Nautilus Biotechnology, Inc. Q4 FY2023 Earnings Call

Good day, and thank you for standing by. Welcome to Nautilus Q4 2023 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. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Carrie Mendivil, Investor Relations. Please go ahead.

Thank you. Earlier today, Nautilus released financial results for the quarter and full year ended December 31, 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 Investor Relations at 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 the 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 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, February 28, 2024. With that, I'll turn the call over to Sujal.

Thanks, Carrie. Good morning, and thank you to everyone for joining us today. This morning, we'll share our results for the fourth quarter and full year 2023 and provide an update on recent activities. But first, I want to thank our employees, our partners and our investors. Creating a platform capable of enabling researchers to explore the mysteries and potential of the proteome is very much a team effort. It requires strong alignment up and down the organization, vision, persistence, and an unwavering commitment to our goal of improving human health. I'm grateful for the extraordinary work the entire team did in 2023 and for how they've kicked off 2024 stronger than ever. We recognize that we're tackling a big, hard problem that has never been successfully addressed. And armed with the learnings of last year and years prior, we now have greater clarity about what remains to be done to deliver what we believe will be a game-changing platform to the market. We enter 2024 more energized than ever, focused on the good that we anticipate our platform can do and confident in our ability to get there. When I reflect on 2023, I see it as a year of accomplishment and foundational progress. Progress that will continue to build momentum for Nautilus as we move through 2024 and towards the planned launch of our proteome analysis platform in 2025. You'll hear more details about specific R&D progress from Parag in just a few minutes and more context from me around the revised launch timeframe a little later. But first, I want to reflect on what we continue to hear from potential customers and what I sense as I look across the market landscape. At a high level, I'm encouraged by a growing awareness among researchers about the role that proteomic data can play, as it can be easily and cost-effectively generated in augmenting other high-value biological data sets. More specifically, we continue to receive enthusiastic feedback from the researchers and partners with whom we've directly engaged. They recognize the inherent limitations of both traditional analysis methods and of emerging affinity-based and peptide sequencing methods. They clearly understand how critically important single molecule intact protein analysis, which only Nautilus is designed to deliver, will be to their expanded explorations of the proteome. We and they envision a day when their ability to explore the entire proteome more thoroughly will yield fundamental advances in basic biological research, enabling researchers to make a substantial impact on the efficiency and cost-effectiveness of biomarker discovery and drug development. While the desire on the part of researchers to finally have a breakthrough in the availability and cost of valuable proteomic data is not new, what is new is the potential of actually delivering on that dream. That is fueling the imagination of researchers to think beyond what has been possible and towards the idea of what could be possible. This is a truly exciting time to be on the front line of proteomic innovation. With that, let me now turn the call over to Parag for an update on our progress on the R&D front.

Thanks, Sujal. Overall, we made solid progress against our core goals in 2023. Our major focus last year was on development activities, specifically increasing scale, stability, and reproducibility across our entire ecosystem, especially our consumables. We additionally made significant progress in reducing the cost and complexity of producing our consumables. This progress goes hand in hand with advancing the reliability, quality, and customer readiness of our instrument and software. Some examples of this progress include significantly increasing the development pace for our affinity reagents, which was a result of optimizing the yield and throughput of our reagent development pipeline. We also transitioned many of those new reagents into common experimental use. We advanced our fabrication and assembly processes for our nanopattern chip and flow cell. This refinement enabled both improvements in scale and reproducibility. We additionally qualified our external patterning and assembly partners. After refining our nanoparticle scaffolds, we increased the throughput and scale of manufacturing for both our labeled probes and nanoparticle scaffolds over tenfold. 2023 also saw a continued focus on advancing our commercial instrument, especially the integration of the hardware, software, and wetware elements. Taking an instrument from concept to commercial readiness is complex and requires close coordination between teams across the company. I'm pleased with the progress I saw last year in this regard, with the instrument becoming a true workhorse. The combination of advances in our consumable production scale, reliability and reproducibility, the increased stability of our multicycle assays, and the expansion in the available number of commercial form factor instruments enabled us to successfully perform substantially greater numbers of longer-cycle experiments in the past quarter than we did in the prior several years combined. That work continues to accelerate in 2024. The deluge of data from these more numerous and larger scale experiments also drove advances in the software and bioinformatics aspects of our platform. In particular, like with the instrument, we have switched over from prototype software tools to the integrated and automated pipelines that will be used by our customers. In the past, these analyses might have taken weeks of hands-on time to execute, and now analyses can be achieved with minutes of hands-on time. As we reported in Q2, the increasing experimental scale and assay robustness have enabled us to increase the set of model proteins that can be successfully decoded. We have diversified our models to include mixes of multiple proteins across a range of concentrations and are excited about further increasing the complexity of our model systems. These efforts are essential to the path towards verification and validation required for launch. Coming out of 2023 and into 2024, we remain focused on addressing the foundational elements required to launch our platform, ranging from how to mobilize single protein molecules on our nanopattern flow cell, how to detect diverse epitopes within proteins at single molecule resolution, the ability to run large-scale experiments involving a large number of probes across many cycles, and an instrument ready to transition into broader use. In an ongoing demonstration of our commitment to transparency and openness, we continue to reach out to the broader proteomics community with the objective of sharing the scientific underpinnings of our platform. These conversations frequently lead to suggestions of exciting and creative applications of our platform that we had not previously envisioned. The next major opportunity for data sharing and application ideation comes in two weeks at the US HUPO conference in Portland, Oregon. I am incredibly excited by the opportunities we'll have at the event, where we'll be publicly presenting on several topics, including additional progress on the experimental implementation of PrIsM, further detail on our multi-affinity Pro pipeline, and on computational methods to estimate false discovery rates. Overall, we continue to listen to the proteomics community, our future customers to ensure that we are sharing with them ongoing updates on our progress towards specific technical areas. One area that I'm most excited about is the additional data we'll be sharing resulting from the targeted proteoform studies of Tau and EGFR that we've been pursuing in partnership with Genentech and Amgen. All the advances that we've made towards advancing our platform for broad scale studies have synergistically and simultaneously advanced our platform for targeted proteoform studies. We continue to hear from the community how important proteoforms, as defined by combinations of splice variants and post-translational modifications, are to disease biology, and the excitement about our platform is uniquely suited to measure the molecular heterogeneity of proteoforms at single molecule resolution. As Sujal mentioned earlier, we come into this year clear-eyed about what work remains to be done and confident that we have a solid foundational understanding of what is required to get our platform into the hands of users, where it can have a profound impact. With that, I'll turn the call back to Sujal.

Thanks for the update, Parag. On another HUPO related note, at the event, Parag will be honored as the 2024 recipient of the Gilbert S. Omenn Computational Proteomics Award. This prestigious award recognizes Parag's career achievements and longstanding leadership role in the development of bioinformatic analyses and the computational methods widely used by the proteomics community. Needless to say, we are very grateful to have him on our team. During past calls, we've discussed the well-understood reality that shipping the first version of any truly groundbreaking product can be slower and more challenging than initially anticipated. As one of our board members is fond of saying, these delays are often based on encountering and knocking down one by one what she refers to as FIW problems, challenges associated with being first in the world. Investors, analysts, customers, and others with whom we speak acknowledge that building a game-changing proteomic analysis platform, especially the first of its kind product like ours, is hard and simply takes time. Since we recognize how significant an impact will be created by the data that our platform is expected to produce, we are committed to ensuring that our company is fully ready to introduce, support, and rapidly innovate on what is designed to be an incredibly high-quality, high-value product. The world of biology deserves our best, and we have set an exceedingly high bar for ourselves. During recent calls, we've shared our thoughts on the experimental and related work that's required to enable us to maintain a 2024 commercial launch timeframe with the V1 product specifications that we believe will be transformative to our market. Despite strong progress towards these goals, and in the name of ensuring that we launch a product that meets our very high bar for quality and performance, we now plan to launch our Proteome analysis platform, instruments, reagents, and software in 2025. We remain singularly focused on driving our scientific and development efforts forward in the most efficient, cost-effective way possible. I want to emphasize that we are not currently focused on creating short-term revenue opportunities. By choosing to focus intently on our development objectives, we believe we are positioning ourselves to create the best platform possible and make the maximum positive impact on the marketplace, biological science, and long-term shareholder value. As you'll hear from Anna in just a moment, we continue to operate in a very capital-efficient manner. Our burn rate and cash balance are a significant advantage for us and in striking the right balance between maximizing our cash runway into 2026 while making the investments that are necessary to drive our scientific progress forward. For more on that and other things, let me hand the call over to Anna for a look at our Q4 and full-year 2023 financials.

Thanks, Sujal. Total operating expenses for the fourth quarter of 2023 were $20.0 million, up $3.7 million compared to the fourth quarter of 2022 and $0.9 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 products. Research and development expenses in the fourth quarter of 2023 were $12.5 million compared to $9.6 million in the prior year period. General and administrative expenses were $7.5 million in the fourth quarter of 2023 compared to $6.7 million in the prior year period. Overall net loss for the fourth quarter of 2023 was $17.0 million compared to $13.4 million in the prior year period. For fiscal year 2023, operating expenses were $76.2 million, an increase of $12.5 million, or 20%, from $63.6 million in fiscal year 2022. This increase was driven primarily by an increase in headcount to support the ongoing development of our products. Net loss for the full year was $63.7 million compared to $57.9 million in fiscal year 2022, an increase of 10% year-over-year. Turning to our balance sheet, we ended the year with approximately $264 million in cash, cash equivalents, and investments compared to $276 million at the end of last quarter. Over the past year, we have hired additional leadership, particularly in R&D, and increased the throughput of our development and production pipeline. Importantly, we have achieved improved efficiencies with operational spend, beating our internal expectations. We entered 2024 with a lower burn rate and a strong cash balance, extending our cash runway into the second half of 2026. We remain committed to responsible financial stewardship to ensure flexibility ahead of our commercial launch. Today, we filed a shelf registration statement on Form S-3 as well as a prospectus supplement regarding a potential at-the-market offering of up to $125 million, which has not yet been declared effective. We view this filing as strictly good corporate housekeeping designed to allow us the flexibility to strategically and efficiently raise capital in the future. In 2024, we expect growth in spending to steadily increase as we continue to prepare for our commercial launch. This year, we expect our overall operating expenses to grow by approximately 25% from 2023 levels. We are confident that we remain well positioned to execute on our strategy to launch a transformational platform in proteomics. With that, I'll turn it back to Sujal.

Thanks, Anna. Anna's report clearly demonstrates our steadfast commitment to responsible financial stewardship of this business as we move towards commercial availability in 2025. We're excited about and energized by what lies ahead for Nautilus and the difference we believe our platform can make in biological science. Our mission to positively impact the health and lives of people around the world remains our guiding light and the high standard to which we hold ourselves. I'm grateful to our team, our investors, our strategic partners, and our research collaborators for joining us on this journey to revolutionize proteomics and empower the scientific community in ways never thought possible. We made excellent progress in 2023 and look forward to building on those successes as we move through 2024 on our way to a commercial launch in 2025 and beyond. With that, I'll turn the call back to the operator.

Our first question comes from Tejas Savant with Morgan Stanley. Your line is open.

Good morning. This is Yuko on for Tejas. Thank you for taking our questions. Could you further elaborate on the factors that led to the push out of the instrument to 2025? I appreciate the pace of development affinity reagents has significantly accelerated. But is that essentially the gating factor to launch at this point? And then could you also comment on whether you're targeting launch in the first half or second half of 2025?

Good morning, Yuko. Thank you for the question. Parag, maybe if you want to take the first half of that question and then I will address the second half.

Sure. That sounds great. Thanks so much for the question. Maybe just to start by commenting on the key aspects of the platform overall. The foundation of the platform consists of three core elements: the method for depositing single molecules onto a hyper-dense nanopatterned array, an assay incorporating potentially hundreds of affinity reagents that are iteratively flowed over the array and imaged, and the machine learning framework, which integrates all of these pieces together. As we've been working through development, the key challenges we've faced really have been ones of scale, quality, reproducibility, and stability, which are critical for our end-to-end assay to be as robust as possible. Additionally, we've been working to increase the complexity of our model systems from decoding model proteins to mixtures of proteins to increasingly complex model systems, like various data sets. So, as we work through that progression, that's the driver of ensuring that we have a product that is consistent, reliable, and performs as intended.

Great. Thanks, Parag. You could take the second half of your question. You asked about further specificity than what we said in our prepared remarks. At this point, we don't want to provide any further specificity in 2025. What I will tell you is that, we do expect, as we've previously discussed, that prior to our full commercial launch, which means instruments, reagents, and software, we will have a short beta period. This means physical instruments being placed at customer sites. Before that, we'll have our early access period, where customers can send us samples, we can analyze them, and return the data to the customer from our facility. As we enter the early access period launch, I expect that I will be able to provide further specificity on the timeline and narrow it down, as well as when we launched the early access program, we'll be able to discuss our expected launch specifications in much more detail.

Great. Thank you.

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

This is Matt on for Brandon. Maybe one for you, Anna, on the cash runway out to the back half of 2026. I think prior you guys had talked about runway into 2026 given a number of 2024 launch scenarios. So now that you're pointing to the 2025 launch but cash into the back half of 2026. I was just curious if there's anything that changed? Are there other areas that you're maybe monitoring or sharpening your pencil on? Thanks.

Matt, good morning. Thanks for the question. As you've heard us consistently say, we've been very prudent in how we've been managing our investments. We continue to be very targeted in 2024 with our expectation of growth in OpEx around 25%. We expect cash burn to be a little higher than that as we start to make some capital investments. But overall, our runway doesn't have any real sensitivity to our launch timeline, as we have the ability to manage our expenses to align with that timeline.

Okay. Thanks. And then, I guess, kind of sticking with that topic on 2024, you guided to the 25% increase year-over-year. Can you just maybe talk about your ability to moderate that up and down last year, given the backdrop? You moderated down. Or should we think about 2024 as kind of locked in at that range given the commercial launch in 2025?

Sure. We always have the ability to moderate up and down. We feel that 25% is a very targeted level of investment. We're investing in all areas of the business. We will continue to invest in development as well as SG&A to support our manufacturing and production capabilities, potentially some commercial activity as well. We have the ability to moderate that as needed.

Thanks. And then just last one, quick clarification. The Amgen, Genentech data you talked about, will that be presented at US HUPO here in a couple of weeks? Or will that be another form? Thanks.

Okay. Go ahead, Parag.

I'll take that. Yes. We are planning to present that at the U.S. HUPO. There will be poster presentations on that material, and we will also discuss it in our lunch seminar.

Super. Thank you.

And Matt. Just to add a tiny bit of additional information on the cash side. So the cash guidance of having a cash runway into the second half of 2026, of course, given the launch timeline of 2025, includes the build-up of our commercial organization and the launch of the platform along with the initial revenue ramp. All of that is baked into that. So when you talk about flexibility, the biggest thing to highlight is that we as a company have been very good about managing that OpEx as the timeline moves up and down, and we expect to continue to do so. At the point that you start to see a tick up in that OpEx, I think that's indicative of us getting closer to that launch.

Thanks. Appreciate it. I'll leave it there.

Our next question comes from the line of Matt Sykes with Goldman Sachs. Your line is open.

Hey, good morning. Thanks for taking my questions. Maybe just on the push out of the platform to '25. Just curious, you're obviously working with a number of customers today on the beta and the other things that you're doing with Amgen, Genentech, etc. In terms of engaging a broader set of customers, given the push out to '25, how do you maintain that momentum with broadening out and keeping that excitement about the product, just given the delay out to '25?

Good morning, Matt. This is Sujal. I'll tackle this one. I think that there are two ways that we intend to continue building momentum with the scientific community and with our potential customers. One is that at each of these major conferences, for example, this U.S. HUPO conference, which is coming up in a few weeks, we continue to present new and novel data about our platform that shows our progress towards a launch. If you think about the core elements of our platform—building a single protein molecule array that's uniform and dense, decoding proteins using our PrIsM method, and the bioinformatics tied to our system—these are incredibly unique in the scientific community. This is a method that has never been attempted before. That data is incredibly exciting for the scientific community and our potential customers. That is one primary method. The second way is that the work we’re doing on Tau and EGFR with Genentech and Amgen, as well as our other collaborators, is extremely exciting for our collaborators and the scientific community. Our platform has the unique capability—being the only platform in the world that can fully elucidate the proteoform landscape of proteins of interest because it analyzes intact protein molecules and can probe those molecules repeatedly to gather more information. That is incredibly important because these modifications could indicate therapeutic responses, could serve as biomarkers, or may be drug targets. With that, the biological insight we're generating that has never been seen before is critical for the scientific community and our potential customers. Getting that data out into the world and showing what our platform is capable of is the second method we will use to generate excitement in the community about the platform. When you consider the type of data we're generating ahead of broad-scale proteomic data, you might ask, and many have asked, if we are going to place more emphasis behind that. Would we just launch proteoforms first? What I tell you on that front is we continue to love the momentum we have on the proteoform side. We really like the customer traction that we're seeing, and we are excited. We will continue to consider those types of collaborations and work to expand the proteoform research we have been doing with our current collaborators as we move through this year and start getting into next year.

Got it. And I think you might have answered part of my second question with what you just said. But in terms of—you had originally talked about targeting a certain percentage of the overall proteome launch that came down a little bit in order to launch it in '24. As we look at '25, does that coverage, or however you want to classify it, go back up again? Or are you still sort of targeting what you had said before in terms of what you're going to be able to have available in '25?

Yes. As I mentioned in response to one of the earlier questions, we will have more specificity on our launch specifications when we launch our early access program for the platform. So more specificity is coming in the coming quarters. What I will say is that our initial specifications were discussed in our Q3 conference call. We have no intention of lowering our specifications any further. In fact, given the additional time we have in our schedule, we may make up a bit of ground in some areas. As a reminder, those areas include the percentage of the proteome that we can cover, the dynamic range of the system, and the limited detection and quantification among other factors. Let’s get a couple more quarters in, and then I will provide additional specificity as we get closer. But I believe the additional time will be potentially beneficial to us.

Got it. And then just one more, if I may. Are any of the issues or challenges that you're having related to supplier issues or manufacturing capabilities? I know Parag talked about scale quality reproducibility as some of the factors you're looking at, but just want to make sure that it seems like some of the supply issues are long gone. So I'm assuming it's not really a supplier issue or manufacturing issue, it's more of just the overall technology in the platform. We want to make sure you get it right when you launch it?

Yes, Matt, absolutely. The additional time needed is not related to supplier issues at all. Our operations and manufacturing organization has done a spectacular job here. On the instrument side, they ensured that all of our longer lead time parts are available in sufficient supply and built supplier relationships to focus on our launch long-term. On the reagent side, our manufacturing organization has built a solid partner base that helps us produce those reagents. As Parag described in his prepared remarks, they've done an exceptional job with the yield and scale of our reagent production in-house, and we're very excited about that. So supply chain is not an issue for us.

Got it. Thank you very much.

Our next question comes from the line of Dan Brennan with TD Cowen. Your line is open.

Good morning. Thanks for taking the questions. Maybe the first one, let's go back to the first question. Would you mind just going back to the factors that led to the decision to push it out? Could you provide more concrete aspects of what you expected to have done by now and what's delayed? I know Parag, you talked about scalability, reproducibility, consistency. So I guess it's all encompassed in that, but if there are any more granular metrics you can give us on that front? And then, related to that, when we think about the new timelines, is there like a checklist, if you will, that you could provide about any of the performance features, any of the reproducibility that we should be monitoring, so that as we get to Q2, Q3, and Q4, we can kind of say where you are on that checklist that gives people a pathway to confidence towards the launch?

Parag, once again, why don’t you take the first half of that question? And then once we get to some checklist and things to look for milestones on the journey, I'll take that part of the question.

Sure. Absolutely. When you ask about what we're looking at among the key areas that we've been focused on, particularly, the integration of all of those items together. As we approached the latter half of last year, we saw tremendous progress on the integration that allowed us to conduct larger-scale experiments than we had previously. Through those experiments, we look at specific elements, like whether we can make sufficient reagents of acceptable quality and consistency. These are not just for reagents, but also for flow cells. Are we able to ensure stability with our flow cells? These are very much factors that ensure when the product is in the hands of our customers, it is a reliable, robust measurement instrument. That’s the driver behind our decision-making—our desire for the platform to scale well enough to measure a significant number of proteins at the targeted sensitivity.

The second part of your question is about what milestones to think about. As you will see in what we present at the U.S. HUPO in the coming weeks, we are continuing our work with model proteins, evolving the scale of our assays, meaning more probes, more cycles, and decoding from simple mixtures. That work—once we reach the point of decoding proteins from complex biological samples like cell lysate—will be critical. Whether we decode 500, 1,000, 2,000 doesn't matter. The significant point will be that we are decoding proteins out of lysate, indicating all aspects of our system have come together. Our single molecule hyper-dense array, our multicycling assay, and that we have sufficient reagent supply. By the time we reach that milestone, we expect to have a significant number of reagents ready and more than halfway towards product launch. That milestone is key, and it’s important to track as we prepare for the launch of our early access program and begin discussions around timelines and specific launch specifications. We are not at that point yet, but I'm enthusiastic about the progress, particularly in the beginning of this year, and I’ll keep you updated as we progress through this year and closer to our anticipated 2025 launch.

Got it. So you're basically saying if you can hit the 500 consistently and reliably, that will serve as a clear bar for your readiness rather than focusing on whether it's 500 or 1,000 or 2,000?

That's right. If you think about our efforts over the last few years, we’ve worked tirelessly on refining our affinity reagent development, qualification, and screening processes, as well as scaling those efforts. Over the last several quarters, we have doubled our capabilities with respect to reagent development. So we entered the year with substantial bandwidth to build affinity reagents, and we continue to expand our qualification and screening capabilities. As we go through this process, we will begin to see an increasing number of proteins decoded from complex samples like cell lysate. By the time we showcase 500 proteins reliably, a significant number of reagents will have been developed and qualified, allowing us to then scale from 500 up to 1,000 and beyond. We have always demonstrated that there’s an exponential relationship between the number of probes we have and the number of proteins we can detect in complex biological samples. Unlike a traditional assay where five antibodies equal five detections, for us, once we present those 500, the majority of the work on the assay has already been done, and most affinity reagents will be in place.

Got it. And then maybe the final one. So the early access program would be in '24, right? Can you just clarify or reiterate the timeline ahead of the actual commercial launch? What should we expect?

Yes. As mentioned in our prepared remarks and in responses to questions today, we anticipate our full commercial launch in 2025. That means the instruments, reagents, and software will ship prior to that, approximately six, seven, or eight months ahead of that date will be the early access period. During this early access, customers will send us samples, we analyze them, and provide results. The goal is not just for generating data to publish and showcase to the scientific community, but also to build early pipeline activities and sales efforts that prepare for preorders of the platform when it launches in 2025. We currently do not have any more specificity on the start date of that early access program. Backing up from a launch timeline of 2025, you can estimate when that early access program will take place, which will include a few months where we accept orders for the samples.

Terrific. Thanks a lot.

And I'm showing no further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.