows for specific applications and of course, advancing the PX, the first high-throughput in-situ sequencing platform.

We look forward to updating you through the year as these all progress. Before I turn it over to Dalen, we would like to provide some color on the 2023 outlook. We are incredibly encouraged by the magnitude of interest and engagement from AGBT with the sales funnel well into the triple digits in terms of qualified leads. We are seeing strong interest, especially in academic labs where longer budgeting and sales cycles typically result in instrument purchases in the second half of the year. Our funnel is strong and growing with real opportunities. Engagement with customers indicates the F3 and Max Read kits will be significant adoption drivers of the G4 as they become available in the coming months. We are currently applying learnings from early placements and taking the necessary time to improve on things such as system deployment, support and service and instrument reliability to make sure we meet customers’ expectations and lay the right foundation for sustainable success.

This means a slow and moderate deployment early in 2023, ensuring a consistently positive customer experience during this early launch phase and equally important, preparing for a scaling phase later this year. We will provide additional color and updates on 2023 in our Q1 earnings call. With that, I’ll turn the call over to Dalen to go over the details of our fourth quarter financial results.

Copyright: nexusplexus / 123RF Stock Photo

Dalen Meeter: Thank you, Drew. I will start by covering the Q4 2022 financials. Then I will provide directional remarks on key metrics for 2023 and overall cash runway. Revenue for the fourth quarter of 2022 totaled $765,000, made up predominantly of the revenue recognized on three instrument placements during the quarter. Gross margin was approximately flat during the fourth quarter of 2022,driven by consumable and extended warranty credits as well as higher costs associated with the installation, training and support of our first system placements. Operating expenses for the fourth quarter of 2022 totaled $22.5 million compared to $19.7 million for the fourth quarter of 2021. These totals included noncash, stock-based compensation expense of $3.1 million in Q4 2022 and $2.9 million in Q4 2021.

The year-over-year increase in total operating expenses was driven primarily by scaling headcount and infrastructure to support our growth, including the G4 launch, product pipeline and R&D road map. Net loss for the fourth quarter of 2022 was $21.1 million or $0.29 per share compared to $19.8 million or $0.27 per share in the fourth quarter of 2021. Our weighted average share count for the quarter used to calculate net loss per share was approximately $71.6 million. And in cash, cash equivalents and short-term investments, excluding restricted cash, totaled $244.6 million. Turning to directional comments on 2023. As Drew mentioned, we’ve been excited by recent customer feedback, and we believe our value proposition is resonating more than ever.

We believe it will be essential to focus on and support early placements, and we intend to moderate G4 placements in the first year of launch as appropriate. As such, we expect the G4 placements in the first half of the year to be lumpy and trends around the lower end of the range as previously discussed. One of our highest priorities is to ensure the installation, system bring up, training and support experiences are positive. This is foundational to our long-term success as we are still in the early days of establishing credibility as an emerging company in the space. We expect 2023 investment related to our product priorities to increase across commercial, manufacturing, operations and R&D. However, we are mindful of the macro environment and need for focused capital management.

Our intent is to manage existing resources to extend 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 want to reiterate the themes of today’s update. First, I’m incredibly proud of the Singular team in 2022. It was a busy and productive year filled with many milestones for our company. We brought the G4 to market, placed initial systems in customer labs and generated our first revenues, all while navigating challenges in scaling the supply chain and manufacturing. Second, recent product announcements like the Max Read kits for single cell sequencing and spec improvements in quality and throughput for the F2 and F3 flow cells have enriched our portfolio, continuing to differentiate the G4 from the competition. Customer interactions and feedback from prospective partners continue to validate product market fit.

Simply stated, we built the right system. And third, we’re excited about the opportunities in front of us for 2023, a year in which we will largely measure success across four pillars: First, commercial execution in the form of installed base revenue and customer satisfaction; second, G4 TAM and product market fit, evidenced by customer profiles and growing adoption in our target market segments; third, operational excellence measured by our ability to improve manufacturing efficiency, manage supply chains and deliver high-quality products at greater scale; and fourth, innovation pipeline, which in 2023 includes bringing additional G4 kits to market and advancing R&D on the first in-situ sequencing platform, the PX. Now let’s open it up to questions.

Operator?

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Q&A Session

Operator: Thank you. Our first question is coming from John Sourbeer with UBS. Please post your question.

John Sourbeer: Hi. Thanks for taking the question. Maybe just digging into a little bit of the manufacturing headwinds that you had there. Do you see these now behind you and resolved? And just, I guess, on that to clarify, it sounds like you’re going to be at the lower end of that 2 to 4 for months. Initially for the first half of the year is what your thinking is for instrument placements?

Drew Spaventa: Yes. Hey, John. Thanks for the question. I guess I will take it in two parts. On the manufacturing side, we made tremendous progress. We talked about it in the prepared remarks. Significant progress, but still work to be done. Anytime you’re developing, deploying a complex instrument, you’re going to learn things in the field when you have instruments in your first few customers’ hands running repeatedly that you didn’t see internally, they break things in new ways. So there’s obviously going to be ongoing improvements there. Also improvements on how long it takes us to manufacture, which we build an instrument and then bring up, which is kind of testing and hand off to either internal customer or external. There’s definitely going to be improvement on how quickly we can do that.

It’s measured in weeks and we have internal goals to get the current time down even further. We mentioned 25% improvement from where we were at the end of last year to where we are now. On the instrument side, yes, we will be on the lower side in the first half of the year. We took a little bit of a pause to apply learnings from the first five shipments for the first part of Q1. And we expect kind of Q1 and Q2 to kind of be on the lower side with much more, kind of steeper ramp in deployments moving into the second half of the year.

John Sourbeer: Thanks. That kind of leads to my next question. Just any additional color on learning maybe across software, installation or feedback from those initial five customers out there that you can share with us?

Drew Spaventa: Yes. Yes. I mean, overall, everyone is really happy. And the sequencers are up and running, producing data. And we have five happy customers that will service five reference sites. I think that’s an important point. We want every early placement, every placement for the foreseeable future to be a reference site. The learnings really are across the board, shipping. How do you make sure you ship an instrument and you don’t have to spend extra time once it shows up, making sure it’s calibrated or it wasn’t damaged in shipping. Installation learnings, learnings on customer bring up, and then ongoing support. And then there’s also learnings obviously on the instrument side, certain areas of robustness and reliability, a lot having to do with customer training, packaging and kits.

I mean it’s really across the board. Overall, we’re exactly where we want to be, and they’re working very well and producing high quality data. But there’s also learnings that you want to apply before you put more units out there and make sure that you have that consistency of customer experience before you really go pedal to the metal on putting units out there. So we are just working through that as kind of we expected and feel really good about where we are. And that’s kind of the learnings are really across the board.

John Sourbeer: Thanks. And then last one here, maybe for Dalen. Just appreciate the color on the cash runway into the second half of 2025. Just any additional puts and takes you can give us on, just the cadence this year and how we should think about that burn?

Dalen Meeter: Yes, hey, John. Thanks for the question. Yes, Q4 OpEx and burn was a little bit lower. There were some seasonality in there related to some payroll and labor-related items. In addition to that, we are going through our 2023 annual budgeting process, looking through the prioritization of activities and investment. I think just natural course of that slowed pace of spend a little bit. If you look historically, our quarterly kind of burn in expense run rate has been about $25 million. And I think that’s a good baseline to think about starting Q1 here in 2023, adjusted a little bit for kind of annual just salary merit increases for the employee base. But I think that’s probably a pretty good baseline to start the year.

John Sourbeer: Got it. Thanks for the questions and congrats on the revenue milestone.

Dalen Meeter: Thanks.

Operator: Thank you. Our next question is coming from Julia Qin with JPMorgan. Please post your question.

Unidentified Analyst: Thanks for taking the question. This is Martina on for Julia. I just wanted to ask about the customer mix. You previously mentioned it’s mostly academic, but you hope to see a shift towards biopharma as well. So what’s your expected customer breakdown for ’23 based on your current funnel? Any color you can share there?

Drew Spaventa: Yes. I think we expect the current funnel to be fairly representative of what we think the installed base will look like. Right now, it’s majority academic, either core labs or investigator labs. It’s probably, I would think, around60% academic and 40% others. So it’s not a huge SKU in 1 direction. We think it will even out more over time. I think we are learning that the academics in a lot of ways are kind of early adopters. Some private companies as well. But when you talk about biopharma or CROs or other central labs or people that are doing clinical testing, those are probably going to be, what we call, qualified leads in the funnel further out, and we think that, that will — that mix will change over time as we kind of get the system out there and establish the market.

Unidentified Analyst: Thank you. And then the second question, how has the sales cycle changed in 4Q, and how is it trending so far in ’23?

Drew Spaventa: Yes. So sales cycles for these types of instruments, they’re a little bit longer. We expect a 6 to 9-month sales cycle. Similarly, we expect it to take a rep that’s hired 6 to 9 months to really get fully up to speed and be able to hit quotas. I don’t know if there’s much change from last year into this year. On the academic side, we certainly haven’t really seen much change, although understanding budgeting cycles better is giving us more visibility into when those purchases and when this demand will convert into placements, and that’s really looking more into the second half. A lot of the academic budgeting cycles, they’ll look at different options for the first half of the year, put their request in midyear and then they’ll be looking to take delivery and pay on the second half and mostly Q4.

On the private side, I think we are seeing people a little more hesitant to adopt new technology or spend money in the current macro environment. So I think that will change at some point. So maybe longer sales cycle with private companies, academic unchanged.

Unidentified Analyst: Great. Thanks for taking the questions.

Operator: Thank you. Our next question is from Matt Sykes with Goldman Sachs. Please post your question.

Matt Sykes: Hey, good afternoon and thanks for taking my questions. Drew, maybe the first one for you. You mentioned that TAM analysis that you guys have done. I would love to get a little bit more additional color on sort of the output of that analysis, if you’re willing to share? And just kind of where you feel like the realistic TAM is and where you think the sort of differentiation with G4 is resonating, and what that does to the, sort of, addressable portion of the TAM sort of this year and into the future?

Drew Spaventa: Yes, absolutely. We are happy to share kind of our models and our numbers separately. I guess at a high-level summary, if you think about the current market of NGS, and again there’s all different TAM analysis of how big it’s going to be in 5 or 10 years and where the growth is. But start with the $6 billion current market, about half of that is academic. And if you look at the breakdown, the majority of the academic are going to be doing targeted panels, RNA-Seq and single cell. So when we think about early adopters and where those things converge, RNA in the academic environment and single-cell RNA are real sweet spots for us, especially with Max Read coming. We think that will be a real driver of adoption since it’s such a differentiated solution for that really popular academic application.

When we look at the clinical side of things, the majority is targeted panels. And that’s something that we’re very interested in addressing and demonstrating. We think the G4 is kind of specs throughput, speed, are really well suited for your academic medical center or your hospital lab, or even a centralized clinical lab, due to the fact that you can run individual samples very quickly at a really good price point. But as we mentioned earlier, we think those are probably further on the adoption curve. The early adopters likely aren’t putting patient-critical samples onto a new technology, and that’s just the reality of how new technologies go. So we can definitely spend more time with you on those TAMs. But the point is sitting here a year from now, if we say we are going to win in the academic single cell market, well, we want to be able to show you proof points of that, have real customers understand the use case of those customers and have metrics.

And if we are telling you we are going to play in academic medical centers and start doing targeted panels, well, where are the early proof points in that and where are we getting traction? And how do we think about what part of that market we can win in. So that’s what we mean, and we’ll share more on it.

Matt Sykes: Got it. And maybe just following up on that comment about Max Read, just kind of leading to my second question, which is just based on the feedback you’ve gotten and if we focus on sort of academic where you’ve had some success, products like Max Read and other products you might have in the pipeline, has it shifted your priorities in terms of where you want to spend some of the R&D to develop products to maybe focus specifically on those applications you mentioned, but on the academic channel and where their kind of interest lie? I mean, has it shifted any of your priorities in terms of spend and focus for product development?

Drew Spaventa: Yes, it has. I think we — we talked about Max Read being a technology that can serve other types of short read applications. So internally, we have kind of re-prioritized our road map on kit development. Single-cell RNA will be the first Max Read application. And beyond that, we’re looking at a traditional RNA-Seq application to develop. And then we have a list beyond that we haven’t really decided on, but there’s another couple of applications that are using the academic environment that lend themselves to short reads. And then I think to the point you’re getting at, yes, the reception, specifically at AGBT and the nature of how our funnel has grown from, say, Q4 to now, we’ve seen our funnel in terms of a qualified lead more than doubled in the last 3 to 4 months. And a lot of that — those additions to the funnel are academics who look at the Max Read kits and say that solves a unique solution for me, and that’s really a motivator or driver to adopt.

Matt Sykes: Got it. And just maybe one last one. Just sort of on the ramp this year, thanks for the color on sort of the cadence in the beginning of the year. As you kind of prepare for ramping in the back half of this year, what’s sort of like the, sort of, initial installed base that you’d kind of look to have to get sort of the comfort that things are kind of inline, performing well? You’ve taken care of a lot of the clear issues. And on the manufacturing side, you’re ready to scale up. Like is there sort of a target number that you’re looking for that you want to get to? Or is it more just about, just the collection of feedback you’re getting?

Drew Spaventa: It’s a good question. I think if you go back to the comments and the color we provided, I think it was almost 6 months ago now, on being able to do 2 to 4 units per month moving into this year, we don’t think it’s going to be necessarily 2 to 4 units per month every month, especially in the first half. We think it’s going to be lumpy. Like I said, we took some time to implement change in the first half of this quarter. But if you think about that 2 to 4 as an average over the whole year, I think we expect to be somewhere in that range, just back-end loaded. So again, I think we feel really good about where we are, but it’s definitely going to be one of those situations where we monitor and learn as we put the next wave of instruments out and gauge appropriately.

So I think — hopefully that gives you an idea. On the low end, 2 to 4, you’re in the low 20s and the high-end, you’re up into the low 40s, mid 40s. So I think somewhere in the middle of there is ideally where we would be, but it’s hard to articulate where that will be, just given the fact that we are going to make sure we pace our deployments with making sure every customer has success and the instruments are performing as we like.

Matt Sykes: Got it. Thanks very much and congrats on the revenue milestone in Q4.

Drew Spaventa: Thanks.

Operator: Thank you. Thank you. Our next question is coming from Dan Brennan with Cowen. Please post your question.

Daniel Brennan: Great. Thanks, guys. Maybe the first one, Drew and Dalen. So just — I know you’ve given a lot of color so far, but what is it that is specifically pointing you to the lower end? It doesn’t sound like it’s demand. You say you want to delight your customers. Is this something about what’s going on with the first product in the field and the training and it’s taking longer or there are issues? Just kind of what is pointing to the lower end?

Drew Spaventa: Yes, I think it’s exactly what we said. I mean we put the first five out really at the very end of Q4. So there was a tremendous amount of learnings as we got back from the holidays to process. And then there were improvements that we wanted to make across the board. So it was kind of slowing down for the first part of the quarter and implementing some of those improvements. And as we think about kind of the ongoing nature of those continued learnings and putting additional systems out, it’s just going to be a slower moderated deployment for the first half of the year, and then really putting the gas down in the second half. It’s — there’s nothing more to it. It’s really just taking learnings, applying them and improving the entirety of the experience of building an instrument, deploying it and getting customers up and running.

Daniel Brennan: And is it more on the building? Or is it more like when you place a box in the customer’s hands, is it like they’re taking longer to ramp it, and they need to be instructed on how to use it? Or just what’s — like any specific examples about, like, what it is these learnings are focused on?

Drew Spaventa: Yes, I don’t think we want to get into specifics. It really is broadly kind of everything. There’s different parts to bringing a complex instrument up internally. There’s still improvements we want there, there’s improvements on the installation and customer bring up. And then there’s also improvements on the system itself. We have F3 in early access right now that’s more broadly becoming available in the quarter. We have system upgrades and software upgrades in process. So there’s upgrades across the board that we’re applying, rolling in and thinking about how we want to time different improvements or upgrades and processes or systems with the next wave of the systems.

Daniel Brennan: Got it. Okay. That’s helpful. So the ASP, should we be using something in the 250 range or below versus were we using something higher? Like what’s the right way to think about the ASP going forward for the G4?

Dalen Meeter: Yes. Hey, Dan, this is Dalen. ASPs were actually in line with kind of where we were expecting them to be. I think from a revenue standpoint, you have a couple of things happening. For the first three systems here that got accepted, we gave some consumable credits and extended warranty. And from a revenue recognition perspective, the value of those kind of credits gets carved off, deferred and will be recognized in the subsequent period. So ASPs were about in line with where we thought they’d be. There was some discounting kind of for, I guess, the early part of the launch here. We would expect that to change and become a little bit more favorable for us here as just the system gets more established in the market.

But really, it’s kind of those two things impacting kind of the revenue side of things. From a COGS standpoint, if you look at margin, there was a little bit of higher cost associated with kind of that white glove shipment, installation and additional training service. So kind of all combined, those are kind of things impacting ASP and margin.

Daniel Brennan: Great. And then the funnel well into the triple digits. Any color on, again, like what constitutes the funnel? And I mean it’s a big number. Just again, you’re not going to give the specifics on all of the details, but just how do we think about that funnel?

Drew Spaventa: Yes. I mean those are qualified leads. And when we think about a qualified lead, we are thinking about a criteria that means it’s a real opportunity. There’s four things that we think about: Does the customer have a need? Do they have the budget? Are we speaking with the right person who has authority to make a purchase? And then what does the timing look like? So I mean you can throw funnel numbers around and — but unless they’re qualified and you understand the likeliness or how real those opportunities are we haven’t been willing to talk to them yet. So that well into the100s is meeting all four of those criteria, meaning we think it’s a real opportunity, and we have a chance to convert it this year.

Daniel Brennan: And then sorry, Dalen, or do you guys talked about maybe slower demand trends at private labs or private customers? I think you said, so we’ve heard this throughout 2022, Agilent talked about it a little bit earlier this week. But this is — just so I’m clear, like this is clinical labs that are kind of just dealing with maybe tighter capital constraints, so they are being more cautious? Or just maybe a little clarity there.

Drew Spaventa: This is more private companies. So I mean, we are not really selling into clinical labs yet. We are starting to have conversations with them. But like we talked about on the prior question, really having our sequencer and clinical workflow doing patient sample, that’s probably something that we will be ready for at the end of this year into next year. With the new technology, the early adopters are really more on the academic side or private companies that want to try a new technology. In general, private companies, similar to ourselves, people are belt tightening, they’re thinking about extension of runway or getting to profitability. And it’s just a little bit different of a buying environment than, say, it was 12 or 18 months ago. So that’s all.

Daniel Brennan: And on the PX, you said that you saw in the first tech assessment, just wondering like what like — does that mean a box is at a customer, or that customer is sending you samples? And then any more color just about timing for the PX. And just kind of remind us, I mean the PX domain differential is like — I mean that’s high a lot, but much, much better throughput than what’s on the market today. So maybe you can give us a little more color on the PX.

Drew Spaventa: Yes. So to answer the first part of the question, it’s a technology access program. And the agreement that was signed essentially outlines the scope of work, and we will physically receive samples and conduct experiments with those samples on the PX and provide them back to that academic partner. We plan to do a few of those this year. So that’s not an external placement of the system, that sample is coming in. I would say just the very high-level, the PX is taking a lot of the technology we already developed in the G4, the optical system and all of the chemistry and then supplying it to sequencing inside of cells and in tissue. So we are actually using sequencing in situ at the readout. And there’s two really powerful things about that.

One, you’re using sequencing as the readout, so you have the ability to multiplex or determine a lot of information due to the sequencing nature of the readout. And the second is the throughput. We are working in 96 and 384 well plate. So the sample plexing is just very high, 96 samples or 384 samples at a time.

Daniel Brennan: Got it. And then maybe final one would just be pricing. So like just remind us where are you today in the market like on a price per gig since I guess, I mean, I know it’s coming down your elements, obviously, stepping on the gas. I don’t know what is doing. Just kind of where is pricing is at? And is that a topic of discussion with customers or no?

Drew Spaventa: Pricing is always part of the equation, but I think the important thing is to sell on the actual performance and the attributes of the system. And the differentiation that G4 has is going to be throughput on a benchtop instrument, it’s going to be speed and it’s going to be flexibility given the four flow cells and each flow cell has different configurations, you can scale up or scale down. And then each flow cell is four lanes, which is really nice for customers that don’t want to mix the bar code samples. So those differentiating factors are really the basis of what’s getting customers interested. On the pricing side, if you look at a NextSeq, which is still the predominant choice out there for a bench top sequencer and really what we are selling or selling against 99% of the time, it’s a $335,000 box and it ranges from about $15 a gig up to maybe $40 to $50 depending on new specifics.

And we are pricing quite favorably compared to that. The box is about the same at 350 list. But again, it’s almost equivalent to three NexSeqs in a single box given the power output in the four flow cells. And then on a cost per gig standpoint, we are ranging from about $8 on the low end if you’re doing through cycles into the low 20s. So you’re really going to see massive cost savings versus the NextSeq, and you’re going to see faster run times, more flexibility. And then with Max Reads, that’s where it really becomes competitive for single cell applications. And the average customer, I think, right now for a single cell application is probably spending $600 to $800 on sequencing costs to read out a single 10x experiment. And with Max Reads, we are going to get down to $200 or so.

So that’s going to be a huge driver for us. So again, I think when we think about selling — it’s selling on the actual competitive advantage of the system. And then when people turn to price, they’re usually very, very pleasantly surprised based on where prices versus the NextSeq.

Daniel Brennan: Great. Okay. Thanks, guys.

Operator: Thank you. Our next question is from Michael Ryskin with Bank of America. Please post your question.

Unidentified Analyst: Good afternoon. This is Peter on for Mike. Thanks for taking the question. Definitely understand again here, it’s early days, but — I mean, assuming supply chain doesn’t flare back up, do you have like a rough idea of maybe the production scaling process, when that would be reaching more of an equilibrium with demand?

Drew Spaventa: It’s hard to say. I think, again, if we look at the year in totality and we put those error bars kind of on average systems per month, we’re definitely expecting to be able to achieve that this year. I think it’s just important that we make sure we get the system into customers’ hands and meeting expectations. And I don’t think we are looking to rush systems out for near-term numbers, if we’re not 100% sure that it’s going to meet expectations. One of those areas is the F3 flow cell. We want to get the F3 flow cell broadly available, and a lot of customers are interested in having that. And that’s something that’s coming available beyond early access very shortly. So I don’t think we have much more color to provide other than we are learning, applying those improvements and we are kind of right where we want to be looking at the funnel and looking at our ability to kind of scale up through the first half of this year and really hit strides in the second half.

Unidentified Analyst: All right. Thank you for that. And then just back to the PX quickly. I guess any incremental color or updates I mean you can give on key milestones or kind of like the time line of what we should be looking out for updates regarding that? Thank you.

Drew Spaventa: Yes. So like we answered the question with Dan, we’ve signed our first technology access partner. We plan to do one or two more of those this year and to kind of have different types of experiments demonstrated with each. We still don’t have a product release date, it will take additional resources to develop that product, and we are still really focused on the G4. We have additional kits coming out in the G4 later this year. We have upgrades throughout the year planned. So I think at this point, we don’t have much more color. We are building a large fleet of betas. We’ve talked about that. We should have close to a dozen betas by the end of this year up and running. So we really have throughput to evaluate external samples, potentially place the beta next year or two if we want to.

So I think we will probably have more color on that towards the second half of this year as we kind of get the G4 scaled and successful in market and start to shift a little bit to product development and timing for the PX.

Unidentified Analyst: Okay. That’s helpful. Thank you.

Operator: Thank you. As there are no further questions in queue, this does conclude today’s conference call. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation.