Twist Bioscience Corp

NASDAQ:TWST

Earnings Call Transcript 2019-Q3

[Operator]

Good day, ladies and gentlemen, and welcome to the Twist Bioscience Fiscal 2019 Third Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to introduce your host for this conference, Mr. Jim Thorburn, Chief Financial Officer. You may begin.

[James Thorburn, executive]

All right. Thank you, Kevin. Good afternoon, everyone, and thank you for joining us today for Twist Bioscience conference call to read our fiscal 2019 third quarter financial results and our business progress. Please review the press release we issued earlier today, which is available at our website, www.twistbioscience.com.

With me on today's call is Dr. Emily Leproust, CEO and Co-Founder of Twist. Emily will begin with a review of our overall progress, and I will report on our financial and operational performance, then Emily will discuss our upcoming milestones and direction. We will then open the call for questions. And as a reminder, this call is being recorded. The audio portion will be archived in the Investors section of our website and will be available for 2 weeks.

During today's presentation, we will make forward-looking statements within the meaning of the federal securities law. Forward-looking statements generally relate to future events or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize, and actual results and financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth in the press release we issued earlier today as well as those more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on information available to us as of the date hereof, and we disclaim any obligation to update any forward-looking statements except as required by law.

With that, I will now turn the call over to our Chief Executive Officer and Co-Founder, Dr. Emily Leproust.

[Emily Leproust, executive]

Thank you, Jim, and good afternoon, everyone.

Over the course of 2019, we have delivered across all areas of our business, running growth in both synbio and NGS and investing in continued technological advancement and products offering that will establish additional sources of revenue and solidify our leadership position in the space.

At the beginning of the fiscal year, we outlined a series of ambitious objectives for each of our verticals. I am pleased to report that we are meeting and, in some cases, exceeding these goals.

Overall, we have shipped to 1,091 synbio and NGS customers in the first 3 quarters of this fiscal year compared to 717 customers in the full 2018 fiscal year. And we reported revenue of $13.6 million for the quarter. While our revenue is flat sequentially over the fiscal second quarter, our top line revenue has actually significant accomplishment. Indeed, last quarter, we had a single customer accounting for almost $3 million. Excluding this large liquid biopsy-related order, our revenues would have increased by close to $3 million sequentially.

For synbio, we have now shipped to almost 1,000 customers this fiscal year, and we continue to see revenue growth in this segment. During the third quarter, we prepared the move of our back-end gene production into a new manufacturing facility in South San Francisco. Now we are pleased to report that the move went smoothly in the first weeks of July without any production interruptions and with only minimum delay for gene order that came in during the period from July 1 through July [ 20 ].

In Q3, our number of customers' orders increased 3.2x year-over-year while the average order size decreased by about 60% year-over-year, indicating that while we're at the beginning of the trajectory, we are reaching smaller customers and leading makers in the market. We believe this is fueled by our e-commerce platform reaching the long tail of the market.

Revenue from Ginkgo for the third quarter was $2.3 million. And we continue to expect them to meet or exceed their contractual obligations of $9 million this year, reflecting Ginkgo's continued need for large quantities of DNA from Twist.

During the quarter, we co-hosted an event with Arzeda, Labcyte and TeselaGen, showcasing the integration of the respective individual platforms to create a workflow that accelerate the design-build-test cycle.

And in April, there was an insightful article in The Economist that details the value of the growing field of synthetic biology. What is described in the article, a convergence of technology and the readiness of the market to embrace the growing benefits of synbio is playing out in integrating different technologies to spur new and exciting research. We continue to play an integral part in the advancement of synbio with our pivotal DNA-writing capabilities and the products that triggers from our proprietary technology.

As a testament to our continuous innovation, on Monday, we announced the introduction of our long oligonucleotide or oligos up to 300 bases in length, which we believe is the longest commercial oligo offering the industry. Historically, it has been difficult to make oligos longer than 200 bases due to chemical reaction inefficiency. We have identified a proprietary way to make our oligo a record 300 bases at a very low error rate. We believe this provides us a competitive advantage not only in our oligo pool products where our longer oligos are used in drug discovery and development but also in data storage where our longer pieces of DNA can store more digital data per strand. In addition, we believe long oligos will be very useful for CRISPR gene editing as well as in protein engineering. Indeed, 300 bases enables the direct synthesis of 2 guide RNAs together to study cooperative and synergistic effects of multiple guides. And for protein engineering, 300 bases corresponds to 100 amino acid or about the length of a protein subunit.

As we look forward for synbio, we look for continued synbio revenue growth, and we believe we have a significant opportunity in the pharmaceutical segment through enhanced product offering. We are currently targeting several new products late in this calendar year which we believe will add to our top line synbio growth in 2020 and beyond.

For genomics and targeted NGS, in the third quarter of fiscal 2019, we shipped our target enrichment products to more than 150 customers with 26 of these customers now in production.

For NGS, our revenue continues to grow nicely, and our customer base is moving through our pipeline from pilot to production. As we have said previously, we expect that large orders will be lumpy as this customer purchased a bulk of products and then required several quarters to work through their inventory before placing another large order.

In addition to growing our base of large diagnostic testing companies, which is a source of the majority of our revenue today, we see 2 additional market opportunities. The first is in the research market. In June, we introduced a mouse exome, leveraging our strength in generating custom panels rapidly and cost effectively. While sequence data for mouse and model organisms is constantly being collected, the mouse exome offering from our competitor was based on sequence information that is over 5 years old. Our mouse exome includes the most up-to-date consensus genome. And we expect this to be a significant source of [ change ]. In addition, offering a large panel in an entirely different species quickly and cost effectively is an exceptional feat in custom panel design and reflects our capabilities and the value of our technology platform. Moving forward, in addition to broadening our human NGS product line, we intend to offer additional panel specific to nonhuman species for a broad range of research need.

The second area where we see growth is in the convergence from SNP arrays to NGS. In July, we received $800,000 in orders as of the beginning of the conversion from microarray to NGS. As we have mentioned previously, several customers have demonstrated that sequencing using Twist for library preparation and target capturing with sequencing on the NovaSeq platform can be less expensive than running DNA microarrays for SNP analysis. And we intend to continue to enable this conversion.

While SNP arrays are used extensively in the consumer DNA testing space, they are also used extensively in the agricultural or biotech market to genotype chicken, beef, salmon and other food products. We believe that together, the SNP array market segments represent a total market opportunity of $500 million. We do expect it to take some time to penetrate this area, and the shift in workflow is substantial. That said, the unit combination of our platform with sequencing on NovaSeq provides richer genotyping data at an attractive price point compared to SNP arrays, and it represents a medium- to long-term opportunity for Twist to expand the available market for our platform.

During this fiscal third quarter, we launched our e-commerce platform for several of our NGS products. All NGS customers are now able to track their order status, and selected customers can purchase standard NGS products through our e-commerce platform. During the current quarter, we intend to launch several additional e-commerce features for design and custom panel implementation.

Looking ahead at the course in bioengineering businesses, orders remain strongly ahead of revenues at $18.1 million in Q3, indicating future revenue growth in the near term as these orders turn into revenues. Therefore, we remain on track to meet or exceed our top line guidance for the fiscal year, and I would like Jim to provide detailed commentary.

Moving on to verticals. For biopharma, we continue to collaborate with our partners, Pandion Therapeutics and LakePharma, as we have continued to internally validate our GPCR library. As previously reported, we have identified initial functional leads against GLP1R, which promotes insulin secretion from pancreatic beta cells and plays an important role in Type 2 diabetes and in slowing Parkinson's and Alzheimer's. I'd like to note that being able to identify several functional antibodies against one GPCR target is in and of itself an important scientific demonstration of the power of our platform. In addition, I am pleased to report that last quarter, we identified functional leads against 2 other relevant and important GPCR targets for a total of 3 targets. Going forward, we are running these leads through a typical characterization workflow in order to build the beta packages needed to explore their monetization. We are also continuing to explore other targets to be the pipeline of lead against multiple targets.

We have also created a series of single domain antibody libraries. Single domain antibodies are antibody fragments that are much smaller than a whole antibody. While a whole antibody is composed of 2 heavy chains and 2 light chains, single antibodies are engineered from heavy chain antibody and are also called VHS fragments. These fragments are small and modular antibodies that are both stable and robust for potentially faster discovery development. The initial characterization of these libraries has started as well as the design of other libraries.

Overall, our ability to make such diverse libraries quickly and cost effectively enables us to rapidly manufacture valuable content that can be screened for specific functionality, enabling us with multiple opportunities to find future leads against critical targets. With these new tools, we are making good progress towards establishing collaborations and partnerships for our discovery and early development capability.

Turning to data storage. We are continuing our negotiations for nondilutive funding through a government contract on DNA data storage. We remain encouraged with the progress on this front though there are no guarantees that we will receive funding under this contract.

We're also excited to announce that in anticipation of this program, we are proceeding forward with the design of our next-generation silicon chip specific to DNA data storage. The CMOS driver chip will be designed and fabricated to be compatible with multiple device design and will be a key part of our methodological development path to our [ semiconductor ] feature density. The CMOS chip will require multiple quarters for design and production, after which we will continue to execute the engineering road map dramatically increasing feature densities.

The first phase will to be to characterize device designs of 1 to 5 microns. As a reminder, as the feature size decreases, the cost per oligo and the cost per byte stored decrease quite rapidly. For instance, going from 50 microns to 5 micron, which is 10x smaller, will decrease the cost by 10-squared or 100x. So as a reminder, once the CMOS driver chip is obtained, different device designs can be found, fabricated and tested relatively quickly, so this represents a key milestone to future improvements, although we are encouraged by our progress and the potential to make DNA storage cost competitive with long-term storage options.

During the quarter, we also added Nelson Chan to our Board of Directors. Nelson has consulted for us for the last 1.5 years and brings an incredible depth of exchange both in semiconductor industry and in the storage market. And importantly, he was instrumental in introducing and building the market for flash storage at SanDisk.

Finally, we recently signed a contract with Imagene, a French company that supplies DNAshell, very small stainless steel capsules that store digital data encoded in DNA for thousands of years without degradation. This is one more piece of the commercial infrastructure to bring DNA digital data storage to market as a commercial product.

Finally, with regard to our China strategy, I'd like to reiterate that we will be keeping all of our advanced proprietary technology in the United States. By building a facility in China to assemble the most standard back-end process of our NGS products for the Asian market, we will be able to expedite the time from order to delivery for these customers. In this way, we will be able to protect our intellectual property and still meet the needs of our customer who need the NGS products quickly. We still expect the space will be ready with initial shipments from this facility before the end of calendar 2019.

At this time, I'd like to turn the call over to Jim to review our financial results for the quarter.

[James Thorburn, executive]

All right. Thanks, Emily.

First of all, we would like to thank all the shareholders who supported our recent follow-on offering in May. We raised approximately $84 million in net proceeds which allowed us to close the June quarter with $161.8 million in cash and short-term investments.

As Emily noted, the results for this quarter confirm we are executing well and now anticipate our revenue for the year will be in the range of $52 million to $53 million as compared to our previous guidance of $50 million to $52 million. I'll quickly touch on some quarterly highlights. Revenue is $13.6 million. Bookings were $18.1 million as a record for the company. Our commercial team is executing extremely well and continue to deliver. Our book-to-bill ratio is 1.3:1. Our year-to-date orders are $50 million. Our gross margin for the third quarter was positive 16%. Our Ginkgo business is doing well. We had $2.4 million in orders and billings of $2.2 million in the quarter. And we're doing a good job in terms of expanding our customer base beyond Ginkgo and extending our synbio reach. We have invoiced over 1,000 customers quarter 3 year-to-date.

I'll now dig into some of the details of orders for the third quarter. $18.1 million in orders represents year-over-year growth of 69% and sequential growth of 8%. Our synbio orders, defined as genes, libraries and oligo pools, were $11.3 million for the quarter including Ginkgo. Sequential growth was 7%. Non-Ginkgo sequential growth was 10%. I'd like to highlight our genes business is doing very, very well with orders of $9.3 million, with strength in EMEA and the U.S. markets primarily driven from industrial biotech, academic and the pharma segments.

NGS orders were approximately $6.8 million for the quarter, which is up sequentially from $6.2 million in quarter 2. We received orders from 178 accounts in this quarter, up from 137 in quarter 2 and had broad-based ordering with no single large customer dominating the bookings.

Our pipeline continues to grow. We have now 58 in pilot and validation, and that's up from 42 last quarter. Remember, we tracked the larger accounts that can deliver more than $250,000 in revenue. We're now tracking 84 of them. In addition, 2 more large customers are now scaling to production volumes, bringing our total customers in production to 26.

How are we doing globally? Well, our global expansion is going well. Approximately 41% of our bookings were ex U.S. EMEA delivered on our strong quarter with 6.1 million orders, which included 2.1 million from NGS and synbio of 4 million with solid orders across industrial biotech, academic and the pharma segments in EMEA. APAC, our orders were stronger, 1.4 million, and that includes China bookings of 0.8 million. America orders for the quarter were 10.6 million, which includes 7 million for synbio.

I'd just like to note we provide orders not to directly translate into revenue for the following quarter but more to provide a trend line for each product group. Currently, both synbio and NGS are growing strongly, although we anticipate both NGS and Ginkgo orders to be lumpy quarter-to-quarter.

I'll now comment on revenue. Quarter 3 revenue is $13.6 million. This is really a terrific quarter for Twist with growth of 108% year-over-year compared to $6.5 million quarter 3 2018. Our NGS business was strong with $5.6 million in revenue. And we've now billed approximately $15 million year-to-date in NGS as compared to $1.8 million year-to-date same period in 2018. As we noted on our previous earnings calls, NGS orders and revenue can be lumpy. In Q2, we billed one single customer $2.7 million in NGS tools, as Emily highlighted earlier, and this customer will use the product over several quarters. Consequently, we did not ship to this customer in Q3. So excluding this $2.7 million from our second quarter results, our sequential grower in NGS was 97%. With shipments to 153 NGS customers during the quarter, this is demonstrating that we're really with a strong product line and the product offering is being adopted. Please note the prior quarter shipments to NGS customers shipped about 104.

Synbio revenue was $8 million, up from $7.1 million in quarter 2, with synbio revenue year-to-date now $23.6 million, which includes Ginkgo. Excluding Ginkgo, our synbio revenue has grown by 70% year-over-year, demonstrating we're making great progress. It's also worth noting our genes revenue was $6.2 million including $2.2 million from Ginkgo. Genes grew sequentially 3% for the quarter with revenues from our longer genes, 5 kb, accounting for $1 million. And it's worth noting we had 110 customers sampling and buying our 5 kb product. Genes year-to-date were $19 million compared to $11.9 million. And when excluding Ginkgo, our genes business has grown by close to 90% year-on-year.

I'd just like to summarize that $13.6 million for quarter 3 was good because when you back out the $2.7 million, we've grown, as Emily highlighted, almost $3 million sequentially. And also we're in the middle of our move. So I just want to thank the whole organization for executing. It's a great quarter. And I am very supportive of the Twisters and obviously they continue to deliver, so good job, team.

Turning to regional commentary. In fiscal third quarter, we continued to expand our global presence. U.S. revenue was $9.2 million, which brings U.S. revenues year-to-date to $27.4 million. This accounts for approximately 70% of our total revenue and represents 125% year-over-year growth. As noted earlier, it's an excellent quarter for the U.S. as the previous quarter reflected the large $2.7 million NGS shipment.

EMEA revenue was $3.5 million for the quarter, up from $3.3 million in Q2, representing approximately 6% sequential growth. EMEA revenue for the first 9 months of fiscal 2019 was $9.3 million, up from $4.1 million in the same period fiscal '18, representing approximately 125% year-over-year growth.

APAC revenue for the third quarter was $0.9 million, growing sequentially from $0.7 million. For the first 9 months of 2019, the revenue in APAC was $2 million, up from $0.7 million in the same period of fiscal 2018, representing 127% year-over-year growth.

In terms of segment revenue this quarter. Academia, which includes synbio and NGS, was strong. For the first 9 months of fiscal 2019, our 2 largest segments are industrial chemicals, accounting for about $16.1 million of revenue; and health care, accounting for $12.4 million.

Now moving down the P&L. Gross margins, as we highlighted, our gross margins for this last half of fiscal year is in the mid-teens. And we actually delivered 16% margin in this last quarter, so that's $2.2 million margin dollars. So we're tracking based on our original guidance.

Our operating expenses excluding the cost of revenues for the third quarter increased to approximately $30.3 million from $28 million. R&D increased to $9 million compared to $8.9 million for the fiscal 2019 second quarter. Our SG&A increased to $21.3 million in the third quarter compared to $19.1 million in the second mainly due to some higher legal fees and additional commercial costs associated with our continued investment in our commercial organization. During quarter 3, we added 11 personnel to our commercial ops or organization and have, over the last year, scaled our organization from 57 to 106.

Our net loss for the quarter was $27.9 million, up from a loss of $25.9 million in the second quarter primarily due to higher operating expenses.

In summary, our revenue for the first 9 months of fiscal 2019 was $38.6 million, which is 127% growth compared to the same period in fiscal 2018 with robust demand for our products continuing. Our genes orders are strong. Our NGS products have good momentum as more customers adopt and begin to scale production volumes. The result is we are increasing our revenue guidance to a range of $52 million to $53 million in fiscal 2019, which compares to $50 million to $52 million we discussed previously. Ginkgo revenue is estimated to be approximately $9 million. Non-Ginkgo synbio is estimated to be approximately $23 million, and NGS is estimated to be approximately $20 million. Our net loss guidance for the year is $102 million to $104 million, up from previous guidance of $97 million to $99 million.

We're stepping up our investment in the commercial organization to position us for strong growth in 2020. It takes about 6 months -- 6 to 9 months to recruit, onboard and ramp our sales personnel to full capability. We want to staff to approximately 70 field sales personnel. We anticipate approximately $1 million in move-related expenses associated with our new facility in San Francisco, and this new facility combined with the 4 new writers will give us ability to scale 200 -- to $200 million in revenue.

In summary. Over the last year, we've executed ahead of plan. We've made strategic investments in our business and have strengthened our balance sheet. The business is doing extremely well, and our organization is executing, and we're positioning ourselves to deliver strong growth.

I will now turn the call back over to Emily.

[Emily Leproust, executive]

Thank you, Jim.

As we are now in the final quarter of our fiscal year, we have achieved several key milestones with an aggressive plan to continue to grow our business. For synbio, we expect an uptick in revenue from Ginkgo as well as continued growth from the larger synbio market. We expect contribution from our long oligo pools as well as our long genes and gene fragment. Looking into 2020, we have a solid road map to introduce products we believe will drive growth in the pharmaceutical market.

For the genomics market, we continue to move customers along the continuum from pilot to production. And as well, we are encouraged by the early inroads we are making in the large SNP array market. We will continue to focus in both the traditional diagnostic market as well as the ag bio research and direct-to-consumer NGS opportunities.

For biopharma, our science continue to progress, and we plan to build our capabilities through nondilutive collaborations and partnerships. We also look forward to signing additional revenue-generating partnerships moving forward beginning with smaller agreements focused more on services and moving along the value spectrum into true discovery partnerships.

In data storage, we look forward to continuing the contract negotiation from nondilutive financing and expect it to drive to completion.

One final note. We did post a case update detailing developments in both May and June in the ongoing litigation with Agilent, which can be found under the News and Events section within the Investor Relations section of our website. We continue to believe the case is meritless and intend to defend ourselves vigorously. As you can appreciate, we will not be discussing the litigation on the call, so I do encourage you to read the updates on the website.

So with that, let's open up the call for questions. Operator?

[Operator]

[Operator Instructions] Our first question comes from Tycho Peterson with JPMorgan.

[Tejas Savant, analyst]

This is Tejas on for Tycho. I wanted to start with the NGS business here. Emily, can you just -- I know you've mentioned the 150-plus customers that you shipped to in the quarter. Really strong order book as well. How much of that was driven by the e-commerce platform launch? And how has that been shaping up over there?

[Emily Leproust, executive]

That's a great question. Thank you very much. Most of that growth has not yet been reflected by the e-commerce launch, so we still are looking forward to the benefit of e-commerce.

[Tejas Savant, analyst]

Got it. And then just following up on NGS, I think you mentioned only 2 incremental customers moving to production mode. Was that surprising to you, or is it just sort of normal quarter-to-quarter lumpiness? It sounds like between the first and second quarter, you had 6 or 7 customers who went from validation to production, so anything to read into the cadence there?

[Emily Leproust, executive]

Yes. No, it's the timing. If you -- I think if you look, the number of customers in validation has swelled quite a bit. So it's the timing. And at the same time, the people that are already in production picked up the difference in the onetime $2.7 million orders we had last quarter.

[James Thorburn, executive]

What I would add, Tejas, is that we have almost 40 customers in validation stage now. Most of them are in the late validation stage, so it's going through the pipeline. And part of that is, therefore, we're having a lot of negotiations, teams tied up in the terms, discussions. And yes, I think in terms of scaling, it wasn't -- it's not a surprise. What surprised me is how many are actually moved into the late validation stage, which is encouraging.

[Tejas Savant, analyst]

Got it. And one quick follow-up here on LakePharma. Can you talk a little bit about the success you had so far in terms of penetrating that customer base with your discovery and optimization platforms?

[Emily Leproust, executive]

Yes. So we are in -- they've been very useful in getting us in front of people. So in discussion with multiple LakePharma clients, as you can imagine, those types of bidding activities takes some time to reach to a conclusion, but it's been quite positive so far.

[James Thorburn, executive]

Tejas, the other thing I would add on NGS is we didn't we move our lab this quarter consolidated in San Francisco, so we've been very cautious in terms of how we're managing our customer base for that process. And the team have actually executed extremely well.

[Tejas Savant, analyst]

Got it. That makes sense. On China, was there a slight delay in terms of opening up your facility there? It sounds like it's now going to be end of calendar year. So anything to elaborate on over there? Or was it just normal course of business?

[Emily Leproust, executive]

I'd say in previous quarter, we had guided to end of fiscal year for the first shipments -- sorry, I misspoke. In previous earnings call, we had guided to the end of calendar year. So I think we're on track here.

[James Thorburn, executive]

Plus our priority is to get our consolidation in South San Francisco.

[Emily Leproust, executive]

In the meantime, we can ship to China from here. It would be better when we're in China, but we can still serve from here.

[Tejas Savant, analyst]

Got it. And then Jim, I know you probably don't want to speak too much specifically in terms of the next fiscal year just yet. But given that you've guided to sort of mid-teens gross margins in the back half of this fiscal, and obviously, you're ramping up some commercial investments in the back half of the year here, how should we think about the margin progression? Is that sort of mid-teens gross margin a good baseline number of which to think of sequential improvement as we move through the next 18 months or so? Or are there any other sort of like moving parts which might sort of alter that trajectory materially?

[James Thorburn, executive]

So good question. It's one we focus on. So part of consolidating into South San Francisco is we can leverage the organization of synergies. We are adding 4 new writers towards the back end of this year. That's going to help us scale to approximately $200 million. And as we think about the business between $100 million and $120 million, $130 million, we should be targeting roughly around -- delivering roughly around 50% gross margins. And our goal is to scale to that sort of level as quickly as possible, and we anticipate we should be at that run rate towards the end of next calendar year.

[Operator]

The next question comes Ross Muken with Evercore ISI. [Operator Instructions].

[Unknown Analyst]

It's [ Jon ] on for Ross. Focusing on data storage and the Imagene deal, kind of what -- I was wondering what your vision was for kind of how you're going to commercialize? What does it take to have a full commercial package in the space? And does it require complementary technologies such as reading -- like throughput reading?

[Emily Leproust, executive]

That's a great question. So I know for storage -- in data storage, you need to be able to do data in, data out, so -- which means you first need to encode the data into DNA. So that's software. Then you need to write the DNA, so that's our silicon chip. Then you need to store the DNA, so that's the [indiscernible] chip will be useful for that. And then when the data is needed, you have to PCR it out. PCR is well understood. And then you have to sequence it and decode, which is again software.

In terms of our go-to-market strategy, initially, where it makes the most sense is to go for cold data, so data that is not read very often. So it means that you need to be able to read the data when needed, but only a small percentage of the data will ever be read. What that means is a current sequencing technology, for example, in NovaSeq will be perfect for that at this point.

As sequencing technology improve over time, there may be even cheaper sequencing technology which will enable us to go into markets where the data is read more often. But because we don't control the reading side, initially, we'll focus on markets that -- where the data is read very infrequently. And the FYI, that data is called WORN, which means write once and read never. And the vast majority of the data in the world is WORN data.

[Unknown Analyst]

Got it. So as far as this Imagene deal is concerned, how much closer does it get you to an offering in the least WORN data? And do you have a general time frame of when we could expect to see anything along those lines?

[Emily Leproust, executive]

Thanks. So we sell today, and we had a small number of sales in data storage. But today, what's limiting the ramp is actually the costs, and that's limited by the density in the silicon chip. Today, it's about $1,000 per megabyte. If you're storing Bitcoins, as you know, very inexpensive to store Bitcoins. But if you want to store financial data or your personal photobooks, that could be quite expensive today, so that's why there's only a limited market. And so the next opportunity for us is when we can significantly lower the cost of writing. And through the CMOS silicon chip that we are developing, we are enabling that transition. And so the next target point would be somewhere around $100 to $1,000 per gigabyte. At that point, once we have that, we can start serving some very interesting market. So the opportunity will be bigger. And then the next step after that again will be to go for $100 per terabyte, which is about the price of a hard drive. At that point, you can go after the entire market. So it will be gradual, but the next step is the $100 to $1,000 per gigabyte. And as we mentioned, it will take a few quarters to design and build that first silicon chip. But the good news is we have a roadmap, we're executing it, and we are moving forward. And if I may add, the nondilutive funding that we expect to get would accelerate that.

[Operator]

Our next question comes from Doug Schenkel with Cowen.

[Doug Schenkel, analyst]

So I want to go back to an earlier question and maybe just to frame it a different way. So just recapping some of the numbers that have been covered a couple of times, the number of customer evals jumped from around 100 into over 150. 42 pilots went to 58. And then the number of folks that are in production went from 24 to 26. So you're getting a lot more evals. The pilots are jumping too. And then I think what we're waiting for is a bigger jump in production customers. Is there some rule of thumb that you can share with us on typically how long it takes to move from one stage to another; and then maybe kind of building off of that, kind of what type of dollars we're talking about. That second one may be a little bit tougher. But as we look at -- obviously, at this point, we've had 3 quarters of revenue. We know what your guidance for the NGS segment is for the year. It seems like you don't have a lot baked in, in terms of additional conversion into the fourth quarter, which my guess is just conservatism at this point. But I asked this because it seems like you're clearly building momentum heading into the end of the fiscal year. And if you could give us some rules of thumb on these things, I think it will allow us to at least think a little more intelligently about what could happen in this segment next year.

[James Thorburn, executive]

Yes. So yes, there is some conservatism. And remember, part of the conservatism, Doug, here is because we are consolidating into our conservative -- anyway, we're consolidating into the facility in South San Francisco. We're still tracking this. What we're finding over the last few months is we have had a lot of negotiations going in terms with the customers. I think what's interesting is if you take the one order that we had on the microarray which came in July, $800,000, we started negotiating that one...

[Emily Leproust, executive]

In February 2018.

[James Thorburn, executive]

February 2018. So that's taken us just over a year and almost 6 months to convert that. And we'll start shipping that when -- probably September quarter. So in terms of what we'd be expecting, as you know, this year, we're going to do roughly around 20. We would have to step back. And you're right, we're getting momentum. There's more sitting in the validation, and that's late validation negotiation. We should be anticipating that we should be looking at almost doubling that business next year. And it's difficult right now to say when those validations are going to flip into adoption. But my view is once they get into validation, you're probably talking about 3 to 6 months for adoption.

[Doug Schenkel, analyst]

And that's super helpful, Jim. Go ahead. Sorry, Jim.

[James Thorburn, executive]

And then that's late validation. And we define late validation as we're actually negotiating the terms and talking about the pricing and Ts and Cs.

[Doug Schenkel, analyst]

Okay. And is it -- you got a ton of momentum. It's still early days, too early to comment on any signs that these conversion time lines where you move from one phase to the other are tightening up. I'd imagine that big one that has taken a year, 1.5 years from day 1 to getting to where we are now. My guess is if there was another one like that out there today, it would presumably take a bit less time. Is that fair?

[Emily Leproust, executive]

Yes. Definitely that now that we've done it several times, we can anticipate better what people want. And so there is a bit less exploration of what the needs are. And a lot of those are already in the funnel, so I don't think there is a lot of people that we are not talking to yet. So I think we are -- it seems that's conservative for this fiscal year, and I feel like we are very well positioned for what we want to deliver next year in terms of growth.

[James Thorburn, executive]

Yes. And the other point there, Doug, is that we have increased our investments in the commercial organization to support the growth. If you look at it, we're ramping up to almost 70 salespeople. Of that, 30-odd that are going to be supporting NGS. And we built technical resource around that because it's a technical sale. As you start to segment the business, each segment within NGS, whether it's through clinical or diagnostics, it really requires a different touch and different value proposition, and they've got their own idiosyncrasies. So we're building that knowledge. And so part of the ramp has to be we got to get the right people in the right place, talking to the right customers as well. We definitely got a good product.

[Doug Schenkel, analyst]

So let me ask one more follow-up on this topic just because I think that the last point about, of the 70 new folks you're bringing in, 30 are focused on this segment. Do you expect them to help you where you -- where I think you've already been strong, with basically converting some of the big research and big commercial labs that need good target capture tools at a lower price, that you've done really well [ selling ] with some really big customers. Does the commercial reach help you more with those types of customers and converting more quickly? Or does it actually allow you to go after the bigger part of the market at least in terms of number of customers who may be spending a little bit less but there's just a lot more of them?

[Emily Leproust, executive]

Yes, I think it's all of the above. Adding more people on the ground enables you to have -- to do more of the high-touch account managing that we have to do with big account. But at the same time, if every time we get into an account and there's a pilot we win, then it behooves us to put more people to knock on more doors early so that we can grow the funnel and move more people from pilot to production. So it's definitely a little bit of both. It will help with the big accounts as well as the more medium ones.

[Doug Schenkel, analyst]

Got it. Just maybe a couple of real quick cleanup ones. Just where do you think gene turnaround time will be by year-end? And how important do you think that is in terms of opening up more of the market?

[Emily Leproust, executive]

I think it's a critical focus of ours for growing our reach. Basically, in the market, the more flavor of the DNA we can add, the more we'll be appealing to more researchers. And faster turnaround time is, in a sense, additional product features that enables us to reach more people. So our goal is to be consistently below 12 days turnaround time in the near future and then push that even further. At 12 days, we'll be extremely competitive. And then as we get to 11 and 10 days, then it's almost irresistible at the price point and the scale that we have.

[Doug Schenkel, analyst]

Okay. And one last one. In the context of discussing your newer growth drivers in your prepared remarks, you mentioned the ability to use Twist-enabled SNP RNA tools to drive customers to increasingly migrate from arrays over to NovaSeq. Is it fair to say that a nice validation of that would be on an upcoming call being able to disclose that you're getting the early indications of the interest from some of the big ag accounts? Is that really what we should look for next as a validation that you guys are progressing there?

[Emily Leproust, executive]

There's a number of segments that [ moves there ]. So I think one of them is, like we mentioned, is the ag market. Another is the direct-to-consumer DNA testing. And any of -- I think any of those will be a proof point. I think we were quite happy with our order of $800,000 in July for one of those early conversions. So that is, in a sense, the first proof point that we can compete in that market. And as we mentioned also in the market, it's going to take some time if it's a big shift in workflow. But once you prove that the price point is there, which is the most important part in genotyping, then it shows that we can do it. And if you can do it once with the commercial team that we have, then we can go and repeat it.

[Operator]

Our next question comes from Catherine Schulte with Baird

[Catherine Ramsey, analyst]

Going back to NGS, just curious how has the uptake been on the products you launched at AGBT particularly the Fast Hyb protocol.

[Emily Leproust, executive]

Yes, thank you. Fast Hyb has been a great product. It's really enabled us to open some doors where -- I think as we had mentioned before, what we enable people in a lower cost of sequencing per samples. But for some people, they already have an assay that's already validated, and the cost saving that we bring may not cover the entire cost of revalidating under the new -- and by switching product. And in that case, the Fast Hyb is really the fantastic door opener because and at that point, we not only bring cost saving, but we bring a workflow advantage. And so overall, it's been very well received. And actually, it exceeded my expectation in terms of the customer -- the positive customer reaction to it. It's really been a door opener.

[Catherine Ramsey, analyst]

Okay. And then you've talked a lot about starting to see that conversion from SNP arrays to NGS. How many customers are you currently serving in that application today switching from arrays?

[Emily Leproust, executive]

So it's a few digits. It's less than 5. It's very small numbers at this point.

[James Thorburn, executive]

Yes. We're very early in that full inning. We've been obviously working on it for some time. And actually, we did get the order in July which is fairly close to when we expected. So I would say we're tracking based on our plans, or it's tracking probably slightly ahead.

[Catherine Ramsey, analyst]

Okay. And then just lastly, on the drug discovery side, what else do you think you need in terms of your data package before you think you can monetize that capability? And how far out do you think we might be from that?

[Emily Leproust, executive]

Yes, it's a great question. So right now, we know that we have [ find out what the time is ] [indiscernible]. We know that they are functional. I think having a little bit of in vivo data will go a very long way. So that's mostly the area where we are focused at that point. Once we have in vivo data, then it's a clinical candidate.

[Operator]

And I'm not showing any further questions at this time. I'd like to turn the call back over to our host.

[Emily Leproust, executive]

Thank you very much, Kevin. So to conclude, it's an exciting time to be at Twist Bioscience. As we move into the final quarter of our fiscal year, we continue to deliver strong growth across our synbio and genomics businesses, and we are investing in our long-term opportunities of biopharma and data storage. With a growing revenue stream driven by customers truly demonstrating the ability to change the world, long-term vertical market opportunities and a great team in place to execute on our aggregate plans, we are very well on our way towards implementing our mission to provide synthetic DNA to improve health and sustainability. We appreciate your continued support and look forward to keeping you updated on our progress. Thank you very much.

[Operator]

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.