Good afternoon, ladies and gentlemen, and welcome to the Fluidigm Second Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to hand over the conference to your host, Ms. Agnes Lee, Vice President [ph] of Investor Relations.

Thank you, Christian. Good afternoon, everyone. Welcome to Fluidigm's Second Quarter 2020 Earnings Conference Call. At the close of the market today, Fluidigm released its financial results for the quarter ended June 30, 2020. During this call, we will review our results and provide commentary on our financial and operational performance, market trends, strategic initiatives and our response to the COVID-19 pandemic. Presenting for Fluidigm today will be Chris Linthwaite, our President and CEO; and Vikram Jog, our CFO. During the call and subsequent Q&A session, we will make forward-looking statements about events and circumstances that have not yet occurred, including plans and projections for our business, future financial results and market trends, and opportunities. Examples include statements about expected financial performance, the anticipated positive impact of various strategic and operational initiatives, funding expectations under various agreements, regulatory processes, prospects for our products and technologies, potential customers and collaborators and trends in competition, markets, research funding and customer demand. These statements are subject to substantial risks and uncertainties that may cause actual events or results to differ materially from current expectations. Information on these risks and uncertainties and other information affecting our business and operating results is contained in our annual report on Form 10-K for the year ended December 31, 2019, as well as our other filings with the SEC. The forward-looking statements in this call are based on information currently available to us and Fluidigm disclaims any obligation to update these forward-looking statements, except as may be required by law. During the call, we will also present some financial information on a non-GAAP basis. Non-GAAP information is not prepared under a comprehensive set of accounting rules and should only be used to supplement an understanding of the company's operating results as reported under U.S. GAAP. We encourage you to carefully consider our results under GAAP as well as our supplemental non-GAAP information and the reconciliation between these presentations. Reconciliations between GAAP and non-GAAP operating results are presented in the table accompanying our earnings release, which can be found in the Investors section of our website. I will now turn the call over to Chris, our President and CEO.

Thank you, Agnes. Good afternoon. The last 90 days have presented an incredibly challenging operating environment with lab closures rippling across the globe and impacting every facet of our business. In the face of these challenges brought by the pandemic, our team has been both creative and resilient, exceeding our business performance expectations despite disruptive shelter-in-place mandates and new complexities in our personal lives. I'm extremely proud of the commitment and dedication of our team members who have risen to the occasion, serving both our direct customers struggling to adapt as well as the global population they support. Since the early hours of the crisis, we've deployed a simple three part daily operating plan. First, we have focused on employee health and safety. I'm pleased to report we have not had a single confirmed COVID-19 infection among our employees. Second, we've aligned much of our organizational energy on COVID-19 market needs, which has allowed us to be focused, nimble and move fast. Third, we've implemented a prudent cash conservation model that included cost-saving measures and the redirection of internal resources to a streamlined set of key objectives while we pursued nondilutive funding. This playbook delivered results. I will focus my prepared remarks on our market-facing activities and core strategy, while Vikram will cover the details of our quarterly performance. Fortunately, Fluidigm pivoted in recent years from a general-use analytical instrument orientation to a business model more focused on commercializing solutions linked to key biological questions, especially questions relating to the immune system. We believe that understanding and harnessing the power of the immune system is critical to disease research, diagnosis and treatment. Our thesis remains intact for oncology and hundreds of other diseases. And in fact, the SARS-CoV-2 outbreak has illustrated the relevance of our strategy. At its core, this…

Thanks, Chris, and good afternoon, everyone. Total revenue was $26.1 million in Q2 2020, an 8% decline compared to Q2 2019. Changes in foreign exchange rates had minimal impact on revenues for the second quarter of 2020. Product and service revenue of $22.5 million declined 20% compared to Q2 2019. At the beginning of the second quarter, we estimated approximately 60% to 70% of our global academic research community was either closed or working at a slower pace. As we entered the latter part of Q2, we experienced a limited amount of customer reopenings and exited June with an estimated 30% to 40% of our global academic research community either remaining closed or working at a slower pace. Many basic research projects remain on hold, but have not been canceled. Customer activities still depend on when the community returns to a new normal and the availability of budgets. Second quarter revenues reflected significant headwinds from customer lab closures, slowdown in ordering patterns, reprioritization and increased customer oversight of budgets in some cases, and slowdowns in some of our key accounts. We also saw the beginnings of COVID-19 tailwinds in the quarter. While both mass cytometry and microfluidics revenues declined year-over-year, the decline in microfluidics revenue was significantly tempered by these tailwinds. We saw growth in overall bookings and revenue in July 2020, compared to the prior year, primarily attributable to COVID-19-related opportunities for microfluidic products. Excluding these opportunities, our base business in both mass cytometry and microfluidics continued to experience headwinds from the pandemic in July. With that context, I will move into the details of our second quarter financial performance. Mass cytometry product and service revenue of $12.5 million in the second quarter decreased 28% year-over-year, mainly due to lower instrument revenues. We continued to experience delays in orders…

Great. Thank you, Vikram. This pandemic has completely transformed our world in the blink of an eye, and our hearts go out to all the global citizens impacted. However, it has created an opportunity for us to showcase the power of Fluidigm's technologies, products and solutions for the greater good. We are well positioned to be at the forefront of addressing population-scale testing needs as well as enabling a deeper understanding of the human immune system's response to infection. We trust there will be a durable response from all governments and public health agencies to monitor, contain and treat future pathogen outbreaks, and Fluidigm will be a trusted partner in these efforts in the years to come. We are unwavering in our fundamental business thesis. Understanding and unlocking the power of the immune system is critical to improving life for all. Fluidigm is uniquely positioned to measure essential genomic and proteomic information and transition these insights into new health care paradigms. From an operational perspective, we had success in the last quarter. We've unlocked multiple sources of nondilutive funding while prudently managing our liquidity. We implemented cost-savings initiatives to see us through this pandemic without compromising on growth initiatives. We are building a strong foundation to meet diverse COVID-19 testing needs across large market segments. In parallel, we are extending our mass cytometry franchise into immune response profiling of infectious disease populations. We remain committed to important disease markets, including cancer. We believe that our investments in infectious disease strengthen our entire innovation portfolio and improve the risk/reward of the company for investors. We are grateful for the incredible determination and tireless efforts of global researchers, health care workers, public health organizations, private sector life sciences employees and government agencies, who are all working together for the common good. As always, I thank our more than 500 employees for their contributions this past quarter. I'm proud of how the team has risen to the challenge. With that, I'll open the line for questions.

[Operator Instructions] Our first question is from Sung Ji Nam from BTIG. Your line is open.

Hi, thanks for taking the questions. Maybe starting with the mass cytometry business, specifically the Therapeutic Insights services, I was wondering if you could maybe give us an update on how that's progressing, if you're making a lot of traction there and if there was any contribution to revenues this quarter from that.

Sure. No problem. Maybe, Vikram, I'll start with that, and you can add some color, if you'd like. So yes, thank you, first, for the question, Sung Ji. Therapeutic Insights did contribute in the quarter measurement period, and we did conduct a number of projects for customers, including programs related to COVID-related research. So I think we're very pleased, and we've clearly, in my mind, at least validated the market opportunity that exists and the need – and the opportunity in front of us for expanding on the promise of the services business. And we've also expanded the similar operation into the Japanese market. And so I think we're very pleased with where we are today. Anything else you'd like to add, Vikram?

Sorry, I was on mute. No, we had some marginal revenue impact in the quarter, not significant.

Okay. Great. And was – I know there's probably not an easy answer here, but in terms of the FDA EUA for your Advanta assay, how should we think about the time line? Have you gotten any feedback? And given your – the RADx grant, could this prioritize the review of your product in this environment?

Maybe I'll start with that, Vikram, and you can add additional color, if you like. The conversations with the FDA are ongoing. So there's not a direct correlation or a straight line to draw between RADx and our ongoing conversations with the FDA with regards to our current singleplex emergency use authorization submission. I think we're very comfortable with the tone and tenor of the dialogue that's occurring as they enter the final stages of review.

Okay. And then lastly, for the pan-respiratory panel that you were talking about earlier, would you be able to comment on kind of what the time line for the availability of that panel? Could that be available before the next flu season?

Yes. The goal of this program for pan-respiratory is to have it in place for the current oncoming – upcoming flu season in North America. So that is the program goal.

Great. Thank you so much.

You bet. Thank you.

Thank you. The next question is from Dan Brennan from UBS. Your line is open.

Hi, this is Nathan on for Dan. How are you? So my first question would be on what type of COVID testing volume do you envision in the second half and then going into 2021? And then I guess, is it fair to assume like a $10 to $15 ASP range for the test?

I'll take the second one first. So we've given some indication of where our range of pricing is for the emergency use configuration of our product. That product is approximately in the $17 to $22 range. And so it just depends on volumes, supply contract agreements, et cetera, et cetera. And the laboratory developed test version or configuration of our product is generally at a little bit lower price point, but it's not dramatically lower. So generally, those fall within the $7 to $12 range on a blended basis. As far as testing volumes and modeling, I think that's probably the most challenging obstacle, and I'll certainly want to encourage Vikram to weigh in as he sees fit. And so we had very good seeding of accounts in the Q2 time period. We began to see those opportunities ramp in the back half as we exited the Q2 period. And we've seen good strength through the first month of the current quarter. And on top of that, we continued to layer on and stand up more accounts. So kind of anticipating what their relative ramp rates, any influence on their acquisition of samples and each of their business models makes it pretty challenging for us to forecast. What we have given a good suggestion is that the capacity currently is not a constraint for us to deliver test into the marketplace. And the RADx investments is a really critical – is a really incredibly important part of the story because what RADx has done and they've recognized and gotten very intimately familiar with the potential of the technology, the traction of the technology, they have stepped in to ensure that we can provide continuous increasing amounts of tests into the marketplace as the – as our installed base grows and we activate even more accounts within our existing installed base. So I think it's very difficult for you, unfortunately, to forecast, which is part of the reason why I think Vikram has provided a wide range of outcomes and made it very difficult for us to provide forward-looking guidance. Is there anything you'd like to add, Vikram?

Yes. Sure. So without quantifying the opportunity, we can say that we are developing a funnel. We continued to increase the size of the funnel. Right now much of the activity is on supporting the lab-developed tests that we talked about as one of the spokes in the hub-and-spoke model. The other spoke, we have started placing instruments, even on the EUA spoke, the second spoke. And both of them are resulting in customers kicking the tires and getting ready. We stand ready to start commercialization of the EUA product upon receiving FDA authorization. However, the lab-developed test has no such dependency, and they are proceeding apace. So we're very satisfied with the pace of the funnel development. And we see that there is a large potential. There's a big shortage of tests right now in the United States. There is a supply chain issue with many of the tests that are currently being offered in the market because of the solution that we are presenting that is based on saliva. So therefore, it does not include swabs, and also it does not depend on RNA extraction reagents. So we believe our solution offers a very attractive alternative value proposition here that solves some of the supply chain issues and also we believe could increase testing compliance on the part of the patients because saliva is such a – much easier sample to give compared to nasopharyngeal swabs. So in summary, I would say, we perceive a large market opportunity and a large revenue potential in the second half of this year. The timing is based on a variety of factors, including the timing of the authorization of the various EUAs from the FDA as well as the product development that we have alluded to from the point of view of starting with a singleplex product, then moving on to multiplex and then moving on further to panels.

Okay. Great. Thank you for that. In terms of the DARPA ECHO program, can you provide an update where that stands? I believe press reports back in April said that DARPA is expected to file an EUA in 2Q, and that obviously hasn't happened. So like, can you provide just an update on where that program is right now?

Sure, Nathan. I'd love to be able to elaborate in greater context beyond what I shared in the prepared remarks. I think the Department of Defense has been posting updates on their website as things progress. And so unfortunately, that organization owns the primary communication to the markets, but we continue to provide all updates to all stakeholders involved and are pleased with the progress.

Okay. And if I can just squeeze one more in. What is like the customer demand for Biomark currently looking like given that the COVID test is rolling out on that platform? Have you placed incrementally more increments in 2Q? And kind of what's your outlook for the second half for Biomark placement?

Yes, it was a little bit distorted, but Vikram, I think you got what he's asking. Would you like to take it?

Yes. I can start off, Chris, and then you can add some color. Yes, we are seeing strong placements of Biomarks in – both in the second quarter and in the pipeline that we are developing in advance of the COVID-19 testing and related thereto in Q2 itself. So the answer, in short, is yes, we are seeing stronger demand for both Biomarks as well as Junos in this field.

Okay, thank you.

Next question is from Steven Mah from Piper Sandler. Your line is open.

Hi, great. Thank you. Hey, Chris, welcome.

Hey, Steve.

Just a few questions, mostly follow-up questions from the prior people, but speaking about the Biomark and Junos for COVID-19, can you give us a sense of the consumables pull-through from these users versus maybe other users, non-COVID users?

Yes, we can give you some sense. I mean the pull-through for the COVID users is going to – has a significant headroom, obviously, from what we've illustrated. So I think we're very much in the early days of the ramp-up in those customers achieving the full theoretical capacity or functional capacity of the system. But we have other high-throughput applications. There's ones in agricultural biosciences and genotyping, et cetera. The Olink application is also quite – it's a different chipset, but it's also – it all depends on if we're optimizing by the number of samples or the number of targets that you're trying to interrogate. So as you know, this is a 192.24 chip that's optimized for throughput of samples. So on the basis of pure samples, this has significant upside potential for – and the COVID application has – will push the upper limits of the system. And I think as you probably recognize with the discussion on bar coding, the bar coding throughput could be 4x to 8x expansion of testing throughput per system per day on the platform, which would far exceed anything we've ever realized on this technology stack.

Okay. That's helpful. And maybe just a follow-up question on that bar coding. Is the intent then to get that bar coding done and then you're going to upgrade the installed base? Is it a kit? Or is it software? I appreciate if any answer.

Yes. So we'll have to say with one caveat is that because of the proprietary nature and the uber competitiveness right now, we're not going to provide probably many details for you. But what we can kind of landscape for you is a couple of key things. One is, first off, it provides – will not require any hardware changes, won't require any software changes and have some very modest modifications to the existing kits. It also has the potential to work across the continuum, so not just for our saliva application and EUA, but potentially for other product configurations. So it's a pretty powerful approach and a very novel approach. And there's also a number of very interesting technical advantages that our approach is going to provide compared to the pooling approaches that have so far been through with the FDA. So I think we could afford potentially very significant advantages and limits of detection as well as the ability to kind of avoid dropout rates and not have to optimize for prevalence rates in various geographies around the country. So I think it's – we can't share many details at this moment, but that was certainly an area that the RADx team was quite keen on capitalizing on and can go directly at addressing what's going to be, I think, an amazing story that's going to come out of – there's the clinical testing market just now that's flowing through all the labs, which is quite an impressive number. But the population screening sample volume, that requires a step function increase in testing capacity and supply into the market. And so novel approaches like this are going to be critical for meeting the nation's needs for this very important application. So I think until these technologies have been coming to market, there's – it's going to be – it's a bit of an enabling of this market. So this market will take off as these technologies come into the market and enable that capability. So we're very excited about it. Clearly, it provides for the common good. And it will provide across a continuum. So it may be that there are new customer segments that are going to appear that are not necessarily upgrade kits and maybe different types of customers that are attracted to these various segments, clinical testing versus population screening, for instance, that may end up being different types of labs. So I think the future that's obvious to do some upgrading, your words, but essentially introducing this technology or this process to existing installed customers, but I think it's going to depend on their specific business model and whether or not they're going to be looking to capture that many samples a day and if they're optimized for accessioning and processing of that many samples a day versus some of the other larger established players and maybe some new market participants that are going to come in specifically for this application.

Okay. No, it sounds like an exciting new development there. Maybe just to stay on the RADx funding. Can you tell us what the time frame is on the – and the breakdown of the remaining $25 million?

Vikram, do you want to take that?

Yes. So the RADx is following a very optimized approach right now given the tremendously urgent need for expanding testing. So what they have done is to facilitate the immediate commencement of project. They've entered into this two step formula, which has not typically been the case with NIH and, broadly speaking, government contracting in the past. So what they've done is had an initial letter contract that allows the project to commence, and it's subject to certain milestones that have to be met. But in parallel, we are working on what they call definitization, and we will work on definitizing the contract, but we have to go through a couple of steps prior. So that's, I think, as much as we can say. The whole project itself runs about, I would say, roughly speaking, about a year into 2021 from where we are right now.

Okay, great. That’s helpful.

About nine months, right? More like nine months, I think, or a little less than nine months.

More like nine months, yes.

Yes. So we should anticipate being complete towards the end of the first quarter.

Okay, great. That’s what I’ve been expecting. Okay, that’s all my questions, I appreciate answering all the questions, and congratulations.

Yes. Thanks, Steve.

Thank you, Steve.

We have a follow-up question from Dan Brennan. Your line is open.

Hi, thank you. I just wanted to follow-up around – so I believe you have 500 Biomarks installed currently. How many labs realistically can or would consider doing COVID testing on those boxes? Like what percentage of those boxes would be shipped for COVID testing?

I guess – this is Chris. I'll start and maybe Vikram can comment on it. I think the key question, I guess, I have to kind of rephrase your question, is sort of which aspect of COVID-based testing. So there's the clinical testing and there's the surveillance and monitoring aspect of the COVID market. And so return to school, et cetera, there are different types of applications for COVID testing. So what do you have in mind? Is it the clinical question you're winnowing in on? Or, I don't want to put words in your mouth, what are you thinking?

Yes. Basically, what you said, the clinical question.

Okay. Well, so for the current clinical market, I would anticipate that a smaller percentage of our platform of the existing installed base will be migrated to clinical-based applications. I think a lot of the clinical story is coming out of new placements. And – but we, as Vikram has already commented on, had quite an acceleration of new unit placements tied to clinical applications of this and then have a very robust pipeline continuing throughout each of the quarter or each quarter through the balance of the year. So that number is accelerating very quickly. As far as the conversion of the existing installed base for clinical-based testing, I suspect it will be a relatively small portion of it. The reason why I parsed out the question is because I have a point of view, I think we have a point of view that population screening, it doesn't necessarily require a CLIA lab. And so activating the nascent or, actually, in our case, a very large academic and research community that needs to serve needs such as the return to school, return to work and community-based monitoring, potentially presents an incredible national asset for activation. So I think it depends on which kind of use case we're talking through, and so that's something we'll probably see as the year plays out.

Okay. That's helpful. And if I could just shift to the LDT test kit. Can you – I don't recall if you said how many labs are actually running the LDT test currently. And how do you expect that to trend through 2020? Do you expect a doubling? Or if you could just give any quantitative guidance for that?

So the question is about out of the existing installed base or the number of people that stood up in the second quarter on LDTs, what would be the acceleration?

Yes. Like how many labs are currently running the LDT test and how many do you expect by year-end?

I'm not sure we're in a position to give a lot more color on that at this time. I don't know, Vikram, if you have any additional comments.

No, exactly. We – I would say that we see a lot of potential, number one. Number two, beyond potential, we are actually building a firm pipeline. The timing remains somewhat uncertain. And over the next few months, I think we'll have a lot more clarity on the timing. I think the issue is timing. It's not a question of whether there's potential or not. We have a fairly high degree of confidence about the test, the utility, the value proposition that's very differentiated from whatever is out in the market, the significant unmet need from a testing perspective. I think where we are right now is we are simply not in a position to give a definitive timeline as to how quickly the market adoption would take place. So I think that will become clear over the next few months.

Yes. And the only other thing I wanted to add on this is that it's kind of tricky because many people started in the laboratory-developed test path because we did not have an emergency use authorization product in place. So these labs have the flexibility to run either the LDT configuration. In some cases, some of them started with nasopharyngeal, which was the more conventional approach at the moment in which they started out on that journey. And as the saliva product becomes available, then they already have the infrastructure. They don't require any changes so they can adopt the emergency use authorization. So from our perspective, it's very difficult to anticipate what the mix shift will look like between laboratory-developed test versus our EUA singleplex product or any of the follow-on products that we've already talked about.

Okay. And if I could just ask one more. This kind of goes back to the DARPA program and the epigenetic testing. I believe the uniqueness of this approach is about – to detect the virus on day one. Recently, we've done some diligence, and I don't – we haven't run it completely, but some diligence suggests that individuals that don't become contagious until around day three, which we think could limit the opportunity for this test. Is that your understanding? Or are we just not looking at this correctly?

I can't comment on that particular question that you're asking. I can only say that what we seem to know about COVID changes virtually every day. So I don't know how to respond in that regard. I think that as we've kind of reinforced all the elements, I think we're proposing and we are delivering a whole continuum of different molecular testing technologies that – and tests that are designed to answer different questions, address different use cases, different prevalence rates in different communities and potentially adapt around emerging strains and changes – basically new markers as we learn more about the virus. So I think that one of the powers of our platform is that there's a – it's very flexible and rapidly adaptable to as we learn new information. And we continue to learn new things every day. So I think with that, we're probably going to have to wrap up the line, but really appreciate the questions.

I'm showing no further questions at this time. I would like now to turn the conference back to Ms. Agnes Lee for closing.

Thank you, Christian. We'd like to thank everyone for attending our call today. A replay of this call will be available on the Investors section of our website. This concludes the call, and we look forward to the next update following the close of the third quarter 2020. Please reach out to us if there are further questions. Good afternoon, everyone. Christian, you may now close the call.

Thank you, ma'am. Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.