Earnings Call Transcript - NAUT Q1 2025

Operator, Operator

Good day, and thank you for standing by. Welcome to the Nautilus First Quarter 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Ji-Yon Yi, Investor Relations. Thank you.

Ji-Yon Yi, Investor Relations

Earlier today, Nautilus Biotechnology, Inc. released financial results for the quarter ended March 31, 2025. 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 email to investor relations at nautilus.bio. Joining me today from Nautilus Biotechnology, Inc. are Sujal Patel, cofounder and CEO, Parag Mallick, cofounder 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 statements in the press release Nautilus Biotechnology, Inc. issued today. Except as required by law, Nautilus Biotechnology, Inc. 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 on April 29, 2025. With that, I'll turn the call over to Sujal.

Sujal Patel, CEO

Thanks, Ji-Yon, and thank you all for joining us today. Q1 was a productive quarter for Nautilus Biotechnology, Inc. as we continued to advance our mission of unlocking the full potential of the proteome. We're making solid progress across many fronts as we work to bring uniquely valuable proteomic data to biomedical researchers across both modalities of our platform. Targeted proteoform detection, an area where we're making rapid advancements and we'll discuss extensively this morning, and broad scale discovery. The evolution of our broad scale development activities as we reported on in detail last call continues on schedule and in a way that we believe reduces technical risk while yielding the greatest possible platform performance ahead of the planned launch of our Broadscale product in late 2026. As you'll hear in more detail from Parag in a few moments, I was really pleased with the recent results of the internal verification and validation or VNV work we've done on our tau proteoform assay. The assay's reproducibility, accuracy, dynamic range, and sample compatibility align closely with our anticipated launch specifications and with the requirements we continue to hear from potential customers and partners. As I mentioned previously, a major goal in the first half of 2025 is to provide leading researchers with access to our platform for tau-related proteoform studies. We're confident that 2025 will be the year that researchers begin to apply the platform's capabilities to ask and answer important questions about the role of tau proteoforms in Alzheimer's disease and other neurodegenerative diseases. To that point, we continue to hear enthusiastic expressions of interest from customers and partners in our TAO capabilities in particular, and targeted proteoform detection more broadly in both public and private contexts. For example, a recent article quoted a well-known East Coast researcher speaking about the Nautilus Biotechnology, Inc. platform as follows. I think this is just the beginning of really understanding what these different TAU molecules are. The excitement for us is that with Nautilus Biotechnology, Inc., we're seeing this at the single molecule resolution. Going down the road, as they add to that collection of antibodies, that increased complexity will tell us even more about how tau is modified and what the consequences of those modifications could be. On a related note, in Q1, we undertook a series of in-depth interviews with more than thirty proteomics researchers across academia, pharma, and nonprofits with the goal of more fully understanding and identifying the defining characteristics of our potential customer segments, and the drivers of adoption across a number of dimensions. Demographics, research focus, maturity, objectives, expectations, lab characteristics, financial, and organizational considerations. Through these conversations, we validated that there continues to be significant interest in both the targeted proteome and broad scale discovery capabilities of our platform. These researchers were particularly consistent in their belief that their inability to accurately quantify proteoforms in a reproducible manner is a major inhibitor to future biological advancements. Customer after customer spoke of their current frustrations and how the Nautilus Biotechnology, Inc. platform could be a new way to ensure a more detailed and accurate understanding of protein modifications. They were then able to draw a straight line between that better understanding and advances in targeted therapeutic development. Recent preliminary partnership-related conversations with several large pharma companies, academia, well-known nonprofit research organizations, and governmental entities also indicate significant interest in targeted proteoform analysis for a wide range of use cases including drug targeting and drug discovery efforts. We look forward to continuing and formalizing those relationships and we'll keep you apprised as we continue to move down the partnership path. Needless to say, the experimental findings from our internal V and D work and results of which we hope to submit for publication in the coming months, and the extremely positive feedback coming from external sources such as those I've just mentioned, has created great anticipation about the potential positive impact our targeted proteome capabilities may have on Alzheimer's disease and other neurodegenerative diseases and beyond. For a more detailed update on this and our other R and D efforts, let me turn the call over to Parag.

Parag Mallick, Chief Scientist

Thanks, and good morning, all. As Sujal shared, in Q1, we made excellent progress against our development goals on our core platform, tau proteoform assay, and broadscale proteome assay. This quarter in particular saw significant progress on transitioning both our TAU assay and core platform towards readiness for larger scale application to enable our partners to ask and answer important biological questions. This readiness was evaluated using a rigorous verification and validation VNV process of the tau proteoform assay that has run on the latest generation of our instrument. We additionally performed a number of pilot biological studies with the platform including our first ever analysis comparing samples from brains of patients with Alzheimer's disease to control samples. I'd also like to note that the extensive foundational work we have put into reliability, reproducibility, and scale across every component of our platform from reagents to software over the past several years bore fruit that was clearly demonstrated in our VNB. Also, as a reminder, the instrument that was used in this TAU assay VNB is the same instrument used for the broad scale proteome assay. The only differences between the targeted proteoform assay and the broad scale proteome assay are the consumables. Consequently, though focused on the tau assay, this VNB was in no small part a significant validation of our entire platform. Our verification and validation evaluation looked at a number of key customer and product requirements. Specifically, from customer feedback, it was clear that customers prioritize reproducibility, accuracy, dynamic range, number of proteoforms measured, sample compatibility, sample input requirements, turnaround time, and reliability. The assay exceeded expectations on all criteria and is ready for broader application. Below, I will describe some of the key criteria and observed performance in greater detail. The tested assay included twelve distinct affinity regimens targeting a range of locations, isoforms, or position-specific post-translational modifications of TAU, giving a theoretical maximum of four thousand ninety-six proteoforms. To estimate key figures of merit, such as accuracy and reproducibility, sets of recombinant protein representing a range of proteoforms mixed into a background substrate such as cell lysate in varied ratios were used. Based upon customer feedback, we had set a target accuracy to have percent errors less than thirty percent. We observed that across all runs, our median percent error was approximately ten percent, exceeding our target by a factor of three. For reproducibility, we set our target as measured by coefficient of variation to be better than twenty percent. We examined different types of reproducibility, including between lanes, between runs on the same instrument, between instruments, between flow cell lots, between reagent lots, between sample preparations with the same operator, and between sample preparations with different operators. We note that such extensive testing affirms our steadfast commitment to an incredibly rigorous process to ensure that we will be generating extremely high-quality data for our customers. We significantly exceeded our reproducibility targets. For example, our observed across lane median CV was one point five percent. Likewise, our median CV across library preparation replicates was one point seven percent, more than fifteen times better than our targets. We've heard extensively from our customers about the importance of reproducibility to them for a number of reasons. The primary driver of customer demand for high reproducibility is that it is generally perceived as an indicator of high quality, reliable data. In addition, it enables customers to expand the size of their cohorts, rather than spending valuable runs on technical replicates. Furthermore, low CVs make it possible to observe in a statistically significant manner small but important biological differences. Reproducibility, particularly across operators and instruments, is critical when generating datasets for training AI. One of the key differentiators of our platform is its dynamic range. While you will often hear people talk about across analyte dynamic range, such as the ability to measure both high abundance proteins alongside low abundance proteins, within analyte dynamic range is often more important. Within analyte dynamic range describes the ability to measure a given analyte accurately across a range of concentrations. For example, if an analyte has a hundred-fold difference between samples, can you accurately measure that hundred-fold difference, or does it instead appear to be solely a factor of five? This sort of compression occurs within TMT-based mass spectrometry studies. The consequence of this is that large biologically impactful differences in abundance cannot be accurately measured, leading to effect sizes that are inaccurately compressed and thereby missing important biology. Additionally, on the low end, small changes in abundance may not be well quantified, obscuring researchers' ability to find important biological differences. During our testing, we observed within analyte dynamic range exceeding four orders of magnitude on our platform. This was well beyond our expectations, and several orders of magnitude better than current methods. As remarkable as this early dynamic range is, we anticipate significant advancements as we continue to mature and evolve the assay. Regarding sample compatibility and input, we applied the assay to a human cell line, iPSCs, organoids, humanized mouse brain, and to human brain samples. We demonstrated excellent data quality across this wide range of sample types. Regarding sample amount, the assay was shown to be performant with as little as ten micrograms total protein input that contained point zero three percent tau. Lastly, I'll note that performing a VNB study on this scale required a massive number of instrument runs, which allowed us to evaluate factors such as instrument and software reliability as well. The instrument software was highly performant, with reliability well above our target of eighty percent. Through the process, we also significantly accelerated and matured both the instrument control software and the data analysis pipeline software. This result speaks to the increasing maturity and readiness of what will be our core commercial platform. These results will enable us to provide clear guidance around performance specifications for our TAU proteoform assay and to engage in significant partnerships in drug and biomarker development. As part of such a partnership, we performed our first pilot study of human Alzheimer's disease brain, The proteome landscape of AD, Alzheimer's disease, has become of increasing interest given the recent attention drawn to tau p two seventeen serum assays and their potential for improving AD diagnosis. Furthermore, the field has generally hypothesized about the importance of hyperphosphorylation of tau, a critical aspect of disease progression, but how that hyperphosphorylation manifests as a single phosphorylation on a significant portion of tau molecules or instead as combinations of many modifications is not widely known. It is anticipated that the order and timing of multiple phosphorylation could generate a unique PTM code that could help us better define the most critical drug targets for AD as well as provide biomarkers that can be used not just for diagnosis, but also for prognosis and as a biomarker companion stratifying patients who may respond to a given therapy. This study, though very early, is already showing an intriguing new look at AD. In particular, our analysis of the proteoform landscape of a patient with extremely aggressive disease showed the distinctive presence of molecules that demonstrated a more complex phosphorylation pattern than has ever been reported. A result not achievable on any other platform. With the conclusion of our VNB, we look forward to continuing to support our partners in their efforts to make significant progress in combating neurodegenerative disease. We anticipate submitting a manuscript summarizing our VNV and biological pilot work this quarter. Moving on to our broad scale efforts, we reported that we would be optimizing our assay configuration to better align with the characteristics of our probe library. These optimizations include the fluorescent labels used within our platform, the chemistry used to attach probes to these labels, the chip surfaces themselves to maximize specific binding, and the buffers used during binding and measurement. Q1 saw steady progress on improving our broadscale assay configuration. The recent data on the evolved configurations continues to be promising. This progress represents a critical step on the path to achieving the milestone of quantifying a significant number of proteins from a complex sample like cell lysate. With that, I'll turn the call back to Sujal.

Sujal Patel, CEO

Thanks for the update, Parag. As you've heard me say on previous calls, to deliver a range of long discussed and long desired improvements in human health, we believe biomedical research needs a dramatic acceleration in target identification and therapeutic development. Based on the results Parag just reviewed and a range of our other current development efforts, we continue to make good progress pioneering a fundamentally new approach that holds the potential to overcome the limitations of mass spec and peptide sequencing-based analysis methods. In doing so, we anticipate unlocking the value of the proteome both in targeted proteome analysis and broad scale discovery. Something we continue to view as one of the most significant untapped opportunities in biology today. For a report on our finances, let me now hand the call over to Anna.

Anna Mowry, CFO

Thanks, Sujal. Total operating expenses for the first quarter of 2025 were $18.8 million, a 13% decrease compared to $21.6 million in the first quarter of 2024. Year over year decline reflects our continued focus on disciplined execution and cost efficiency across the organization. We are also benefiting from the absence of nonrecurring costs incurred in the first quarter of 2024 as well as reductions in stock compensation and normal variability in timing of research and development spend this quarter. Research and development expenses for the first quarter of 2025 were $11.5 million compared to $12.9 million in the prior year period. General and administrative expenses were $7.3 million in Q1 2025, compared to $8.7 million in the prior year period. Overall, the net loss for the first quarter of 2025 was $16.6 million compared to $18.7 million in the prior year period. As mentioned in our last call, we anticipate the launch of our platform in late 2026. To ensure our cash runway extends well beyond that point, we made the decision earlier this year to reduce our headcount by approximately 16%, impacting all areas of the business. We recorded limited one-time costs associated with this reduction in Q1 and I expect to see the majority of the benefit reflected in our operating expenses over the coming quarters. That benefit will allow us to invest in additional development activities while keeping our expenses relatively flat in the coming quarters. We continue to expect our total operating expenses for fiscal year 2025 to be below 2024 levels, while still allowing us to focus our resources on key development milestones and strategic priorities. Turning to our balance sheet, we ended the quarter with approximately $193 million in cash, cash equivalents, and investments compared to $206 million at the end of 2024. With our more streamlined cost structure, we continue to project that our cash runway will extend through 2027. With that, I'll turn it back to Sujal.

Sujal Patel, CEO

Thanks, Anna. At Nautilus Biotechnology, Inc., we're building something fundamentally new. A first of its kind platform that can enable large scale protein measurement in a way that has never before been possible. This revolutionary innovation carries its share of challenges, but we're making solid progress. And quarter by quarter, we're getting closer to making our vision a reality. I'm grateful to our team, our partners, and our shareholders for their continued support as we work to bring this potentially game-changing innovation to the biomedical research community. With that, I'm happy to open the call up for questions. Operator?

Operator, Operator

Thank you. At this time, we will conduct a question and answer session. One one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by as we compile the Q and A roster. And our first question comes from Yuko Oku with Morgan Stanley. Your line is open.

Yuko Oku, Analyst

Hi. This is Jason on for Yuko. Thank you for taking our questions. So just to start off, last quarter you talked about a goal of signing at least one tau-related partnership in the first half of 2025 as one of the milestones you've tracked your progress. So could you just provide some color around discussions that are ongoing? Do you still remain on track to announce a partnership in the upcoming months? Thank you.

Sujal Patel, CEO

Yeah. Thanks for the question. Now this is Sujal. I'll take that one. Yeah. So on the last call, what we said was that one of the progress milestones that we expect in respect to our tau efforts was to sign a first partnership on these new capabilities in the first half of the year. Conversations with partners continue to go very well, and we have a number of partnerships and collaborations that we're discussing both with organizations in the pharma world as well as with organizations in the nonprofit and academic research worlds. We continue to know that in the first half of the year, we'll sign an initial partnership and we expect that as we move through the year, we'll continue to make progress based on some really interesting conversations that are going on. I think that, in terms of what type of partnership we'll sign first, I'm not sure, but my guess is that we'll sign one on the nonprofit and academic research side first, as it takes a while for pharma to really see what the capabilities are given that this is a brand new capability that has never been seen before, and we haven't yet published any of that data. I'd say it's going to take a bit longer on that side. But in terms of excitement in both market segments, we're seeing a lot of excitement regarding the capabilities that we have. We're also seeing a lot of interest from these potential collaborators and partners to think about other biomarkers outside of TAO as well. We're trying to figure out what our roadmap is going to look like and how we're going to pursue these sales as we move through the year.

Yuko Oku, Analyst

Great. Thanks. And if I may ask a follow-up, tariffs have been very topical. So with the recent tariff issues with the US administration, can you talk about your supply chain exposure, especially in relation to China, and your flexibility in sourcing locally? And just given there are some time before you launch commercially in late 2026, are there any plans to source more of your manufacturing locally? Thank you.

Anna Mowry, CFO

Hi there. This is Anna. I can definitely give you a little bit more color there. As you might imagine, this is something we're monitoring very closely. We haven't yet seen any effects in our ability to source our materials and components. We haven't seen any change in our prices. With that being said, I think we have the ability to mitigate this somewhat because we source from a variety of locations including the US, and in the event that we need to adjust or prioritize as needed, our priority will be to ensure that we can continue to get what we need within the spending targets that we anticipated. At this point, the scale of what we are building we aren't expecting huge requirements that would be impacted by the tariffs we're seeing today.

Yuko Oku, Analyst

Thanks. Appreciate the answers.

Operator, Operator

Standby for our next question. And our next question comes from Matthew Sykes with Goldman Sachs.

Matthew Sykes, Analyst

Hi. This is Evan from Matt. Thanks for taking my questions. What are the economics of the targeted protein proteoform partnerships? And are there any revenues or costs associated with them that we should be expecting?

Sujal Patel, CEO

Good morning, Evan. This is Sujal. I think that we are still looking at a fairly wide range of potential business models for both TAU and other future proteoforms. Those business models can span from a panel that we run as a service and it's on a price list all the way through engagements with partners where we work together on joint development related to the asset on TAU. Then on the other end of the spectrum, there are some partners who are interested in thinking about how we could create a whole new assay with their antibodies with a different target. What we're doing is spending time prioritizing based on our resources and areas where we want to go, how we want to pursue the various potential options within that range. As this technology matures over the next year, year and a half, two years, we expect to see more productization and getting it on the price list so that it's more accessible to the customer base. But today, each of these engagements is being considered as a one-off as we're learning. What we're trying to prioritize when we think about 2025 is not revenue and gross profit, but rather working with partners where we can jointly demonstrate the significant power of being able to measure complete intact protein proteoforms, and do it in a way that is scalable and highly reproducible. When we think about the partnerships that we want to sign, the example I mentioned that we expect to sign in the first half really is about demonstration right now and showing what's possible when you're able to measure full proteoforms at single molecule resolution. So with that, there isn't a lot of focus for us on revenue and we don't model revenue right now.

Matthew Sykes, Analyst

Okay. That's super helpful. And then you mentioned new developments in the labeling approaches starting last quarter. Could you talk through how those helped you get probes platform ready? And then any additional color you can give us on key development targets you expect to meet over the next several quarters?

Parag Mallick, Chief Scientist

Sure. This is Parag. I'll take this one. Our main goal, as we mentioned before, was in two areas. One was that we wanted to update the configuration of the platform to better match with the probe characteristics that we had. Our progress in Q1 was very much as expected. We're on track there, and we started performing basic experiments with the new assay and configurations. This is the sort of change that takes a couple of quarters to work through. As we move through the year, we'll definitely provide updates there. But generally, what the targets are, you should think about expanding the range of decoding to increasingly complex samples starting with tens of proteins and then decoding small portions of lysates, fractions of lysates, and ultimately full lysates. Ultimately, as I mentioned in the prepared remarks, the changing configuration is really limited to the consumables.

Operator, Operator

One moment for our next question. And our next question comes from Subbu Nambi with Guggenheim Securities. Hi, guys. It's Thomas on for Subbu. Thanks for taking our questions. I guess just to follow up on partnership interest, what milestones are still left for converting partnership interest? I guess, put another way, what are the main factors you're hearing from potential partners causing them to remain on the sidelines at this point?

Sujal Patel, CEO

Let me kind of walk through what the anatomy of an engagement looks like. The first step with partners and potential collaborators, whether they're pharma or academic institutions, is to really explain how our assay works, what capabilities we are able to bring to the table, and really evangelize why measuring entire intact proteoforms is important and necessary. One of the things about any brand new technology or method is that it takes a little bit of time for people to get the light bulb turned on because they never envisioned that you could measure proteoforms like we can. Step one in these engagements is really about education. Once they understand the power of it, we investigate where the programs and activities are going on, what are the areas of research they want to focus on, and how does it intersect with our desires. From there, it moves more towards the nuts and bolts. How many samples are available? What's the work we're trying to do? How much of the cost are they willing to help cover? Those sorts of details. I would say that the conversations indicate universality of excitement across all of the customers. No one wants to sit on the sidelines, but everyone has a different pace that's going on, particularly in pharma. The pace is a little slower right now. There is a lot of turmoil in the external markets. There's a lot of questions about different therapeutic programs, and different capabilities and areas of focus for each of them. We're working through and navigating that process now. What I would say is that while we enter Q2, we have a number of conversations in process. Many of the conversations are still in those early exploratory phases as we're trying to figure out who we want to partner with, given our limited capacity and bandwidth, with the goal of being able to demonstrate to the world with the greatest clarity what the power of this technology is. So that's the phases that we're at now. Hopefully, that's helpful.

Subbu Nambi, Analyst

Great. That's helpful. And then separately, do you think there's any blind spots still at this point that could impact commercial launch?

Parag Mallick, Chief Scientist

Yeah. I don't believe so. I think we understand the work that's in front of us, and we are executing efficiently to get through that work. As I noted before, part of that work is a ramp of demonstrating capabilities. We look forward to sharing those at the upcoming meetings, for example, at the Human Proteomics Organization meeting in Toronto this year, as well as through forthcoming publication submissions. One other point I'll just mention is that one of the key reasons that it was so important for us to go through this verification and validation process with our TAU assay was because it's the same core platform. It's the same immobilization of individual molecules. It's the same way that you flow in regions and detect, and much of the software stack is identical. Successfully getting through that and, frankly, exceeding on targets there gave us a tremendous amount of confidence in the end-to-end platform.

Sujal Patel, CEO

Thank you, Parag. The one thing I will also add is that when you think about the factors that play into a successful commercial launch, having a product that is highly reliable with low CVs, and that does what it's supposed to do are all critical. Another critical factor is the product's position in the marketplace and the customer excitement. On our earnings calls, you've heard me talk about in the past that Nautilus Biotechnology, Inc. is a company that does a lot of customer research, spends time with hundreds of customers, and really understands the market requirements: how they think about our products, our price point, what types of ramps they would expect to see in consumables. We spend a lot of time with customers. In Q1, we embarked on a study to go and engage about thirty or thirty-five new customers who did not know Nautilus prior and conduct in-depth conversations with the goal of continuing to reinforce our competitive differentiation and our price point as we head into a 2026 launch. Particularly in light of the fact that given our delay, markets have shifted a little. From the very early feedback that I've heard from those conversations, I can tell you that our value proposition is resonating as strong as it ever has, or even stronger. The thing that has changed since the last time we went and did formal customer interviews and research is that we're telling a more balanced story now—both about broad scale proteomics and about measuring proteoforms at scale, all within the same platform. From what I'm seeing from the data, the product excitement, the price point, and its capabilities are all squarely in the sweet spot for what customers are looking for. I think that, combined with getting the right product into the market will give us, when we get to the broad scale launches, a blockbuster product, which is what we've expected for a long time.

Operator, Operator

I'm showing no further questions at this time. So this does conclude the question and answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.