Singular Genomics Systems Inc

NASDAQ:OMIC

Earnings Call Analysis

Strong Q4 Closes Year; Cost Cuts Extend Runway

The company wrapped up the year with robust fourth-quarter revenues of $1.1 million from 8 G4 instrument shipments, marking the highest quarterly earnings yet, split between academic and commercial labs. Innovation led to the F3 flow cells and Max Read kits' launch which enhanced G4's output significantly. As part of financial prudence, a 20% workforce reduction and cost-cutting are expected to yield $20 million in savings and extend the cash runway to late 2026. Strategic refocusing on the G4X, with planned early access placements by year-end and a full commercial launch targeted for the first half of the next year, is shaping the company's roadmap, with a commitment to support existing customers and a pivot towards service-oriented offerings.

A Productive Quarter and a Strategic Focus

Singular Genomics finished off a record-breaking year with a productive fourth quarter, revealing their focus on three areas: accomplishments of the year, new product announcements, and a strategic outline for the year ahead. The quarter saw 8 G4 instruments shipped, earning the company its highest quarterly revenue at $1.1 million. The shipments split equally between traditional capital purchases and noncapital arrangements, and an they increased the total number of G4 shipments to 24 by the end of December.

Enhancements in Product Output and Quality

The company launched F3 flow cells, boosting output to 450 million reads per flow cell and Max Read flow cell kits, raising the bar even higher to 800 million reads per cell for specific applications. These advances, alongside a bump in sequencing quality specifications to 85% of bases greater than or equal to Q30, illustrate Singular Genomics' commitment to product enhancement and customer satisfaction.

Unveiling the Groundbreaking G4X Spatial Sequencer

At the AGBT Conference, Singular Genomics stole the spotlight by introducing the G4X Spatial Sequencer, celebrated for its high throughput and innovative capabilities like in-situ RNA sequencing. The device is set to revolutionize tissue profiling with unprecedented processing capabilities, enabling labs to handle 20 times more samples per week compared to current technologies.

Early Market Validation and Excitement

The company's presentations at the conference were met with a standing-room-only audience and generated over 200 qualified marketing leads. They've forged strong relationships with industry leaders, signaling a robust pipeline of service projects and sales opportunities for the platform's early adopters.

Laying the Groundwork for Future Kits and Services

Initial kits will accommodate customizable content, supporting a wide array of gene targets and proteins. With Direct-Seq kits on the horizon and G4X technology access services poised for launch in the second quarter, the G4X's versatility in in-situ molecular pathology is clear. These developments lay the groundwork for wider adoption and underline the company's future-focused strategy.

An Emphasis on Spatial Sequencing and Multiomics

Based on the feedback and interests expressed by collaborators, Singular Genomics plans to lean heavily into spatial sequencing and multiomics, signaling a potential pivot in product strategy that aligns with the industry's trajectory and could greatly benefit Singular Genomics' product lineup.

Attractive Business Economics and Market Positioning

The G4X is not just technologically revolutionary—it's also financially promising. Expected higher ASPs for the G4X instrument and consumables, coupled with the ability to process multiple tissue samples on a single flow cell, enhance the product's value proposition and could yield significantly higher margins and consumable pull-through compared with the current G4 business.

Navigating Early Market Dynamics for Growth

Singular Genomics anticipates a spike in market demand for high throughput and cost-effective solutions, particularly in the academic, CRO, and reference lab sector. With the G4X, the company is poised to meet these needs, catalyzing growth in an emerging sector of the market that desperately requires the capabilities that Singular Genomics can uniquely provide.

Fiscal Prudence to Support Ambitious Goals

To align its resources with its strategic objectives, the company reduced its workforce by approximately 20% and curtailed spending. These austerity measures, building upon previous cost-saving initiatives, aim to extend the cash runway into late 2026, securing the company's position as it hastens the development and market introduction of the G4X.

Earnings Call Transcript 2023-Q4

[Operator]

Good afternoon, everyone, and welcome to the Singular Genomics Fourth Quarter and Full Year 2023 Earnings Call. [Operator Instructions]

It is now my pleasure to turn the floor over to your host, Philip Taylor. Sir, the floor is yours.

[Philip Taylor]

Thank you, operator. Presenting today are Singular Genomics' Founder, Chair and Chief Executive Officer, Drew Spaventa; and the company's Chief Financial Officer, Dalen Meeter.

Earlier today, Singular Genomics released financial results for the 3 months ended December 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, Monday, March 18, 2024, 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 filing 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 investor.singulargenomics.com in the Presentations and Events section.

With that, I will now turn the call over to CEO, Drew Spaventa.

[Andrew Spaventa, executive]

Good afternoon, and welcome to Singular Genomics' Fourth Quarter 2023 Earnings Call. It was a productive quarter to finish off an important year for the company, and I'm pleased to update you on our progress. We will focus our call on the following areas: one, business highlights and key accomplishments from 2023; two, new data and product announcements; and three, strategic focus for 2024.

Let's start with our fourth quarter results. We shipped 8 G4 instruments during the quarter and generated $1.1 million in revenue, our highest quarterly total yet. Of these shipments, 3 were to academic core labs and 5 were to commercial labs. The shipments comprised an equal split between traditional capital purchases and noncapital arrangements, bringing our total G4 shipments to 24 as of December 31.

In addition to our Q4 revenue performance, we had several other key accomplishments and activities for the year to note. We commercially launched and transitioned the majority of our customers to our F3 flow cells, allowing users to get up to 450 million reads per flow cell or 1.8 billion reads per run for some of the most widely-run applications.

We commercially launched Max Read flow cell kits to customers for single cell sequencing, increasing the output of the G4 to 800 million reads per flow cell or 3.2 billion reads per run for a specific single cell and spatial sequencing application patients. We improved sequencing quality on the G4, recently increasing the specifications to 85% basis greater than or equal to Q30.

Lastly, we narrowed our priorities across the R&D road map, to focus resources on the highest impact activities and projects for new innovations while reducing our cash burn and extending runway.

Turning to new data and product announcements. We recently showcased our near-term product pipeline at the AGBT Conference in Orlando, Florida. At the conference, we unveiled the G4X Spatial Sequencer, a high throughput in-situ spatial sequencing platform. The G4X is designed to offer novel capabilities, stackable data streams and unprecedented throughput for spatial profiling of tissue. Its novel capabilities will include direct seq, which is the sequencing of RNA in situ and has the potential to open new areas of scientific discovery.

In addition, the G4X will offer readouts of targeted transcripts, targeted proteins and a fluorescent H&E state, all in the same tissue section. This combination of readout modalities will be offered at an unprecedented scale, with 40 square centimeters of flexible imaging area and single-day run times, the G4x system will enable labs to process 20x more samples per week than existing technologies.

At the conference, our CSO and Co-Founder, Eli Glezer, presented to a standing room-only audience, sharing the performance data and technical specifications of the G4X system. In addition, we hosted a successful customer and KOL event, including lab directors and scientific leaders in the spatial community. The event provided an opportunity to develop relationships, solicit feedback on the system and discuss opportunities for collaborating and working together to bring the G4X forward.

We presented internal and external data at the conference. The internal data includes transcripts, proteins and direct sequencing of RNA. External data came from 2 technology access programs, or TAP partners. Early collaborators included Catherine Wu from the Dana-Farber Cancer Institute who noted, "The high sample throughput and excellent data quality that has been generated on the G4X with our bone marrow samples, notoriously, a very difficult tissue type, have been impressive and have allowed us to envision much larger studies that have not been previously possible. The scale provided by the GFX promises to have tremendous impact on expanding our understanding of the tumor microenvironment in acute myelogenis leukemia, AML and beyond."

In addition, [indiscernible] from Harvard's -- Beth Israel Deaconess Medical Center noted, "As the spatial biology field matures, high-throughput spatial platforms, such as the G4X, will empower more researchers to incorporate spatial tissue profile into their work as well as enable us to answer bigger questions and to perform increasingly larger studies."

We are encouraged by the feedback from early collaborators and interest from potential users coming out of AGBT. The conference generated more than 200 qualified marketing leads, and now we have a growing pipeline of near-term service projects on the G4X and a funnel of potential sales opportunities for early adopters of the platform.

We intend to initially offer kits in the G4X that will support transcripts, proteins and offer [indiscernible] H&E [ stain ], the system is designed to accommodate a large number of samples and will have the capability to read out hundreds of gene targets and dozens of proteins in the same tissue section. Content will be available in fixed panels or customizable for the customer.

Future kits in the G4X will also support Direct-Seq, which is designed to directly read regions of RNA, such as cancer hotspot mutations, guide RNAs and CRISPR screens or B and T cell receptor sequences. The capability to perform direct sequencing of RNA within cells and tissues is expected to bring a powerful new readout modality for in situ molecular pathology. Direct-Seq will be initially available as a service with plans for broader release shortly thereafter.

The G4X upgrades are expected to be available to G4 customers by the end of this year as part of a G4X early access program. Initially available will be an immuno-oncology panel of approximately 300 gene transcripts, 10 to 15 proteins and the ability to customize content. Direct-Seq and additional panels are expected to be released at a later date. We also plan to provide G4X technology access services starting in the second quarter.

Turning to our views and strategic focus in 2024. We are encouraged by the level of interest and engagement around the G4X. We are seeing strong interest from early collaborators, especially as it relates to our technology access services offering. Based on early feedback and interest in the G4X, we intend to focus more heavily on spatial sequencing and multiomics moving forward. We believe this is an area where we can offer novel and differentiated solutions with compelling business economics.

The setup for the G4X has multiple compelling aspects driving this shift in focus. First, strength of the value proposition. The G4X value proposition is expected to provide unique capabilities that customers are asking for. This can be categorized into novel data output modalities and high throughput. The G4X is designed to be highly differentiated from any other current offering while directly addressing customer pain points.

Second, the business economics are attractive. ASPs on both the G4X instrument and consumables are expected to be higher than the current G4 business. The ability to offer high throughput in the form of 10 to 40 tissue samples on a single flow cell translates to expected ASPs and margin dollars to be materially higher than current kits and significantly higher potential for consumable pull-through for G4X instrument.

Third, market dynamics and growth. The spatial profiling in multiomic space is in the early stages and is expected to grow rapidly. The current market is largely comprised of academic labs, CROs and reference labs. These labs need higher throughput and lower cost per sample. Current tools are limited. We believe that G4X will be uniquely able to serve these customers and accelerate growth within this space.

We see a strong setup for the G4X to be a highly successful product, and we are making the necessary trade-offs and decisions to invest and bring this product to market as fast as possible. We also recognize the need to manage our cash and resources prudently and have continued to identify and implement actions to drive additional cost savings.

To this end, we recently made the difficult decision to reduce our head count by approximately 20%, and we reduced our spending plans to decrease cash burn and focus resource more heavily on our spatial sequencing product road map. This reduction was incremental to the cost savings taken in October of 2023, and discussed in our last earnings call. We believe these actions will extend our cash runway into late 2026, while still supporting our current G4 customers, and focusing our development work to bring the G4X to market as fast as possible. We will provide additional color and updates on our outlook for 2024 on our Q1 earnings call.

Now I'll turn it over to Dalen to go through the details of our fourth quarter financial results.

[Dalen Meeter, executive]

Thank you, Drew. I'll start with financial results for Q4 2023 and talk briefly about 2024. As previously discussed, we shipped 8 G4 instruments in the fourth quarter of 2023. Revenue for the fourth quarter was $1.1 million, predominantly made up of $0.9 million from revenue recognized on 4 capital purchase, instrument placements and consumables pull-through of $0.2 million. We expect revenue from the remaining 4 instrument shipments to be recognized over time as these customers purchase consumables.

Gross profit was negative $0.5 million in the fourth quarter of 2023, compared to approximately flat in the fourth quarter of 2022. Our gross margin was negative because of both additional discounts we provided to certain customers as well as higher costs associated with the installation, training and support of our system placements.

Operating expenses in the fourth quarter of 2023 totaled $24.8 million compared to $22.5 million in the fourth quarter of 2022. These totals included noncash stock-based compensation expense of $2.7 million in Q4 2023 and $3.1 million in Q4 2022. The year-over-year increase was primarily driven by the timing of expenses related to certain compensation and benefits and severance costs.

Net loss in the fourth quarter of 2023 was $23.2 million or $0.32 per share, compared to $21.1 million or $0.29 per share in the fourth quarter of 2022. The weighted average share count for the fourth quarter of 2023 used to calculate net loss per share was approximately 73.6 million. And then cash, cash equivalents and short-term investments, excluding restricted cash, totaled $173.9 million.

Turning to 2024. As Drew discussed, we recently implemented a reduction in force of approximately 20% of our workforce. We have also taken actions to reduce our non-personnel-related operating expenses in 2024 to further decrease our cash burn. These actions were incremental to the cost savings initiatives implemented in October of 2023 and discussed on our last earnings call.

In total, we estimate the combined savings from these actions will reduce annualized operating expenses by approximately $20 million and extend our cash runway to late 2026. While these actions were not easy, we believe rightsizing the cost base of the organization was a necessary step to position us for success in the long term.

Back to you, Drew.

[Andrew Spaventa, executive]

Thank you, Dalen. I'm excited as we look ahead to 2024. This will be a pivotal phase for Singular Genomics. Singular has spent the last 7 years developing incredible technology. We have invested approximately $300 million, and in doing so, created a powerful sequencing platform with significant moats around our system, our chemistries and methods, our IP and our products.

Over the last few years, we have increasingly focused on leveraging our NGS technology and foundation to address the spatial and multiomic markets. Our NGS foundation and continued innovation has resulted in a unique and powerful on-ramp to spatial sequencing. Our many years of investment in both NGS and spatial sequencing now position Singular to enter these high-growth markets with a highly-differentiated product.

The recent restructuring of our business will provide extended runway, give us time to get this product to market and scale commercially. The synergies and footprint of our current NGS business and customer base will allow us to onboard existing customers and leverage our current commercial operations.

Now let's open it up to questions. Operator?

[Operator]

[Operator Instructions] Your first question is coming from Dan Brennan from TD Cowen.

[Daniel Brennan, analyst]

Congrats on the quarter and on G4X. Yes. So it sounds like we're going to get more color at 1Q, but could you unpack a little bit the strategic shift from the sequencing side to the G4X? And can you just give us some sense of what that entails? Like, are you still selling -- are you just still going to be charging ahead on the [Technical Difficulty] impact that the shift and kind of what it means?

[Andrew Spaventa, executive]

Dan, thanks for the question. This is Drew. We lost you at the end there, but I think I understood most of the question. In terms of the strategic shift, it's really a confluence of factors that's driving the shift. It's really best understood kind of looking at 3 different aspects to the setup. We talked about it on the call.

The first is the value proposition of the G4X. And I think there's 2 ways to think about it. The value proposition of the system relative to other options out there in the customer's eyes and the value proposition relative to the current G4. And what we see with the X is it's really resonated with customers. It's the novel ability to use sequencing in situ and do things like Direct-Seq, and it's also the high throughput, lower cost that our large imaging area will deliver. And that combination is really resonating, and it's just a very strong value proposition.

The second is the business economics on X. We expect to see higher ASPs for the instruments, and we also expect to see a very different pull-through profile, on sequencing, our kits range from around $600 to about $1,200, on spatial, the cost per sample and the ability to get anywhere from 5 to 40 samples on a single kit gives us the ability to potentially have ASPs that are many, many times higher on the same kit on the same system with much higher margin dollars.

So the amount of time someone has to press go to have a healthy pull-through system with significant margin dollar contribution to the bottom line, it's just -- it's about 5 to 10x less. So it's just a very different setup on those 2.

And then I think the last thing is that the market is growing very fast. And when you have high growth, you have areas that you can kind of find a foothold and differentiate yourself. And it's just much easier to launch and grow a business when growth is abundant. Whereas sequencing in a lot of ways in the academic and in the segments we're currently selling in, it's not really growing as fast. That wallet share is starting to shift towards spatial and single cell and protein and all of the things that the G4X directly addresses.

On the clinical side, there's still absolutely going to be growth in sequencing, but that's reimbursement driven, it's decentralization of sequencing and it's going to require much longer time frames. We're still very interested in pursuing that market and ideally advancing that through partnership over time. But the G4X, we think, has the setup to be a much different profile of business in the short term when we're measuring over the next quarters and years.

[Daniel Brennan, analyst]

Got it. And then in terms of just -- so you will still be pushing ahead then, I guess, in terms of the clinical market, maybe not research, just wondering from like an operational commercial basis as we go through '24, is it -- I think, the Street probably has somewhere in the midst of, I don't know, 30 or so placements on the G4, sounds like any color on how we think about like the trajectory of the business in '24 as you shift this business model?

[Andrew Spaventa, executive]

Yes, we're still working through a lot of that. I mean I want to be clear, we are shifting our focus, and we are putting all of our resources towards getting X developed and out. And that does require difficult and challenging trade-offs. We will have more color in the next quarter's call. But right now, we are not pounding the pavement on putting additional dollars to go drive G4 right now. We are focusing the resources on G4X.

We're 100% committed to supporting our existing customers, and we are also interested in advancing the G4 through partnership and we do have efforts that are ongoing and outreach. But our focus, again, we're trying to really hone in on what the highest value -- best return on the dollars and resources we have and that to us is very clear at this point is X, and that's where the majority of our attention is going.

[Daniel Brennan, analyst]

And maybe last one, just on the G4X [ end ], what's the key milestones this year that we could be watching for in terms of early access customers, like when will we see publications, just kind of give us a sense of what are the guideposts we can watch throughout '24 that will give us confidence you guys are on the right trajectory there?

[Andrew Spaventa, executive]

Thanks, Dan. Yes. So we're expanding our technology access program now. early on, a lot of these are collaborations where you're doing work to submit grants or you're doing evaluations to demonstrate the technology to potentially early adopters, we'll move into kind of a paid-for services arrangement kind of -- in Q2, really probably taking more effect in Q3 because there's always onboarding and there's work to get people onboarded. But that would be something to look out for services and kind of uptake in Q3, and then we're targeting early access placements with just a few select customers.

Again, the idea is [ here ], these are very high-volume customers in places where you're going to have a tremendous amount of demand. So hand-selected early access customers end of the year and then moving into a full commercial launch first half of next year.

[Operator]

Your next question is coming from John Sourbeer from UBS.

[Unknown Analyst]

This is Lucas on for John Sourbeer at UBS. Is there any commentary you could provide on the sales funnel mix between the G4 and the G4X right now?

[Andrew Spaventa, executive]

Yes, thanks. It's still early to look at the sales funnel for both in common apples-to-apples. What we're seeing on X is we have a growing list, a dozen-plus potential service collaborators that are in the funnel, and that's growing very quickly.

Coming out of AGBT, we had 100-plus interactions, and it does take time to follow up with all of those interested parties. And we're doing it in a very formal way where we're trying to identify specific projects where they could utilize the G4X, and a lot of that's working through to understand the details of the project to make sure it's fit for the current capabilities of where we are. We still have a ways to go to develop kind of the full set of capabilities in the platform. But that funnel on the services side is really starting to take shape nicely and we're executing on those now.

On the funnel for instrument placement side of things, that's going to take some time. Like I said, we're only talking about early access placements later this year with commercial launch in the beginning of next year. And people are going to want to see publications and services and -- we still have a lot of work to do to kind of launch this product the right way, which we are affording ourselves the time to do.

On the sequencing side, there remains demand, but not ready to comment specifically on the funnel numbers, [ that's ] the thing we've talked about before. But again, our focus at this point is really identifying where are their G4X customers. And if those customers are interested in taking a G4 now as part of a package to step into X, those would be opportunities we would move through the funnel. But right now, we are not actively seeking G4-only opportunities. We are focusing our attention on G4X opportunities or combination opportunities.

[Unknown Analyst]

That's all really good color. And then is there any commentary you could provide on revenue and just kind of the general cadence of how things could track throughout the year?

[Andrew Spaventa, executive]

It's still very early for us. We're working through this now. A lot of this reorganization and shift has been work that we've done over the last couple of months. I think we'll have more information as we work through this kind of at the next quarter call.

[Unknown Analyst]

Okay. Not a problem. And then lastly, on the PX, should we consider that product as still being in development? Or given the rollout of the G4X, is that kind of a replacement for the PX?

[Andrew Spaventa, executive]

Yes, it's a good question. I would consider that -- the G4X is our spatial sequencing platform we're bringing to market. And it's all hands on deck to focus on getting that platform out. The PX platforms, we have 6 beta platforms that we may revisit at some point, but right now, they're on hold. Again, our mindset right now is very much focused, focused, focused on getting the G4X out.

[Operator]

Your next question is coming from Matthew Sykes from Goldman Sachs.

[Jake Allen, analyst]

This is Jake Allen on for Matt. First, for the anticipated G4X launch, do you expect a similar go-to-market strategy offering both reagent rental and outright instrument purchases?

[Andrew Spaventa, executive]

I think we envision a somewhat different strategy. I think we're going to lean into services a lot more. And I expect that we'll be more discerning on alternative methods versus capital sales. Again, the demand profile at this point seems different, and we learned a lot from the G4 launch. So it's still early to say, a year from now when we're selling units and we're commercial, what we expect that mix to look like. But I think one thing that we have learned is the service can be a really nice on-ramp. There's a lot of demand there.

So I think the other thing that we're planning is a few early access placements, but really partnering with those early access customers and making sure they're at places where there's very high pull-through, and that's something that uniquely the system is suited to address.

[Jake Allen, analyst]

Got it. That's really helpful. And then lastly, so as you continue to cut head count to reduce costs, can you just talk about what you were thinking about in terms of level of investment into the business to support the G4X launch?

[Andrew Spaventa, executive]

Yes. The reductions are very difficult. And we've been a lean operating company to the extent possible from onset. The thought process behind reducing and focusing was really to try and eliminate anything activities and priorities that weren't critical to kind of the revised focus, and that focus is supporting existing customers in the existing sequencing business and then putting all R&D and product resources on G4X.

A lot goes into developing these systems. It's multidisciplinary teams. These are complex systems and reagents. So you can get to a point where you have really nice proof of concept or really nice data, but productizing that and getting it out robustly, that's something that we know it does take resources to do that. So we've got as lean as we can with the more narrow focus on G4X and supporting existing customers, and we're going to try and advance as quickly as we can in that lean nature.

[Dalen Meeter, executive]

Jake, this is Dalen. I'll maybe just add one thing. In the savings estimates that we talked about in the prepared remarks and the statement about extending our runway out to the end of 2026, we are contemplating internally some -- just kind of modest investment for some of the infrastructure that we think will need to stand up to support the go-to-market strategy such as services, right? So are contemplating some reinvestment to get this product to market.

[Operator]

Thank you. That concludes our Q&A session. I will now hand the conference back to our host for closing remarks. Please go ahead.

[Andrew Spaventa, executive]

Thank you, everyone, for joining the call today. I look forward to update you on our progress as we progress this year.

[Operator]

Thank you, everyone. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.