Welcome to Twist Bioscience Fiscal 2020 Second Quarter Financial Results Conference Call. At this time all participant lines are on a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]I would now like to turn the conference call over to Jim Thorburn, Chief Financial Officer.

All right. Thank you. Good afternoon, everyone. First and foremost, we hope each of you is safe and healthy, wherever you are during this time. I would like to thank all of you for joining us today for Twist Bioscience conference call to review our fiscal 2020 second quarter financial results and business progress. We did issue our financial results earlier today, which is available at our website at 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 recent progress of Twist businesses 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 up 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 one week. During today's presentation, we will make forward-looking statements within the meaning of the federal securities laws. Forward-looking statements generally relate to future events, our future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize and actual results in 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 Security and Exchange Commission. The forward-looking statements in this presentation are based on information available to us as of the date hereof. And we cannot at this time predict the full extent of the impact of the COVID-19 pandemic and any results with businesses or economic impact, we disclaim any obligation to update any forward-looking statements except as required by law.With that, I'll now turn the call over to our Chief Executive Officer and Co-Founder, Dr. Emily Leproust.

Thank you, Jim and good afternoon everyone. I'd like to add my wishes that we're finally safe and healthy at this time. The global pandemic has turned our lives substantially, since our last call in February. And at Twist even before the state of California called for a shelter in place, we quickly transitioned a moderate number of employees to working from home. For it we wanted to ensure that our production workers will have the option of working from home stayed safe and healthy, as we will be able to continue to deliver our products to customer conducting important research.Despite the challenges posed by COVID-19, we reported record revenues of $19.3 million, for the second quarter of fiscal 2020, resulting from strong NGS sales, significant revenue from income, initial revenue from biopharma collaborations, as well as the addition of two new COVID-19 products. Order for the current quarter is getting strong, opportunity on par with the previous quarter at $24.6 million and resulting in a booking rate of about $16 million for the first six months of fiscal 2020. For the first time, we revalued gross margins of approximately 30% confirming that as we scale our products and revenue building on our established infrastructure, we are able to increase our market.Turning to specific results for Synbio, we shipped more than 88,000 genes during the second quarter. Also, we added two new writers to our capacity and continue with this in our turnaround time. Our Synbio revenue includes genes and five months of testament, who are developing vaccines and therapeutics against COVID-19. So we cannot accurately break that revenue out technically, at this time. We've recorded a total of $11 million in Synbio revenue, $4 million of that from Ginkgo, which has made a substantial commitment in the fight against…

All right. Thank you, Emily. Our results for quarter two were strong and proved out our business model in an extremely challenging environment. Revenue was 19.3 million and that's 42% growth year-over-year and 12% sequential growth from the 17.2 million in the previous quarter.Our gross margin for the quarter was 29.7% as compared to approximately 13% in the same quarter last year and up from 20% in quarter one. This reflects the benefit of scaling our revenue and leveraging our fixed costs.Before I cover the detailed financials, we would like to thank all of our investors for their continued support in the last quarter, as we continue to strengthen our balance sheet with approximately 190 million and a follow-on offering, plus or at the market offering.In addition, we'd like to thank our customers, suppliers and our incredible Twisters for their loyalty, dedication and commitment during these challenging times. Our operations, R&D, logistics and supply chain teams have been adjusting to this challenging environment for launching new products aimed at combating the virus.The commercial team executed well and we're with $24.6 million in orders in the quarter, which includes approximately $10 million of orders in March. A very challenging month as many of the geographies implemented shelter in place.Our Ginkgo business is going well, with $4 million of revenue in the quarter. And we continue to build our broader customer base and we build to approximately 1,160 customers during the quarter and 1,440 year-to-date.Our COVID products launched in the middle of March are doing well. In fact they contributed approximately $400,000 in revenue. And our biopharma antibody products continue to gain traction with orders are approximately 700K and revenue of 600K.Now I'll give you some more detail on our orders in the quarter. Just breaking down our order to $24.6 million…

Thank you, Jim. As Jim said, we have the strong first half and now we are monitoring business conditions and the impact of COVID-19 on our customers. While COVID-19 has impacted our business, it has never been a burst nor boon to our operation. We see a positive impact of COVID-19 in the resilience of our employees and our new and innovative products to meet market needs. Overall, orders remain strong. Our team continues to innovate in a challenging environment and we continue to execute our business plan. Looking ahead for Synbio, we expect continued revenue growth and diversification of customers. We expect to expand our offering for both pharmaceutical companies and for the long therapeutic market.For NGS, we expect to deal our customer base, by offering new products that expands our infectious disease offering over time. We remain focused on pursuing new market opportunities including liquid biopsy on introducing organization currently using [indiscernible]. For biopharma, we expect to continue to advance our internally generated competitive antibody candidates and assign additional revenues during partnership. We remain on track to sign between five and 10 collaboration, some of which we include both milestones and royalties.With that, let's open up the call for questions. Operator?

Thank you. [Operator Instructions] And our first question will come from the line of Doug Schenkel from Cowen. You may begin.

Hey guys, this is Subbu on for Doug. It seems like things have held up for you pretty well all things considered. And fair to assume that customer activity was most resilient among traditional clinical activities and in COVID-related application maybe less so in Synbio customers, how has this evolved over the past few weeks. And were there any stocking behavior late in Q2?

Jimmy, you want to take this question.

Yeah. Obviously, can't comment on what's happened in April. All I can say is that, over the last quarter we're actually very surprised, I mean, our bookings were very strong as we exit March. We had large, large orders from some of the diagnostic companies, we're shipping to them. The overall in Asia, we saw a bounce back in China. Right now, I mean, our view is, although the business very strong. There's a lot of uncertainty about how customers are going to ramp in the next six to eight weeks start to come back to work, but I would say a lot of the large pharma company is still working.I mean, if you take a look at Twist, we implemented shelter in place policies, the operation staff are working, our R&D staff are working, we're receiving sequences from our customers and we thought it was prudent to pull the guidance and at the same time, the business has been very strong performing really well, which goes back to our platform, strengthening our platform that we are able to scale the business, we're able to innovate and launch COVID products. So we're seeing a lot of demand from the COVID products, we saw a revenue of about $400,000 in the launch of those products in the middle of March. So overall, we are very encouraged by the business and the opportunity.

So along those lines, are you a key supplier of primers probes for any big COVID diagnostic companies and assuming that's the case, how much of a tailwind would that be in this quarter?

So if you're asking about the primer for RT-PCR test we are not, however we are supplying our synthetic RNA control for a number of people that are developing the RT-PCR test and for the users that are running RT-PCR test in routine mode and that's a very innovative product that we launched like Jim said, in the second half of March only a few weeks, but it came at the right moment where the – I think we're the only company that sell the full synthetic RNA control and so therefore, we're not speaking of RT-PCR test.There are some people that are using sequencing – NGS sequencing, though not only get, yes, answer, but to actually sequence of full viral genome and understand how the virus is evolving. We are selling a kit to do that. And so some – some people are using our kit for NGS at this time, I think the NGS portion is not – not as prevalent as an RT-PCR mostly because NGS takes a bit more time. But I think over time there will be a need to – to track how the virus evolving from – from months to months from regions to regions, because the virus evolution may inform the types of vaccines that we worked, the types of antibodies that we worked, the types of primers that are needed for RT-PCR test. It may even inform – how fast people can get out of shelter in place and if people have to go back in.

Got it. That's helpful. And it is pretty commendable that you have successfully launched a number of COVID-related products and you're helping the wider community and I truly appreciate that. My next question was on the gross margin. They were great this quarter any one-time dynamics that we should be mindful of and how should we think about sustainability considering there was some fixed cost leverage, and probably the volumes might go down. Is there any color you provide would be helpful? And I have one follow-up and that will be the last one for me.

Obviously, can't comment in the future. All I can say is we've over the last year-and-a-half we've talked about the leverage in our business model and it's really – it's really satisfying to see in this last quarter that on 19.3 million revenue, our gross margins was approximately 30%, which is consistent with our long-term discussions on where the business going. I – the higher the revenue, we're going to leverage our fixed costs, we brought two new synthesizers on the quarter that allowed us to really scale the business and – and we delivered 32,000 genes in the last month, and we're going to bring another two synthesizers on in the court for the next four, five months, and I mean, our goal is to position ourselves to be very stronger for next year. And I think – I think if you go back to the model $19.3 million revenue, 30% gross margin, I mean that's almost 100% fall through in terms of revenue from the previous quarter. There wasn't a huge mix change, NGS business and the gene margins come in as we expected and is good to deliver 30% gross margin.

Got it. A patent was issued as recently as I think day-before-yesterday related to De novo synthesized gene libraries. Any color you could provide on the issued claims and more specifically, if this patent in itself provides any material competitive moat?

Yes, we continue to invest in our – in our patent portfolio, we strongly believe in patent as one of the moat that we have, our software that enable us to give some synthesis, our innovation spirit. Also as a moat, if you want to compete with Twist, because we are moving, you don't want to compete, where we are today, but we'll have to compete, where we are going to be in three years. And so that – this particular patent is – is quite broad. And it's one more in our – in our protection and I think there was more than one coming out this year, so there was four coming yesterday.

Got it. Thank you, guys.

Yeah, I mean we have – we have a 180 patents pending. So we've been – the team has been very, very innovative and we've been very focused on building the patent portfolio to protect our position. And with a lot of innovative engineers and we're going to keep building our patent portfolio.

Thank you. And our next question will come from the line Luke Sergott from Evercore ISI. You may begin.

Hey, guys. Thanks for taking the questions. Stay off on the biopharma customers that you guys signed with the 600 million or 600,000 in revenues. How much of the 600,000 was from that new sign or was this part of it come from the existing biopharma customers?

It comes from the existing biopharma customers, we have had about I think it was four – roughly about four – five that we had recognized revenue on this last quarter. We keep building the portfolio obviously don't release names, but we get some exciting opportunities in the pipeline.

Yeah. That's helpful. I'll come back to that, and I just want to get into the COVID antibodies before it slips my mind. So the two antibodies that you're talking about yesterday and everybody got up really excited about it and either used for diagnostic use or an antigen testing mode or used for maybe even a therapeutic. Can you give us an update on where you are in the development stage, what kind of partners – are you looking for partners and how far along is that project and when can we expect some type of benefits? Thank you.

Thank you, look for the question. We're quite excited about the development and so we actually started late. We started at end of March into the – the foray against COVID-19 when we thought it was becoming a big issue for the country. As you know, we have libraries that are humanity raised and that are fully human and what that means is that coupled with our high throughput synthesis and high throughput screening abilities in just six weeks, who are able to find very strong binders, [indiscernible] range against to the targets. One is the S1 Protein of the Corona virus itself, as well as antibodies against the human receptor ACE2. And so, it kind of shows the platform that's what we can do is very quickly discover a strong bind and again because human-derived and fully human those should get well, in the clinic and so, now we are at a point, where we have leads and – and I should say that it's, we have dozens of leads in each category. It's not just one antibody of each.We have many antibodies and so we are opened for business either for people that want to license it and move it on their own or partner with us, the – and in the area of either research or diagnostics or therapeutics, we are in discussion with a number of groups and then our self we will also do a bit more characterization. For instance, we don't see it have a – the results of virus neutralization assay. We know it binds well, we know it competes with its natural ligand, but we don't have yet the – the virus neutralization data which will seek. So achieving that in six weeks it's great. I should say, and should add that, the corona virus is not particularly the hard-to-drug target. And so our platform is especially strong for hard-to-drug, where we have a huge advantage of our orders. In a case like this, where those are platform can also discover antibody, our advantage are two-fold, one is that it's very quick. So are faster we think than others. And then secondly, again it's a human-derived than fully human sequences that comes out of the pipeline. Does that answer your question?

Yeah, it does. It's helpful. And I guess we can look for that as the neutralization data coming out in the next couple of weeks. Just to keep you guys moving forward.

Yeah, I think it's more and more well in the June time-frame.

Okay, that's helpful. And then, so I mean on the turning to the NGS side, you guys added six more customers in production. And can you give us a sense of the applications here, any of the regions change. And then I guess another offshoot of that would be with BGI and can you give us a sense of how the orders and the revenue trended from BGI as Corona shutdown and through China and then came back online. Just to give us a sense of how we should think about how we could return here?

I can't talk specifically about BGI, I can share with you what happened in overall Asia, particularly in China, are their order patterns were very weak – our orders were very weak in January and February we saw a great bounce back in March and overall in terms of, yes, we expanded the pipeline, we saw a number of additional customers coming from Asia actually and we saw a number of additional customers coming from the US in fact across is all regions. But it's mostly bias toward Asia, we've got some very interesting developments here in the US and going to, but what's very encouraging is the pipeline continues to build. We're adding more adopted and of those that have adopted, the revenue and first half for the customer adopted was roughly about 8 million. So we're tracking in terms of growth and obviously, as we scale the revenue with NGS as well you can see our gross margin came to approximately 30% in the quarter.

Okay, that's helpful, thanks. And I'll follow-up offline on the expanded biopharma partnerships. Thanks, again.

Thank you. And our next question will come from the line of Tycho Peterson from JP Morgan. You may begin.

Hey, this is Elaine Lyon on for Tycho. Thanks for taking our questions. So firstly in light of the pandemic and just thinking about the possible impact to conversion of your order book or backlog, wondering if you could talk a little about how the backlog looks today the current mix and which pieces may be quicker to burn and which may lag?

First of all, thanks for the question. Yeah, the backlog, we come into this quarter with a strong backlog, which is extremely encouraging for us, we're seeing in terms of the business, we're seeing strong demand from the larger customers, so pharma large diagnostic on NGS and where we're seeing weakness tends to be academic and some of the smaller customers, although the all volume of orders has gone down in the smaller customers that's been sort of offset by strong broad demand from the larger customers. And obviously, I mean we're going to continue to evaluate this over the next six, 12, 15 weeks.It is very difficult to predict how other – how customers are going to reengage in terms of production. It is true that the design test build cycle. So even though a lot of the designers, a lot of our customers R&D teams are home, they are actually still designing and sending in sequences and at the end of last quarter, we did have some customers, who we actually put is on hold, because it shut down their operations and that was about 400K or 500K if I recall in terms of product we're still shipping and are sitting in our shelves into the quarter. So we are very encouraged, because we had a lot of customers, a lot of large customers, who placed orders in March time period. Very strong backlog coming into this quarter, however really uncertain, but how the – they are going ramp back up in terms production, over the next three, four months.

That's helpful and then just getting into some of the trends from the academic end market. Just wondering sort of you've already given some color, but what you've seen so far, and if you can talk about April. And can you also remind us of your exposure to academic customer?

Yeah, academic customers is about 25% of our revenue. I can't share what's going on in April. I can only say again that, the end of March is very, very strong. We are encouraged with what we've seen. I think in terms of academic it's really, really broad, some may describe, I mean, Emily maybe you can jump in here, but we would class Vanderbilt, as part of that and we've seen ourselves in terms of using the public release on Vanderbilt, we've build a lot of interesting programs in the pipeline, particularly on the COVID side.

Okay. Go ahead.

I think, with that – what I can add is, I think like Jim really said it perfectly, which is in academic you may have big projects and those big projects by and large seems to be going forward. And then we also have a lot of very small orders. And those are affected significantly, but there are a small fraction of our revenue base. So the number for orders may be down, but the dollar from – from orders has not as affected because we – at the end of the day, we don't have a lot of exposure from those – from the long tail yet, and the long tail, is what we want to get too in the future, because it's a big number, but because we have not yet done a lot of penetration in the long tail, we were somewhat less exposed and what we saw this quarter is the launch of our positive control and COVID products, it's somewhat balanced the outcome.

Yeah. Can I just add a couple of comments, I mean, what was interesting for us is we quickly adopted shelter in place, we have tremendous team in operation supply and logistics and R&D and what we did at the end of last quarter, was we actually tracked shipments from 15 March to the end of the quarter, because we are only were concerned about was disruptions supply chain and we made sure that all our shipments got to the customer's destination, and we are very vigorously looking at making sure we continue to monitor our supply chain. We did increase our inventory at end of the quarter. We do have a lot of raw materials in place, we've built that over time strategically, so and combined with the great work, our logistics and operations team done, we have managed to deliver all the products to the customers they wanted in time. So we are from an operational point of view and market point of view, we're feeling that we're in a strong position.

That's helpful. Thank you. And then lastly, just going back to the COVID antibodies, just wondering if you could help us frame the diagnostic and therapeutic opportunity here because you would be partnering with several different bodies, or how should we be thinking about the potential opportunities? Thank you.

Yeah. And so we have multiple antibodies with strong binding affinity, strong competitive affinity against the natural ligand. So we have multiple shot-term goals, I think we, those we look for partnerships that could or could not be exclusive. And yeah, we will see if, we ultimately end up into something that goes broadly from a diagnostic or therapeutic point of view. However, even if it does not the fact that we are able to generate such great antibodies, so quickly. Is data that we add to other data package and that data package is what we need to generate more business in general. And so at the minimum we are getting fantastic data that we can leverage for our marketing purposes. And in addition, we have multiple shot-term goal to participate in the diagnostic or therapeutic application. And this potentially participate in the upside.

Thank you. And one last one here, I see that you're planning to scale up those compounds for in vitro functional testing. Just wondering how your supply chain looks like and if you've seen any disruption in this quarter? Thanks.

You mean for the biopharma antibodies?

Yeah.

Yeah. Now I think like Jim said, we are one of, we are early in sheltering in place, we were to move to working from home before there was a mandate from California. And so, we also anticipated that there could be disruption and our supply chain team has been really proactive in making sure that we had all the supplies that we need at this point, we are on that see any issuance in supply chain. Either for the biopharma or it's really the business broadly.

Great, thank you.

Thank you. And our next question will come from Catherine Schulte from Baird. You may begin.

Hey guys, this is actually Tom on for Catherine. Fair amount of my questions have been covered already, just want to cover a few more things, want to – just want to confirm, I heard you correctly, still expecting five to 10 pharma collaborations by the end of the fiscal year. I think you had mentioned that earlier in the call?

Yeah. That's right. And we are really excited that this quarter we reported our first royalty and milestone bearing contract, it's with an unnamed party at this time. But over time there probably would be public release of who they are, when that partner is ready. So now we have proof point that we can get milestones and royalty based on the data pockets that we've had so far. I mentioned that data package is only enhanced by our work on COVID-19 and so we may get more partnerships around COVID-19, but even outside of the COVID-19 fight, we are still on track for five to 10 contract and partnership this year. Again, some of them, some – all of them will have milestones and royalty in addition to the one we already disclosed.

Great, that's great color. And then on some of the COVID work you had done around vaccines and therapeutics it's kind of pre to antibody announcement things like Inovio or Vanderbilt, I was just kind of curious if you could speak to some of the structure on these partnerships, anything around time frames or monetization. Just wanted to get your sense or get a sense of how certain stone, these things are?

So, when we started Twist initially, we were only vendor, where I would say, it's a great business. Someone comes to us, they have a sequence we make it, we will give the DNA to them and we get paid. And that's where our Synbio and NGS market, our business started. And so there is a number of customers that, are now in the fight against COVID-19 that needs access to DNA. So you mentioned Vanderbilt, COVID, Ginkgo is another one that's public and they are, so those and they come to us they purchase and we are vendor to them. In addition, we have opportunities to do some of the work and that's what our pharma team has done.And when we do some of the work that point we are able to discover antibodies that, then we can attempt to monetize for higher economic return. Some of those are done on our own, some of those, are done in partnership with a Vanderbilt. And so, if we do some work, we have an opportunity to get potential and then for monetization and if we are the vendor that's the nature of the business model, where it's an exchange of payment for reagent. And so, now that we are at a sort of pharma business on top of our core business, we have the ability to participate in some upside potential, which we did not have earlier in the development of Twist as a company.

Great, thanks, and thanks again for all guys have done in the COVID fight. Thanks.

Thank you.

Thank you. [Operator Instructions] And I'm not showing any questions at this time.

Thank you, Victor, and thank you all for joining us today, as you heard from our remarks and from the Q&A. Twist has a very strong first half, we are open for business and we continue to innovate and execute. This last quarter has provided all of the Twisters with an important opportunity to do well by doing good, and we remain committed to continuing to doing so moving forward, no matter of the uncertainty or challenges placed in our path. We wish you all well and I hope you remain safe and healthy in the days and months ahead. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.