Codex DNA, Inc. (DNAY) Q2 2021 Earnings Call Transcript

Codex DNA, Inc. (DNAY 2.63%)
Q2 2021 Earnings Call
Aug 10, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the second-quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session.

[Operator instructions] I would now like to hand the conference over to your first speaker today, Jennifer McNealey, chief financial officer. Thank you. Please go ahead.

Jennifer McNealey -- Chief Financial Officer

Thank you, Paul. This afternoon, Codex DNA released its financial results for the second quarter ended June 30, 2021\. If you have not received the news release, or if you'd like to be added to the company's distribution list, please send an email to ir@codexdna. Joining me today from Codex DNA, are Todd Nelson, our chief executive officer, and Dan Gibson, our chief technology officer.

Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking statements within the meaning of the federal securities laws. These statements involve material risks and uncertainties that can cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appear in the section entitled forward-looking statements in the press release we issued today. For a more complete list and description, please see the risk factors section of the company's quarterly report on Form 10-Q for the quarter ended June 30, 2021 and in other filings with the Securities and Exchange Commission.

Except by required by law, we disclaim any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise, This conference call contains time-sensitive information and it's accurate only as of the live broadcast, August 10, 2021. With that, I'd like to turn the call over to Todd.

Todd Nelson -- Chief Executive Officer

Thanks Jennifer, and thank you all for joining us this afternoon. I'm very pleased to welcome you to our first earnings call as a public company, and to review our results for the second quarter of 2021\. During the second quarter, Codex DNA took a big step forward in the evolution of our business. We successfully closed an IPO, strengthened the diversity of our leadership team and board of directors, enabled new downstream mRNA applications, expanded our customer base, and grew revenue 76% year over year. We continue to be well-positioned to build on this foundation, scale our global operations, and empower more customers with the ability to rapidly create sustainable synthetic biology solutions to help advance precision medicine, biologics drug discovery, vaccine development, genome editing and both cell and gene therapy.

I'd like to take a moment and express my sincere thanks to our amazing team for their hardwork and dedication leading up to our IPO in June, in which we raised approximately $123 million in gross proceeds. All the incredible progress we've made is truly a testament to their collective efforts. I would also like to thank all of our investors for their continued support. We look forward to developing meaningful long-term relationships and working with you to grow the company together.

With that in mind, let me give you a sense of what's driving us at Codex DNA. Our mission is to apply breakthroughs in automation solutions for synthesizing DNA, mRNA and proteins to allow scientists to program and print synthetic biology, creating sustainable healthcare and technology solutions for some of humanity's biggest challenges. Our team has been innovating in the synthetic biology industry for years and has driven many of the industry's most significant scientific achievements, including the invention of Gibson Assembly method, which has now been cited in more than 6,000 scientific publications. We're excited to drive the next revolution synthetic biology.

The first revolution, focused on the reading or sequencing of DNA molecules. Decades of investment in this area has led to the opportunity to write or print DNA at the benchtop, which will allow for the rapid translation of DNA into novel products. We believe the next revolution will be driven by synthetic biology applications that rapidly write or recode DNA, allowing customers worldwide to develop sustainable technology solutions and bring critical products to market faster. We've developed an innovative solution to unlock this writing revolution that is purpose-built to meet pressing needs for fast and accurate DNA-writing technologies that drive significant improvements in productivity. Our BioXp automation platform has the potential to unlock this DNA writing revolution, giving us access to large market opportunities by bringing this technology to the benchtop.

The award-winning BioXp system is disrupting an industry by providing a careful – a fully automated push-button system for the rapid synthesis of both DNA and mRNA. Certain drug discovery activities that previously took months can now be completed using the BioXp system in just a week or so, and what previously took days can now be done in hours. Industry-leading quality, combined with enhanced speed, accuracy and scale can result in vast improvements to productivity. This allows scientists to write or print functional-grade DNA and mRNA with the push of a button, enabling rapid iteration of synthetic biology products.

Scientists around the world are able to accelerate the design-build test paradigm for faster development of novel, high-value products for precision medicine, biologics drug discovery, vaccines and therapeutics, genome editing, and both cell and gene therapy. Our technology is being applied toward developments in medicine, as well as food-supply sustainability as is the case for citrus greening disease grant awarded to us by the U.S. Department of Agriculture. Now, a few words on our second-quarter results.

In the second quarter, we responded to customer demand with a number of BioXp synthetic workflow enhancements. We launched the first mRNA kit for BioXp system. This product line is the first of three mRNA kits in a full product line. It's designed to enable the rapidly growing market for mRNA vaccine development and RNA based therapeutics.

We also launched longer gene fragment building capabilities for overnight production of error-corrected, de novo synthetic genes as long as 7.2 kb in length. Such improvement in the size dramatically expands the menu of applications that can be studied, such as antibody engineering, metabolic engineering, genome construction, targeted gene variant analysis, and more. In July, we signed a licensing and supply agreement with TriLink Biotechnologies, which is part of Maravai LifeSciences for its industry-leading CleanCap technology. We plan to integrate the mRNA capping technology into our suite of automated mRNA synthesis kits for the BioXp system, as well as within our biofoundry services offering.

Customers will now have the option to generate up to 16 biologically active mRNA constructs at a yield of at least 10 micrograms each, all from fully de novo synthesized and error-corrected genes in a single automated run. These combined technologies increase the fraction of translationally active mRNA during transcription, which simplifies and shortens the mRNA manufacturing process, and results in higher levels of protein production. Together, the technologies are expected to increase productivity and yields for mRNA synthesis workflows, potentially opening the doors for a broader range of downstream therapeutic and vaccine applications. We also strengthened our leadership team with three key additions to the board of directors during the second quarter.

They are; Jami Nachtsheim, Christine Tsingos and Andrea Jackson. Jami is the former corporate vice president of sales and marketing group, and the director of worldwide marketing at Intel Corporation, and currently serves on the board of several leading biomedical and technology companies. Jami serves as the chair of our corporate governance and nominating committee and as a member of our compensation committee. Christine is the former executive vice president and chief financial officer at Bio-Rad Laboratories.

She previously held executive positions at Autodesk, The Cooper Companies, and Attest Systems. Christine serves as the chair of our audit committee. Andrea is the director of Northpond Ventures, which is a science, medical and technology-focused venture capital firm that was founded in 2018\. She's also a member of the board of directors of other emerging growth companies including Current Health, NanoView, Octave Bioscience and others. Andrea serves as a member of the compensation committee and the corporate governance and nominating committee.

We welcome them all to the Codex DNA team. And with that, I will pass the call back over to Jennifer to review our financials.

Jennifer McNealey -- Chief Financial Officer

Thank you, Todd. Detailed financial results for the current quarter were included in today's press release. I will briefly review our results on this call. Codex DNA's well-capitalized, with cash and investments of $123.8 million as of June 30, 2021\.

Revenue was $2.9 million for the second quarter of 2021, a 76% increase from $1.6 million for the same period in the prior year. This growth was related to new product introductions and growth in royalties and collaboration research program revenue. Cost of revenue for the second quarter of 2021 was $1.9 million compared to $0.6 million for the same period in the prior year, the increase of $1.3 million was primarily driven by increased standard costs related to increasing unit sales and higher raw material costs associated with reagent sales and biofoundry services. Operating expenses were $8.5 million for the second quarter 2021 compared to $4.3 million for the same period in the prior year.

This increase was driven by headcount expansion across our business, primarily focused in our commercial and research and development organizations, as we ramp up our sales and marketing efforts and product development efforts, as well as additional expenses related to operating as a public company. Net loss was $9.2 million for the second quarter of 2021, compared to $4.1 million in the same period in the prior year. Net loss per share was $1.06 for the second quarter of 2021, compared to $0.82 for the corresponding prior-year period. And with that, I will now turn the call back over to Todd.

Todd Nelson -- Chief Executive Officer

Thanks, Jennifer. Before closing, I want to thank everyone at Codex DNA for all their efforts this past quarter. It's been amazing to see how well they've executed and I could not be more proud to be part of the team. We remain grateful to our investors for their support and look forward to working with you to bring a great company and synthetic biology and sustainable solutions to our planet.

We're confident about our future opportunities ahead. And with that, we will now open the call for questions.

Questions & Answers:

Operator

[Operator instructions] Your first question is from Paul Knight with KeyBanc. Your line is open.

Paul Knight -- KeyBanc Capital Markets -- Analyst

Hey, Todd. Could you -- I missed the first second or so of this, your opening comments, but what were placements in the quarter for you?

Todd Nelson -- Chief Executive Officer

Yeah, Paul. I think, we haven't been breaking the BioXp placements out on a quarterly basis. If you recall, we stated previously that we had about 162 systems that were placed through the first quarter, and I believe we said we placed 13 in the first quarter, so we'll be reporting out Paul on cumulative placements at the end of the year, but not on an intra-quarter basis.

Paul Knight -- KeyBanc Capital Markets -- Analyst

OK. And can you talk to the -- I know that the kit level on the XP side of the business is going to be an increasing part of the business flow. What are you seeing on pull through, qualitatively?

Todd Nelson -- Chief Executive Officer

Yeah. So as we've said before, there's a handful of customers that, we're pleased to say, are purchasing kits for BioXp systems that approach or, if not, exceed the current cost of capital for the system. So there's a handful of customers that are doing that. I think that the way we look at the business, given the size that it's at now, we certainly see utilization going up, for sure.

We're happy about that. And I think that, commenting, just generally, on utilization rates would be difficult for us, but we continue to play systems, and we continue to launch innovative products on there and utilization is certainly going up.

Paul Knight -- KeyBanc Capital Markets -- Analyst

And then lastly, you announced the TriLink deal in July, when will the capping technology be available commercially?

Todd Nelson -- Chief Executive Officer

That's currently scheduled, Paul, for fourth-quarter launch.

Paul Knight -- KeyBanc Capital Markets -- Analyst

OK. And then lastly, on the service side, any change in tone or level of business on biofoundry?

Todd Nelson -- Chief Executive Officer

The biofoundry business, just like the product side of the business, is small numbers for us at this point. We're very pleased with the direction that both segments of the business are headed. And I think we're well-positioned to answer questions that customers have, either on the product side or on the services side. So really no change in the tenor of the services business, we continue to execute.

Paul Knight -- KeyBanc Capital Markets -- Analyst

OK, thank you.

Todd Nelson -- Chief Executive Officer

Yep. Thank you.

Operator

Your next question is from the line of Brandon Couillard with Jefferies. Your line is open.

Brandon Couillard -- Jefferies -- Analyst

Hey, thanks. Good afternoon. Todd, maybe just starting with the first new small-scale mRNA kit that you launched in April. Any metrics you can kind of share about uptake or interest in that kit, maybe for some of the install base that might be using it, that you can share with us?

Todd Nelson -- Chief Executive Officer

Yeah, Brandon. Thanks for the question. I think it's early days, the launch of the kit happened on time and on spec. Yeah, at the end of April, and as you may recall, that's just a five prime, it's an ARCA cap, three prime tail, we use enzymatic tailing.

And then, we did announce the CleanCap technology which has a significant share of the downstream market. So I think, rather than giving you the system uptake details early on in the launch, I would say, that we're in the midst of the commercial launch. We're pleased with the direction that it's going. We're looking forward to the fourth-quarter launch of the CleanCap technology, which will give us access to a significantly larger segment of the mRNA workflow market.

And then to answer your question, the kits that we launch, irrespective of what they do, if it's mRNA, or DNA, everything is backwards integratable into the entirety of the existing installed base. So we've already got a very good list of customers that we're working with, and we're seeing mRNA orders, currently.

Brandon Couillard -- Jefferies -- Analyst

Gotcha. OK. And maybe secondly, shifting gears, it'd be great if you can just touch on how the commercial channel activation efforts are going from the U.S. market.

Tell us how they're coming along?

Todd Nelson -- Chief Executive Officer

Yeah, so outside the US, we've got a direct channel in -- predominantly in Western Europe. As we've discussed before, we're continuing to hire there, recently put in place a regional manager there that came over from another company, has a good deal of experience. I think we're pretty well-staffed in our direct channel in Europe. We believe -- I believe I have currently about 40 distributors in our o U.S.

channels and that channel is continuing to be activated and we've seen a number of systems come through that as we discussed previously. So I think our channels are up and going. We're going to continue to hire. We've got, I think a full funnel of opportunities on the BioXp side around the globe and a significant portion of it will come from channel next year as we extend our reach throughout the globe.

Brandon Couillard -- Jefferies -- Analyst

OK. And then, maybe one for Jen. Can you just touch on the gross margin weakness in the quarter? What exactly are the standard costs that went up, I think $1 million? And any guidance on how we should think about that metric in the second half or should we assume maybe some of these higher costs, maybe with you for a little while?

Jennifer McNealey -- Chief Financial Officer

Sure. The standard costs are just the non-allocated costs and gross margins were down, this quarter as a result of switching our primary suppliers, wherein we experienced less favorable pricing on certain raw materials until our volumes increase. We anticipate that our cost of goods will decrease as volume increases and it's a temporary situation.

Brandon Couillard -- Jefferies -- Analyst

Gotcha. OK, thank you.

Todd Nelson -- Chief Executive Officer

Thank you.

Operator

And your last question is from Doug Schenkel with Cowen. Your line is open.

Kyle Boucher -- Cowen and Company -- Analyst

Hi. Good afternoon. This is Kyle on for Doug. Thanks for taking the questions.

So over the past year and a half you've had increasing success in placing instruments and biopharma accounts that are higher-volume users. We were wondering if you could just share any cohort analysis on how much more customers who recently adopted instruments like over the past few quarters are utilizing our instruments?

Todd Nelson -- Chief Executive Officer

Sure, Kyle. This is Todd. Let me -- I'll take that one. So, let me first state, as I said before, we've got predominantly in that group of customers, you'd be talking about we have as customers 15 in the top 25 pharma accounts.

And as we mentioned earlier on in the call, we've got a handful of customers that are putting the cost of in reagents, equivalent to the cost of capital through those systems. So customers do ramp up to what we would call higher utilization rates and we're continuing to see that. So the answer to your question is that, it depends. The -- what we strive to do is to get customers to order sooner rather than later.

But every customer has its own rate of ramp. So for sure, predominantly, our install base continues to be really focused on the biotech segment for the workflows that we've talked about, but the rate that a customer can ramp up really depends where they are in their projects. How many systems they buy and whatnot? So it's hard to really give you like, you know, an answer to specifically the rate of engagement for any one customer because it's small numbers now, but we are seeing customers engage, engage quickly, place orders. And it's not typically just in order for one of our products.

It's orders for multiple products. So rapid engagement and then utilization is ramping up. And then again, we do have customers that are putting the cost capital through the system.

Kyle Boucher -- Cowen and Company -- Analyst

Thank you. And as a follow-up, could you share maybe a high-level roadmap for the automated mRNA synthesis kits. What modules could we expect in the next year so?

Dan Gibson -- Chief Technology Officer

Yeah, this is Dan Gibson, I can take this one. So we have two additional mRNA BioXp kits that we'll be launching within the next six months, so early 2022\. The first is what we call rapid-scale mRNA synthesis. So this would enable customers, if they already have their cloned constructs, they can generate messenger RNA from those at 50 to 100 microgram quantities, and also that would enable them to use their own custom cloning vectors. In addition, we have another mRNA kit, which we call large-scale mRNA synthesis, which leverages de novo synthesis, up to 7.2 kb, and also allowing those customers to clone those larger constructs into their custom vectors as well, also up to 50 to 100 micrograms quantities.

Todd Nelson -- Chief Executive Officer

Yeah. And Kyle, this is Todd. Let me just add and kind of give you some of the broader context of the three products, because with these three products, we think we've got very, very good coverage of the discovery market for mRNA. And the first one that we launched and we're active commercially selling now was an ARCA cap, and it has enzymatic poly(A) tailing.

And so that's a great discovery tool, and that builds up to 1.8 kb. So that's a great tool for protein engineering, entomology, and for biologics with shorter sequences like for CDRs and things like that. As Dan mentioned, the second one, the error corrected genes are already placed into the vector, so that's just a very rapid synthesis market. In that one, the poly(A) tail will already be in the vector.

And then the third one really gets us to leverage the core competencies of the organization where we can, we can -- we launched the build big capability up to 7.2 KB of gene assembly in synthesis, and that's really important for the vaccine development market. So, we're starting out in biologics, protein engineering, and then with the third launch really getting into the ability to build antigens like we've done for COVID, flu vaccines, and things like that. So, we plan on having the CleanCap technology integrated into each one of those also. So, we think we've got very good coverage of a very large rapidly growing market with all three of those product launches.

As Dan mentioned, launch one and will be launched in the first half of 2022.

Kyle Boucher -- Cowen and Company -- Analyst

That's great. Thank you again for taking the questions.

Todd Nelson -- Chief Executive Officer

Thank you.

Operator

And that concludes the question-and-answer session. I will now turn the call back to Ms. Jennifer McNealey for closing remarks.

Jennifer McNealey -- Chief Financial Officer

Thank you, Paul, and thank you all for participating in our call today. Please follow up with us if you have additional questions.

Todd Nelson -- Chief Executive Officer

Thank you.

Operator

[Operator signoff]

Duration: 24 minutes

Call participants:

Jennifer McNealey -- Chief Financial Officer

Todd Nelson -- Chief Executive Officer

Paul Knight -- KeyBanc Capital Markets -- Analyst

Brandon Couillard -- Jefferies -- Analyst

Kyle Boucher -- Cowen and Company -- Analyst

Dan Gibson -- Chief Technology Officer

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