Thank you for standing by, and welcome to the Nautilus Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Carrie Mendivil, Investor Relations. Please go ahead.

Thank you. Earlier today, Nautilus released financial results for the quarter ended September 30, 2023. If you haven't received this news release or if you'd like to be added to the company's distribution list, please send an e-mail to investorrelations@nautilus.bio. Joining me today from Nautilus are Sujal Patel, Co-Founder and CEO; Parag Mallick, Co-Founder and Chief Scientist; and Anna Mowry, Chief Financial Officer. Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Forward-Looking Statements in the press release Nautilus issued today. Except as required by law, Nautilus disclaims any intention or obligation to update or revise any financial or product, pipeline projections or other forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast, October 31, 2023. With that, I'll turn the call over to Sujal.

Thanks, Carrie. Good morning and thank you for joining us today. On this call, we'll share our financial results for the third quarter and provide a brief update on recent activities. I'm excited by the progress we made in Q3 against our scientific and development goals and in the ways we're preparing the various elements of our platform for commercial launch. That continued progress is the direct result of the great work being done by Nautilus across all parts of the business, especially but not limited to our R&D organization. I'm pleased to report that as of mid-September, our 100-plus person R&D organization now reports entirely into Subra Sankar, our SVP of Product Development, who's been with us for almost three years. Though it's only been a little over a month since we've made the change, we've already begun to see the productivity and efficiency gains we'd envisioned. Subra has held many senior roles over the last two decades, notably at Solexa and Illumina, where he led instrumented consumable development efforts for next-generation sequencers and related products. Based on his extensive and successful product development experience, it has been our plan from the beginning to unite these efforts under Subra. With our product development efforts reaching the integration, verification, and scale up stage, our needs match Subra's experience making now the right time to affect the change. Unifying R&D under Subra has the additional benefit of enabling Parag to significantly expand his outward-facing activities with the scientific and customer communities, while also maintaining deep involvement in both broad strategic issues and day-to-day scientific activities. Joining Subra's team just yesterday, we're excited to welcome Dr. Martin Huber as our VP of Biochemistry and Flow Cell Development. For the past 13 years, Martin was a Co-Founder, CTO, and ultimately CEO of Quantapore,…

Thanks, Sujal. As Sujal mentioned, HUPO was a terrific event for us again this year and provided a very effective vehicle for us to update attendees on platform progress and to encourage the community to re-imagine what's possible in proteomics. At our booth, we conducted a well-attended fireside chat with Professor Bernd Wollscheid of ETH Zürich. Bernd did a great job of articulating some of the biggest challenges facing proteomics researchers today. Namely, that the field needs to agree on standard workflows to most consistently and effectively generate biologically meaningful data and that integrated workflows are necessary to make proteomics easier. He suggested that what we need is a "red easy button" for proteomics. We also hosted a luncheon seminar during which Dr. Birgit Schilling from the Buck Institute for Research on Aging discussed postdocs to antibody, Joanna Bons and Jordan Burton, winners of the Nautilus First Access Challenge; plan to use our platform to study kidney injury. Their longstanding work has demonstrated dramatic changes to the proteome upon kidney injury. Now, Dr. Bons, Burton, and Schilling are planning to use the Nautilus platform to get a new view into the proteome that they believe will be hugely complementary to their existing mass spectrometry based workflow. We're excited to work with them on this and other research initiatives. In conversations throughout HUPO and as we presented our scientific posters, we found that the community was most interested in hearing about our single molecule library preparation process, the relationship between the number of intact protein molecules measured and the effective dynamic range of the platform, the development and extensive characterization of our affinity reagents, the stability of the platform that enables it to perform a large number of measurement cycles and the rigorous approach we have developed to estimate false discovery…

Thanks, Parag. And I completely agree. I too am very pleased with the progress Nautilus has made this year as we continue our drive towards commercial readiness. We accelerated our development activities on a number of key fronts and remain confident that Nautilus' core value proposition and our anticipated V1 launch that will deliver important and distinct advantages to the market. Based on that, we continue to target next year for the launch of our platform. With that, I'll hand the call over to Anna for a look at our Q3 2023 financials. Anna?

Thanks, Sujal. Total operating expenses for the third quarter of 2023 were $19.1 million, up $3.3 million compared to the third quarter of 2022, and $0.1 million above last quarter. This modest increase in operating expenses year-over-year was driven primarily by an increase in headcount to support the ongoing development of our product. Research and development expenses in the third quarter of 2023 were $12.0 million, compared to $9.6 million in the prior year period. General and administrative expenses were $7.1 million in the third quarter of 2023, compared to $6.2 million in the prior year period. Overall, net loss for the third quarter of 2023 was $15.9 million, compared to $14.1 million in the prior year period. Turning to our balance sheet. We ended the quarter with approximately $276 million in cash, cash equivalents and investments, compared to $287 million at the end of last quarter. Since the beginning of the year, we have burned approximately $38 million of cash. We continue to be focused on disciplined cost management while strategically investing in the business to ensure that we have maximum operational flexibility ahead of our commercial launch. Over the past year, we have hired additional leadership talent, particularly in R&D, increased the throughput of our development and production pipelines, and taken on new facilities. Even while making this important progress, we continue to improve on our operational efficiency. You may recall that last quarter we reduced our 2023 annual expense forecast to growth of 30% year-over-year. With our team's continued laser focus, we have further improved our efficiency and now expect our 2023 operating expenses to increase by slightly more than 20% compared to 2022. Importantly, we continue to expect to enter 2024 with a lower burn rate and a strong cash balance, extending our cash runway into 2026. Our expectations on runway include the initial buildout of our commercial organization and takes into account a range of 2024 product launch date scenarios. With our robust balance sheet and disciplined management of capital, we remain confident that we are strongly positioned to execute on a goal of launching a transformational platform in proteomics. With that, I'll hand it back to Sujal.

Thanks, Anna. Needless to say, I'm very pleased with our continued focus on running this business as efficiently as possible while investing in the areas critical to bringing our platform to market. I want to take a moment to thank Anna for her diligent stewardship of our finances and the rest of our senior leadership team for their continued commitment to managing our resources in a way that maximizes Nautilus' cash runway through the plan launch next year and into 2026. Our continued and frequent conversations with proteomics KOL, and other potential customers' makes one thing very clear now is a great time to be pioneering a platform capable of establishing a new gold standard in the measurement of proteins and proteoforms. The world of biological research is hungry for a breakthrough, and we fully intend to be the company that supplies it. We continue to make good progress against our goals and look forward to updating you along the way as we continue towards commercialization of our platform next year and beyond. With that, I'll turn the call back to the operator.

Certainly. Thank you. [Operator Instructions]. And our first question comes from the line of Tejas Savant from Morgan Stanley. Your question, please.

Hello, this is Yuko on for Tejas. Thank you for taking our question. I saw some posters from Nautilus at ASHG. Could you give us a brief overview of the data that you'll be presenting and what we should be looking out for?

Let me add, this is Sujal. Let me -- I'll pass this over to Parag to go and answer. The question was -- the volume was really low, but I think the question is really around what to expect at ASHG.

Absolutely. It's a great question. Our goal with ASHG is to continue to educate the market and to introduce the community to our platform. The specific data that we're going to share will involve both the fundamentals of the platform. This is a slightly newer community focused on the genetics community. We'll also discuss proteomics in the context of multiomics, and as well as aspects of how the affinity reagents are developed and characterized, and how we accomplish our single molecule array, and substantial data around platform stability, particularly across very large cycle runs. We'll also discuss our computational analysis infrastructure for identifying proteins and characterizing false discovery rates as part of that.

Great. Thank you so much for the color. And then, just a separate follow-up question. OpEx is tracking lower now slightly more than 20% year-over-year growth versus 30% guided last quarter. Could you explain how you're thinking about spend in 2024 as we head closer to that target launch date in 2024?

Sure, Yuko. Let me make a couple of comments on that. The team has just as Sujal mentioned been very diligent in how they're solving problems by being innovative and creative and often figuring out solutions at lower cost, which is what's really driving our reduced OpEx forecast for 2023. I don't have any specific comments for 2024, but what I can tell you is that we will continue to be very tight with how we manage our spend. We will continue to invest in our development teams, but we'll do so in a very targeted way. And I would think that growth there would temper a bit as we start to make room for hiring a handful of folks on the commercial side and the staff that supports them. I'll be able to give more color on that at our call at the start of the year.

Thank you. [Operator Instructions]. And our next question comes from the line of Daniel Brennan from Cowen. Your question, please.

Great. Thank you. Thanks for the questions. Maybe the first one just to level set things like, is there any change at all to thinking about the key aspects of kind of the launch, early access still by year-end, some data placements in Q2, and then still targeting a mid-2024 launch?

Yes, Dan. Thanks for the question. This is Sujal. So what I would say is that there are no changes to our plan, but I don't think that -- I think that your -- what you just outlined is quite exactly what we said on the last earnings call in the Q2 call and it's the same now for the Q3 call. So what we've said is that we continue to target roughly the middle of next year, middle of 2024, for the launch of our platform that means launching our product as instrumented consumables and software. And really, that's the inflection point where any meaningful revenue begins. The early access period is a period of approximately three or four months ahead of that launch. And so that we don't anticipate that we'll be doing any early access in 2023. And so as we head into 2024, you should look for us to make an announcement around our early access program availability. We'll start signing up with customers, samples that we can analyze and then about three or four months before the launch roughly, we'll begin analyzing those samples. And as a reminder, the goal of this early access period is really not -- I mean that we will charge some modest amount of money to customers, but much more importantly, it's about generating interest in the platform so that we can get preorders for the instrument or get grant proposals submitted and as well, it's for marketing value so that we can get papers and publications with our potential customers, with our collaborators, and use that as a stepping stone to then go after the next set of customers.

Got it. That makes sense. I know last quarter as well you discussed maybe making some small adjustments on the specs just to remain on track with dynamic range and kind of protein coverage I believe kind of where do you stand today? Are those adjustments still kind of intact? Were there any other changes made just in terms of the targeted kind of commercial specs by the middle of 2024?

Yes. That's a good question. As a reminder, so on our Q2 call, we said that we would pragmatically take the steps of adjusting a few of the initial product specifications for our launch so that we could preserve our time to market. And we still believe that those specifications are not just competitive in the marketplace, but they're market leading. In Q3, we didn't change any of those specifications. Obviously, as we continue to move through the verification validation phase and we're scaling up our reagents, there are lots of moving parts, but in general, the specifications and the areas where we were considering launching at slightly below our initial specifications or our full specifications and then ramping up to full specifications over time of consumable base, those changes are really intact here as we head into the end of the year.

Got it. And then, in terms of papers, like what could be -- obviously you'll be at ASHG with some more -- it looks like more like kind of a tech awareness understanding, really education for the customers down there. What can we -- can you just remind us what can we expect from papers kind of before the early access kicks in?

I'll take that one. This is Parag. I think what you can anticipate in general from our paper publication strategy is that it'll follow really three phases. The timing of publications I won't speak to. But generally, you should think about our publications as falling into three categories. The first are really technology foundational manuscripts. So for instance, things like our nanoparticle conjugation publication prior will also have some similar sorts of publications around the prism algorithm and approach, as well as our nanoparticle deposition approach. And then, there'll be a next series of papers that really speak to demonstrations of platform capabilities. And then, the third area that we anticipate publications are -- really publications with our partners examining biological questions using the platform.

Thanks for that. Maybe final one just on Thermo, Olink. Obviously that's I think you kind of alluded to kind of the excitement in proteomics and some of the explosive growth that's happening. Just kind of thoughts on just the competitive environment. I know you positioned your technology is really kind of super differentiated, but just wondering how you think about again in the wake of like the largest tools company buying Olink just how do you think about that either validating or from a competitive standpoint, just any color on that. Thanks.

Yes. Dan, I think that the announcement that Thermo Fisher was going to acquire Olink, I think tremendously validates the proteomic space and as well really validates that new approaches are important in the proteomics world. If you kind of look at the acquisition, it's really taking what I would say is so far the most successful new proteomics entrance and putting in the hands of the market leader in Thermo Fisher. And so I think that there's a couple of things that are exciting from my segment. One is that it's clearly a admission from Thermo Fisher that other approaches besides the current gold standard of mass spectrometry are important to the customer base. And I think that the price point achieved in today's market climate, I think is really indicative of the fact that proteomics is incredibly important to the scientific community who's looking to unlock the next-generation of discoveries to accelerate drug development and really deliver on precision and personalized medicine. So from that standpoint, I think it's really great. One of the things that you were alluding to is sort of how this might change the competitiveness in the marketplace. And being someone who's been around startups for a couple of decades, I will comment that in my experience, when a large company buys a young nimble entrant like an Olink, the technologies don't get more competitive, they become broader in the marketplace, but innovation slows. And so from my standpoint, it's pretty exciting for the marketplace as well, because I think that Olink is a company that's executed the best out of the new proteomic entrants and out of those that are focused more on the discovery end of the spectrum, like Nautilus, like some of the other peptide sequencing approaches or other sample prep approaches, our view when we look at the technology that we're building, the value proposition mode because of the complex nature of what we've developed, and as well the specifications of our intended product for next year, I think that we've got a complete winner on our hands. And that's why we're focused on being heads down and going and getting all the development completed and getting this thing out the door.

Great. Yes. Obviously also the Standard BioTools and the SomaLogic deal, so there were certainly a lot of strategic moves within the quarter, but thanks for the feedback and congrats on the quarter.

Thanks, Dan.

Thank you. [Operator Instructions]. And our next question comes from the line of Matt Sykes from Goldman Sachs. Your question, please.

Hi, this is Ivy Kozlowski on for Matt. Thanks for taking my questions. The first one, what are your thoughts on feedback we've gotten from other companies on pharma CapEx spend and how do you feel about your price as we move towards launch?

Yes. Thanks for the question. So in terms of pharma CapEx spend, I think that I will answer this question. I know that you are likely getting a lot of color from the large caps that have already reported, in particular, CapEx spend appears to be a little bit lumpier internationally. But from our perspective, because we are a very small company that's just about to introduce a product, really what's more important is what does pharma want to spend their money on? And in conversations with many, many customers in the pharmaceutical space as well as in the diagnostic space, what we've heard is that there is still substantial budget in 2024 that is available for technologies that are going to make a dent in drug development and biomarker discovery and help in specific areas. And so from our standpoint, I don't really see an impact to our business with the capital environment that's out there. The second half of your question was really related to price point, and the answer on that front is I feel very good about the price point, and I feel good about it both from a market perspective and from a direct feedback from our potential customers' perspective. On the market side, 2023 saw the continued increase of the price of the top end mass spectrometers, which is the gold standard in proteomics today with the release of Thermo Fisher's Orbitrap Astral, which pushes the price point even closer to $2 million for an initial deal size for the instrument. So we feel very good about our price point, where our initial deal size, which includes the instrument, services support, site prep install, some consumables to get going, that whole package will be roughly $1 million, and we'll talk more about exact pricing as we get closer to launch, and I feel good about that price point relative to the other product in the marketplace. From a customer feedback perspective, we continue to discuss pricing of the instrument and samples with our customers, and we feel like we're hitting a really good sweet spot where the price of the instrument is appropriately high to warrant -- which is warranted by the specifications of the product, how many proteins, what's the dynamic range, sensitivity and then in addition to that, on the consumable side, we've gotten good feedback from customers that the specifications, that price point makes a lot of sense based on the specifications of the system.

Okay. Great. That's super helpful. And then just one more for me. Could you talk through what you're looking for when you're working with external manufacturers to prevent future supply chain risks and in general, how that process is going and if there's been any bumps along the way?

Yes. So I'm happy to talk about supply chain a little bit. And I totally understand the question, because there have been a number of bumps with other DX and tools companies. Supply chain is something that we pay a lot of attention to. My supply chain organization and manufacturing organization is run by Mary Godwin, who I have worked with now for, gosh, something more than 15 years, and she has four decades of experience doing this. In terms of what our strategies are, first and foremost, our strategies are to make sure that the design of the system is resilient that it has validated QCs, making sure that we have the ability to use multiple suppliers wherever we can. We've got very good relationships with all of the key suppliers within our system. On the electronic side, meaning the instrumentation side, we use a well-known California-based contract manufacturer to do the build of those instruments. Even at this early stage of our life, our contract manufacturer is doing the builds for our internal use. And so that's something that bodes really well for us to be able to fully transfer all of those builds to that contract manufacturer and start scaling for next year. And then on the reagent side, if you think about our reagent kits and our consumable kits, they have a number of components. One is a flow cell, which is essentially an assembly of fused glass and silicon chip. And our partners on the flow cell and chip are really partners that we work very, very closely with on what the procedure is to build that assembly. What the QCs are, we're comfortable with both of the key suppliers that are responsible for those two components. The next is really the bulk reagents, which are not all that complicated. They're things like buffers and our plastics and those sorts of things. And that's an area where we've built a robust supply chain. And then the third is really antibodies and really our probes. And those are something that we paid a lot of attention to, building a robust supply chain. So we have multiple external vendors which do antibody manufacturing for us. We do some of that internally as well. And then, we have a reagent manufacturing group inside of our organization, which is responsible for taking the antibodies, turning them into our full consumable kit, then going in and getting them married up with the instrument so that we can run analyses.

Thank you. This does conclude the question-and-answer session as well as today's program. Thank you, ladies and gentlemen for your participation. You may now disconnect. Good day.