Welcome to Twist Bioscience Fiscal 2020 Second Quarter Financial Results Conference Call. At this time, all participant lines are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. 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's conference call to review our fiscal 2020 second quarter financial results and business progress. We did issue our financial results earlier today, which are available on 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's 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 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 on 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 are all safe and healthy at this time. The global pandemic has transformed our lives substantially since our last call in February. At Twist, even before the state of California called for a shelter-in-place order, we quickly transitioned a moderate number of employees to working from home. We wanted to ensure that our production workers had the option of working from home to stay safe and healthy, while still being able to deliver our products to customers 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. Orders for the current quarter are strong, opportunity on par with the previous quarter at $24.6 million, resulting in a booking rate of about $16 million for the first six months of fiscal 2020. For the first time, we reported 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 share. Turning to specific results for Synbio, we shipped more than 88,000 genes during the second quarter. Additionally, we added two new synthesizers to our capacity and continued with improving our turnaround time. Our Synbio revenue includes genes and five months of development for companies working on vaccines and therapeutics against COVID-19. Therefore, we cannot accurately break that revenue out technically at this time. We've recorded a total of $11 million in Synbio revenue, with $4 million of that coming from Ginkgo, which has made a substantial commitment in the fight against COVID-19 and is facilitating significant research. This is a very strong quarter for Synbio. We also see the shelter-in-place order impacting our academic customers significantly. We have launched a new campaign where customers can order DNA now, as they are able to contribute to the design portion of the design/build/sales cycle from home. When the lab reopens, we will ship the products to them immediately. Balancing out the reduction in academic revenue, we see an increase in orders from biotechnology and pharmaceutical companies ramping up their efforts to fight COVID-19 through vaccine and therapeutic development. Overall, Synbio orders remain strong at $14.1 million as those larger accounts remain open for essential research. While we are optimistic about the future, we are closely monitoring the situation as well as across our customer base in all regions. We are on schedule and as planned, which was much more challenging during the pandemic. In mid-April, we launched a new product for larger-scale DNA solutions to customers who need assistance. These products are an extended offering of our Twist Clonal Genes and are the preferred format for pharma and biotech companies, therefore expanding our addressable market. This extension of our Clonal Genes offering enables Twist to become more of a one-stop shop for pharmaceutical and biotechnology research companies. Additionally, we are exploring different market opportunities to pursue and address parts of the market that have specific needs, such as customers that require fewer genes at a time, compared to larger orders. We remain on track to launch our Clonal-Ready gene fragments in the second half of calendar 2020. Both the new preparations and the Clonal-Ready gene fragments target two distinct segments of the market that we do not serve well today, and we believe that over time, they will represent substantial areas of growth for the Synbio segment. For Genomics and Targeted NGS, at the end of the second quarter, we introduced two new products to facilitate COVID-19 testing and monitoring of viral evolution. We introduced SARS-CoV-2 synthetic RNA reference sequences, which can be used as a positive control for the development, validation, and verification of diagnostic assays, as well as in testing. These reference sequences are also posted on the FDA's website within the reference materials for SARS-CoV-2. We also launched a target enrichment panel for viral detection and characterization of samples for SARS-CoV-2, which can be used for environmental monitoring and surveillance testing, while providing insight into full sequence information to track viral evolution and strain origin. These new product offerings are a perfect illustration of what Twist does well. When presented with a new challenge like this global pandemic, we leverage our core strengths to address these problems. We were able to launch these products in just a few weeks, utilizing our existing facilities and also responding to emerging global concerns. These products were only available for two weeks at the end of the quarter, and in that time, we recorded approximately $400,000 in revenue and shipped to 231 customers. We are grateful to be in a position where we are able to help the global effort to combat this virus while the business remains healthy. This is a tremendous testament to the hard work and dedication of our employees across the organization. For our overall NGS product, we reported revenues of $7.7 million, an increase of 38% year-over-year, with strong orders of $9.8 million. We had another six customers adopt our products this quarter for a total of 43. During the quarter, one of our customers published results of their liquid biopsy products, which include our customized target enrichment panel that has demonstrated the ability to detect more than 50 types of cancer across all stages with a positive rate of less than 1% through a single blood draw. These data from more than 15,000 participants are extremely impressive and represent a pivotal advancement in liquid biopsy technology. As we all know, the ability to identify cancer early remains critical to effective treatment. We are thrilled to play a role in this potential pivotal shift in cancer diagnosis. To address the large liquid biopsy market, we introduced a Targeted Methylation Sequencing solution during the 2020 AGBT meeting in February. This product is ideal for customers focused on liquid biopsy, as it can be used to study methylation pattern changes in a wide range of research fields. For those not familiar with methylation, the addition and subtraction of a methyl group changes what proteins are made in the cell, which has significant implications for cancer, epigenetics, and non-invasive prenatal testing. We are working with initial customers and believe it represents an important area of growth for NGS solutions. Turning to our vertical market opportunities, in addition to our collaboration to supply synthesized genes and antibodies for Vanderbilt, Twist Biopharma is working with them to provide custom antibody drug discovery libraries and screening these libraries for potential antibody therapeutics that would treat patients with COVID-19. In March, as the global pandemic was rapidly gaining traction, we leveraged our robust laboratory and 50 antibody discovery libraries, each containing more than 10 billion antibody sequences, to identify antibody candidates for the treatment of SARS-CoV-2. We have identified key competitive antibodies that bind to the receptor-binding domain of the S1 protein on the SARS-CoV-2 virus. Additionally, we have identified a series of antibodies that bind to the extracellular domain of ACE2 in human cells. As a reminder, ACE2 is the receptor that SARS-CoV-2 binds to in order to enter human cells. The fact that we were able to go from publicly available reference sequences to competitive antibodies for two different targets in a matter of six weeks demonstrates the power of our biopharma platform, and something that we believe we can repeat for other targets. Apart from our biopharma work against COVID-19, we continue our discussions with many potential partners and are pleased to report that we have signed a partnership with an undisclosed party that includes milestones and royalties, and we look forward to announcing additional deals. As a result, we reported $600,000 in revenue for our biopharma division this quarter. While we expect orders and revenues to be variable, we look forward to seeing patterns of increase as we continue to derive value from this growing market opportunity, despite near-term uncertainties attributed to the COVID-19 pandemic. As we generate additional data and validation for our internally generated targets, we expect to move along the spectrum to being a value-added pharma partner, rather than just a reagent provider. We do expect this will take time, but we are encouraged by the progress we are seeing today. As we shared last quarter, we will not provide an update on data storage due to the lengthy time it takes for the silicon design, build, and test cycle. However, we can say that we have added an additional frontier to drive this important product for all. We're extremely fortunate at Twist to have attracted and retained resilient employees, who are inspired by our mission to improve health and sustainability. We are being tested in the last three months and the challenge continues. I am pleased with the company's response to the global pandemic while also serving our customers in many other important areas of research. At this time, I'd like to turn the call over to Jim to review our financial results for the quarter.

All right. Thank you, Emily. Our results for quarter two were strong and demonstrated our business model's effectiveness in an extremely challenging environment. Revenue was $19.3 million, representing a 42% growth year-over-year and a 12% sequential growth from $17.2 million in the previous quarter. Our gross margin for the quarter was 29.7%, compared to approximately 13% in the same quarter last year and up from 20% in quarter one. This reflects the benefits 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 continued to strengthen our balance sheet with approximately $190 million from a follow-on offering, as well as at-the-market offerings. Additionally, we would like to thank our customers, suppliers, and our incredible team for their loyalty, dedication, and commitment during these challenging times. Our operations, R&D, logistics, and supply chain teams have been adjusting to launch new products aimed at combating the virus. The commercial team executed well, achieving $24.6 million in orders in the quarter, which includes approximately $10 million of orders in March, a challenging month as many geographies implemented shelter-in-place orders. Our Ginkgo business is doing well, contributing $4 million of revenue in the quarter. We continue to build our broader customer base, nearing 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. They contributed approximately $400,000 in revenue, and our biopharma antibody products continue to gain traction with orders totaling about $700,000 and revenue of $600,000. Now I'll provide more detail on our orders in the quarter. Breaking down our orders of $24.6 million, for the year we have now booked almost $50 million, specifically $49.4 million, representing approximately 55% year-over-year growth over the first six months of 2019. Our Synbio orders, defined as genes, libraries, and Oligo Pools in quarter two totaled $14.1 million. This includes Ginkgo orders of $3 million. Our genes business is performing extremely well with orders of $11.3 million in the quarter and year-to-date orders of nearly $21 million, specifically $20.8 million, which is 42% year-over-year growth, primarily from the EMEA and U.S. markets. NGS orders, or Genomics products, booked approximately $9.8 million in orders in the quarter, bringing year-to-date orders to $21.6 million for NGS. Although Q2 was lower than Q1, we anticipate fluctuations quarter-to-quarter. We received orders from 357 accounts in the quarter, up from approximately 250 in quarter one. Even in these uncertain times, the pipeline for our largest NGS opportunities continues to scale, and we are now tracking 113 customers progressing through the pilot validation and adoption phases with 43 adopting, up from 37, and a total of 17 pilots in validation. We are encouraged by what we are seeing in these uncertain and challenging times. Our biopharma antibody discovery products are also scaling, and we continue to build the pipeline with bookings of approximately $700,000. In terms of our global expansion progress, EMEA is doing well with bookings of almost $9 million, which includes approximately $4.4 million from NGS with solid orders across industrial biotech, academic, and pharma segments in EMEA, and we have nearly reached about 600 customers in that region. APAC bookings were $1 million and, as we expected, were impacted by COVID. We observed a weak January and February, followed by a strong recovery in March. Americas orders for quarter two were approximately $15 million, with $9 million in Synbio, $5 million in NGS, and biopharma orders totaling about $700,000. Please note we've provided this order information for trend analysis and not to directly translate into revenue for the following quarter. Additionally, in an uncertain business and economic environment like the one we are in today, it is possible that these orders will not convert into revenue. While we feel our orders are firm, we are closely monitoring the situation to ensure we're poised to react to any changing market conditions. Now, let me address our revenue. NGS product revenue for the quarter was $7.7 million, showing 10% sequential growth and year-over-year growth of approximately 58%. This brings our year-to-date NGS revenue to $14.7 million, which shows a 57% growth from last year. As noted, we continue to expand our customer base, having shipped to approximately 340 customers, compared to 190 in the previous quarter. Our Synbio product revenue was $11 million, up from approximately $10 million in the first quarter, leading to a first half total of $21 million, compared to $15.7 million in the same period of fiscal 2019. This signifies a 33% year-over-year growth. Our genes business continues to perform well, reporting quarterly revenue of $9.1 million, representing 50% growth year-over-year and 16% sequential growth. Although March was challenging, we shipped 32,000 genes that month, and for the quarter, we shipped 88,000 genes, a rise from 80,000 in the previous quarter. Notably, longer genes accounted for approximately 50% of our gene revenue in the quarter. Our biopharma antibody product revenue was $600,000 for the quarter, and we are making progress in building our pipeline. I will briefly touch on geography. EMEA revenue totaled $6 million, bringing EMEA revenue for the first half of the year to $12 million, compared to just under $6 million in the same period last year. APAC revenue for the quarter declined as expected to $0.9 million, compared to $1.2 million in the first quarter. However, APAC revenue for the first half of this year was doubled from last year, at $2.2 million for the first half of 2020 versus $1.1 million for the first half of 2019. In terms of segment revenue, our largest segments were industrial chemicals at $7.5 million, followed by healthcare at $5.8 million and academic at $5.5 million. Moving down to our P&L, gross margins continue to improve as we scale our business, and I am excited to announce that we achieved a gross margin of 29.7%, nearly 30% in quarter two. This includes about $300,000 in stock-based compensation for the quarter and approximately $100,000 for shelter-in-place compensation for our operations employees. Our operating expenses, excluding the cost of revenues for the second quarter, rose to approximately $37.8 million compared to $36.9 million in the first quarter. R&D expense was $10.6 million compared to $10.3 million in the first quarter, and SG&A increased to $27.2 million in the second quarter, reflecting additional commercial costs, mainly in marketing and stock-based compensation of $600,000. Our net loss for the second quarter was $31.8 million. In summary, the quarter ended with $230 million in cash. We have validated our business model through strong revenue growth, with gross margins approaching 30%. We are focused on aggressive growth strategies; however, given the evolving environment, we believe it is prudent to withdraw our fiscal 2020 financial guidance. With that, I will now turn the call back over to Emily.

Thank you, Jim. As Jim noted, we have had a strong first half, and now we are monitoring business conditions and the impact of COVID-19 on our customers. While COVID-19 has affected our business, it has neither been a boon nor a burden to our operations. We see a positive impact of COVID-19 reflected in the resilience of our employees and our new 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 plans. Looking ahead for Synbio, we expect continued revenue growth and customer diversification. We expect to expand our offering for both pharmaceutical companies and the long therapeutic market. For NGS, we expect to broaden our customer base by offering new products that expand our infectious disease offering over time. We remain focused on pursuing new market opportunities, including liquid biopsy, while introducing solutions for organizations currently using outdated methods. For biopharma, we plan to continue advancing our internally generated competitive antibody candidates and securing additional revenues through partnerships. We remain on track to sign between five and ten collaborations, some of which include milestones and royalties. With that, let's open up the call for questions. Operator?

Thank you. 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. Is it fair to assume that customer activity was most resilient among traditional clinical activities and COVID-related applications, maybe less so in Synbio customers? How has this evolved over the past few weeks, and were there any stocking behaviors late in Q2?

Jim, would you like to take this question?

Yes. Obviously, I can't comment on what's happened in April. Over the last quarter, we were actually very surprised—our bookings were strong as we exited March, with large orders from some diagnostic companies. Overall in Asia, we saw a bounce back in China. Right now, while our business remains strong, there's a lot of uncertainty about how customers are going to ramp up in the next six to eight weeks as they return to work. However, many of the large pharmaceutical companies are still operational. At Twist, we implemented shelter-in-place policies, and our operations staff and R&D teams are working. We're continuing to receive sequences from our customers, and we thought it was prudent to withdraw our guidance. At the same time, the business is performing really well, which speaks to our platform's strength, as we are able to innovate and launch COVID products. We are seeing a lot of demand for these products, with about $400,000 in revenue from their launch in mid-March, so overall we are very encouraged.

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

If you're asking about the primers for RT-PCR tests, we are not. However, we are supplying our synthetic RNA control for several companies developing the RT-PCR tests and users running RT-PCR tests in routine mode. This is a very innovative product we launched in mid-March, and we’re quite proud to be among the few offering a full synthetic RNA control. We are also providing kits for NGS sequencing to help track how the virus evolves. Demand for our NGS kits is not as prevalent as for RT-PCR mostly because NGS takes a bit longer. However, tracking viral evolution over months and across regions is crucial, as it may inform vaccine development and contribute to decisions about shelter-in-place orders.

Got it. That's helpful. It is commendable that you have successfully launched several COVID-related products and are helping the wider community, and I genuinely appreciate that. My next question is about the gross margin. They were impressive this quarter. Were there any one-time dynamics that we should be mindful of, and how should we think about sustainability considering there was fixed cost leverage and probable volume fluctuations?

It’s hard to comment on the future. What I can say is that over the last year and a half, we've discussed the leverage in our business model. We are pleased to report that with $19.3 million in revenue, our gross margin reached approximately 30%, consistent with our long-term discussions about where the business is headed. As revenue increases, we expect to continue leveraging our fixed costs. We brought two new synthesizers online this quarter that helped us scale the business, allowing us to deliver 32,000 genes last month. We aim to remain strong for next year, and achieving a 30% gross margin on $19.3 million in revenue reflects confident performance.

Got it. A patent was issued just recently related to de novo synthesized gene libraries. Can you provide any insights on the issued claims, and does this patent provide you with a significant competitive moat?

Yes, we continue to invest in our patent portfolio, as we strongly believe in patents as one of our moats. The innovations that enable us to deliver synthesis solutions represent another moat. Competing with Twist means you have to meet where we are headed in the next three years, not just where we are today. This particular patent is broad and adds to our protection. Additionally, we expect to have more patents coming out this year.

Indeed, we have 180 patents pending. Our team has been incredibly innovative and focused on strengthening our patent portfolio.

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

Hey, guys. Thanks for taking the questions. Could you clarify how much of the $600,000 in biopharma revenue came from the new partnership versus existing biopharma customers?

That revenue comes from existing biopharma customers. We recognized revenue from about four to five customers this last quarter. We are building our portfolio but do not release names.

I wanted to check on the COVID antibodies you mentioned. Can you update us on the development stage, what kind of partners you are seeking, and when we might expect some benefits?

Thank you for the question, Luke. We're quite excited about our development efforts. We started late—at the end of March—when we recognized the escalating issue. We have fully human antibody libraries and, leveraging our high-throughput synthesis and screening capabilities, we found several strong binders against the S1 protein of the coronavirus and against the human receptor ACE2 within just six weeks. We have numerous leads in each category and are looking for partners to either license or collaborate with us. We're currently characterizing these antibodies, and while we have solid binding data, we are still working on virus neutralization assays. Our platform excels in hard-to-drug targets, and we are positioned advantageously to leverage that.

Thank you for that. You mentioned that the NGS side added six more customers in production; could you provide insights on applications, any regional changes, and how orders and revenue trended during the COVID shutdown?

I can't comment specifically about BGI, but I can share that overall in Asia, particularly in China, orders were weak in January and February, followed by a strong bounce-back in March. In regards to new customers, we have seen additional orders from both Asia and the U.S., and we are excited about interesting developments characterizing a solid pipeline as we add more customers. In the first half, revenue from adopted customers reached approximately $8 million, so we are satisfied with our growth as we scale NGS.

Thanks for the valuable insights. I'll follow up offline regarding expanded biopharma partnerships.

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

Hey, this is Elaine Lyon on for Tycho. Thanks for taking our questions. In light of the pandemic, could you discuss how it may impact the conversion of your order book or backlog? Can you describe the current mix of your backlog and which pieces may be quicker to burn and which may lag?

Thank you for the question. We entered this quarter with a strong backlog, which is encouraging. We see strong demand from larger customers, particularly pharma and diagnostics, while we are experiencing weakness from some academic and smaller customers. Although order volumes from small customers have declined, the robust demand from larger customers compensates for that. We will continue to evaluate how customers reengage in production over the next few months, as many design cycles continue even if R&D teams are working remotely. We had some customers put orders on hold, but the overall sentiment remains strong and we anticipate a solid recovery.

Thank you for that insight! Regarding trends in academic customers, could you elaborate on how those have changed thus far and what you anticipate for April? Also, remind us of your exposure to academic customers?

Academic customers make up about 25% of our revenue. I cannot share specifics about April activity. What I can say is that we are encouraged by the strong end to March, where we had notable orders. While academic customers have large projects that seem to be progressing, smaller orders have declined significantly, which has impacted volume but not dollar amounts.

As Jim mentioned, big projects are generally going forward, while smaller orders have more variability. This quarter's positive control and COVID-related products balanced out some of the impacts from smaller customer orders.

In addition, our team swiftly adopted shelter-in-place policies, ensuring operational continuity, and maintaining shipments as we delivered on customer expectations.

Regarding the COVID antibodies, can you help us frame the diagnostic and therapeutic opportunities and how you're approaching different partnerships?

We have multiple antibodies with strong binding affinities and robust competitive affinities against natural ligands. Our focus is exploring partnerships that might be exclusive or non-exclusive. We're generating great antibodies quickly, which will enhance our data package and marketing efforts. We see multiple short-term goals for both diagnostic and therapeutic applications, contributing to our upside potential.

I see you're planning to scale up these compounds for in vitro functional testing. Can you comment on your supply chain's status, and whether you've experienced disruptions this quarter?

We are not seeing disruptions in our supply chain. Our proactive supply chain team ensured we had everything we need to scale production, enabling us to fulfill our needs across biopharma and the broader business.

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. I wanted to confirm, is it still accurate to say you are expecting five to ten pharma collaborations by the end of the fiscal year?

Yes, that's correct. We are excited to report our first royalty and milestone-bearing contract with an unnamed partner. We expect multiple partnerships to be announced involving milestones and royalties. We believe our data package is strengthened by our work on COVID-19, which could lead to more collaborations. Our goal remains to sign between five and ten collaborations this year.

On the COVID work around vaccines and therapeutics, can you share insights into these partnerships, specifically regarding time frames and monetization?

Initially, we were acting strictly as a vendor, supplying sequences and DNA without taking on additional risk. However, as we've evolved, we are now also engaged in discovery efforts. This allows us to pursue potential monetization from both being a reagent provider and from our own projects, including the work we do with partners like Vanderbilt. Depending on the partnership structure and outcome, we can explore higher monetization routes.

Great, thank you for the insights and for all you are doing in the fight against COVID-19. Thank you.

Thank you for your understanding and kind words. We are committed to doing good while adapting to the challenges posed by the pandemic.

Thank you for participating in today's conference call. You may now disconnect.