Twist Bioscience Corp Q2 FY2022 Earnings Call

Thank you for joining us today for the Twist Biosciences Fiscal 2022 Second Quarter Financial Results Conference Call. I will now hand it over to Angela Bitting, SVP of Corporate Affairs and Chief ESC Officer.

Thank you, operator. Good afternoon, everyone. I appreciate you joining us today for Twist Biosciences conference call to discuss our fiscal 2022 second quarter financial results and business progress. We released our financial results this afternoon, which you can find on our website at www.twistbioscience.com. Joining me on the call are Dr. Emily Leproust, CEO and Co-Founder of Twist, and Jim Thorburn, CFO of Twist. Emily will start with a review of our recent progress on the business, and Jim will cover our financial and operational performance. Emily will return to discuss our upcoming milestones and directions, after which we will open the call for questions. This call is being recorded and the audio will be archived in the Investors section of our website for two weeks. During the presentation, we will make forward-looking statements as defined by U.S. federal securities laws. These statements pertain to future events or forecasts of financial or operational performance. Our expectations and beliefs concerning these matters may not come to fruition, and actual results may differ significantly due to risks and uncertainties discussed in the press release we issued today and in our filings with the Securities and Exchange Commission. The forward-looking statements reflect information available to us as of today, and we cannot currently predict the full impact of the ongoing COVID-19 pandemic and its potential business or economic ramifications. We are not obligated to update any forward-looking statements, except as required by law. I will now turn the call over to Dr. Emily Leproust.

Thank you, Angela, and good afternoon, everyone. During the second quarter, we continued to serve a growing list of customers, delivering record revenue of $48.1 million and $55 million in orders. Of note, our revenue for the first half of fiscal 2022 is equal to our revenue in all of fiscal 2020 at $90.1 million, illustrating our rapid growth and continued commitment to executing quarter-over-quarter. We have increased our revenue and customer base in the face of macro supply chain disruption and market uncertainty, and have extended our employee base with our lowest turnover rate even in the midst of the great resignation. We have been successful to date, and we believe we will be successful moving forward because of our employees and unique culture where we use our grit to make an impact each day in service and trust of our customers and each other. During the quarter, we added to our balance sheet in the midst of a difficult market where growth stocks are out of favor. We see a robust opportunity and potential ROI that can result from investing in vertical market segments. At the same time, we are already keeping resources in a fiscally responsible manner. We are working diligently to balance the drive to profitability with significant upside from new products and new markets, including data storage. We remain committed to achieving adjusted EBITDA breakeven for the core business at $300 million in revenue, with the core business being defined as Synbio and MDS. When we reach that point, we expect to have options for data storage specifically that could further mitigate our spend. We understand that particularly in this market environment, it is critical to both execute quarter-on-quarter to drive revenue growth and manage expenses to have a demonstrable path to profitability. We are doing both. And we are finding that our value proposition resonates in an environment where the funding for our customers is more difficult since we are the high-quality, low-cost leader. To review the second quarter, for Synbio, we reported revenue of $18.4 million with strong orders of $23.6 million, indicating continued growth ahead. We achieved several milestones in April to increase our gene capacity, which will allow us to accommodate both the ongoing uncertainty as we bring up the Factory of the Future, scheduled for the beginning of July, with shipping from this facility starting in January 2023. We announced a new 4-year supply agreement with Ginkgo that includes a minimum of $58 million in diverse product purchases over the lifetime of the contract. Over and above the minimum commitments includes the capability to access significantly more product from Twist to meet their needs moving forward. As we see the industry evolve, we continue to increase our revenue and expand both our customer base and market share, and therefore, we do not anticipate Ginkgo revenue will become material to us. Last week, we launched commercially our Twist high-throughput antibody production or IgG product. This is an exciting gene to antibody production platform that enables customers to turn candidate DNA sequences into purified antibodies for therapeutic discovery and screening applications, and a product we believe has tremendous potential with select customers. To facilitate our continued growth, the Factory of the Future remains on track, and we expect to begin shipping products from this site in January of 2023. We stand ready to meet the needs of Ginkgo as well as many additional customers. In parallel, we are advancing our enzymatic synthesis approach, and one of Twist's early patent applications in this space published in April. Recall that we are developing a low-cost scarless azelaic process to sensitively DNA that we expect to use for enterprise data storage offering. We expect to continue using our current chemistry as our primary method of DNA synthesis for the immediate and near term. Once developed, we will add applications that are amenable to enzymatic services. This could be a decentralized OEM option or self-free creation of blended DNA or other markets we are not serving today. For NGS, we reported revenue of $23.1 million and orders of $23.6 million. Last quarter, we talked about liquid biopsy and minimal residual disease, and during the quarter, we signed a partnership with C2i Genomics to develop reference materials for genome cancer detection for minimal residual disease. While we are not able to announce every customer as some want to share that we are part of their secret sauce, this is a great example of how we enable innovative workflows to ultimately benefit patients with cancer. We continue to work with many liquid biopsy companies as we develop new diagnostic tests for a wide range of cancers. Overall, the industry has been slower commercially, though traction is building. As Jim will share, we continue to expand the number of customers we serve in NGS, with the top 10 accounts resulting in about one-third of our revenues for the quarter. Our expanding customer base has decreased our reliance on any one customer, while positioning us to scale with the organizations as they commercialize and thus scale their regime significantly. Ultimately, in NGS applications, we are focused on dominating the workflow between the sample and the sequencer. This includes labor, reagents, buffer, blocker adapters and all reagents for DNA and RNA workflows. We can customize tests quickly. We offer hope to share solutions for a wide variety of applications, and we are well positioned to capture market share moving forward. Moving to biopharma, we reported $6.6 million in revenue and $7.8 million in orders, a great quarter. We announced partnerships with Medisix and Kriya. In the second quarter, we added 5 new partners in biopharma with 47 partners in total. We initiated 5 new programs with 47 ongoing programs at the end of the second quarter. We completed 21 programs during the quarter for a total of 60 completed programs in the biopharma sector. Of our 17 total active programs, 2 are milestone programs and our royalties. I'd like to note that several of our new partners are focused on optimization projects, which typically do not include milestones or royalties. However, these are very good gateway projects that allow our biopharma team to demonstrate their value and can lead to larger agreements. In Boston, as soon as Vertis, we have 8 projects underway, which as a reminder our fee-for-service and typically take 3 to 6 months to complete. During the second quarter, Twist Boston signed 9 new partnerships accounting for 56 new discovery projects, and we continue to be impressed with the team. We added 2 new BCAN machines in Boston. And as a reminder, the Boston team is a power user of the BCAN, which reduces the cycle time and increases capacity, enabling significant revenue per machine. Turning to data storage, you will recall that in December, we demonstrated the synthesis on a 1 micron pitch array. Now we have a fully integrated sealers with electronic control at 1 micron pitch. The next step is to debug the system to achieve capabilities of up to 1 gigabyte of data in a single run. We remain encouraged by the technical progress that we are making as DNA synthesis on this chip will translate into an aerial density capability of 100 million oligos per square centimeter, a density that is significantly higher than any competitor. We expect this chip, once functioning at production scale, to enable limited early access customer engagements, and we look forward to sharing details in the near future. In parallel, we continue to work on the design of our next chip, which will enable cost density inflection points that we believe will accelerate growth in early access markets. As we previously stated, we expect our first offering to be a century archive solution where customers can store data for 100 years or more without migration, maintenance, or energy. As the technology matures and increasing automation can be realized, we expect to introduce an accessible archive solution targeted towards the data center environment. With the technology moving forward, we are building the ecosystem and relationships that we believe will serve Twist well as we enter the market. In February, we became a supporter of the Digital Preservation Coalition, a membership-based organization enabling its customers to deliver resilient long-term access to digital content and services. Engaging with the digital preservation coalition provides access to archivists with precious data stores and will help us navigate this important initial market. In addition, in April, we announced that we are now a voting member of the Storage Networking Industry Association, known as SNIA. SNIA is made up of member companies spanning the storage market and is globally recognized as a trusted authority for storage leadership, standards, and technology expertise. We are already engaged as an active member of the organization, and we believe our involvement will be critical to our ecosystem activities and will help inform our product roadmap. Finally, the DNA Data Storage Alliance is gaining momentum, as evidenced by over 150 member organizations at this time. The ecosystem is building nicely, having come a long way from the 4 founding companies in just 18 months. I'd like to point out that in every aspect of our approach to data storage, we have built novel technologies and expanded our engineering sophistication. We have augmented our team with experts from the data storage field, and we remain committed to introducing our initial solution at the right time. There are very large market opportunities spanning from individual and small businesses to enterprise and, ultimately, hyperscale customers, all seeking to address their anticipated archive storage needs. We believe the early access market for data storage includes media and entertainment, digital preservation, healthcare as well as big science, and we are building those relationships today. On the ESG front, S&P Global recently issued a report on Twist, which we encourage you to review. It evaluates Twist not only from a single point in time but takes into consideration our ongoing activities. As a reminder, we released our inaugural ESG report in January and encourage you to review it to get a better understanding of our culture and sustainability initiatives, which are so important in our work at Twist. And now I'd like to turn it over to Jim to review our financials.

All right. Thank you, Emily. We had another good quarter at Twist. Revenue was $48.1 million, sequential growth of 15% and year-over-year growth of 54%. Orders were $55 million, a sequential increase of 11% and 32% year-over-year. Our gross margin for the second quarter was 38.3%. We shipped to approximately 2,000 customers for the quarter, growing from approximately 1,800 in the first quarter of fiscal '22, and we ended the quarter with cash and investments of approximately $604 million. Now I'll provide more color on orders. NGS orders for the second quarter were $23.6 million, which is an increase of 27% year-over-year and up sequentially from $21.8 million. During the quarter, we received orders from approximately 750 NGS customers. The top 10 accounts placed orders of approximately $8 million, confirming that we're seeing continued diversification of our customer footprint. Our pipeline for larger opportunities continues to scale. We are now tracking 231 accounts, up from 225 noted in our last earnings call, and 104 have adopted Twist, an increase from 96% last quarter. Now turning to Synbio. We saw robust growth in our Synbio orders, which includes genes, DNA preps, IgG, libraries, and oligo pools, which rose to $23.6 million in the second quarter. That is sequential growth of approximately 6% and year-over-year growth of 16%. The major contributors to growth this quarter include healthcare and industrial chemicals. Now to biopharma. We continue to scale our biopharma business as orders rose to $7.8 million for the second quarter, which includes Twist Boston, and up from $5.6 million in quarter 1 and $2.6 million in the second quarter of last year. As Emily mentioned, for our Twist Biopharma antibody platform, we have 47 partners with 47 active programs and 52 milestone and royalty programs. Before moving to revenue, please note orders may not translate into revenue but will provide a trend line for each product group. NGS product revenue was $23.1 million in the second quarter, a 36% growth year-over-year and sequential growth of 20%. This brings our first half fiscal '22 revenue to $42.3 million from NGS. With the continued growth in our pipeline and bookings, we believe we're well positioned to achieve our NGS revenue guidance of $94 million to $96 million for fiscal '22. In quarter 2, the top 10 accounts accounted for approximately 33% of our revenue. Our Synbio product revenue for the quarter was approximately $18.4 million, a 3% sequential increase and a 42% increase year-over-year. Some of the highlights include shipping to approximately 1,400 SynBio customers, and that's up from 1,330 in the last quarter. Gene revenue was $14.2 million, up from $13.5 million in the first quarter and $9 million in the second quarter of fiscal '21. We shipped approximately 124,000 genes in the quarter. Now to biopharma, our revenue for the quarter was approximately $6.6 million as compared to $1.3 million in the second quarter of fiscal '21, and we serve 79 customers, including 55 through Twist Boston. In terms of revenue breakdown by industry, healthcare in quarter 2 was $24.1 million, up from $16.6 million in the second quarter of fiscal '21. Industrial chemical revenue is $14.1 million versus $8.7 million in the second quarter of fiscal '21. Even though we're operating in a pandemic, many academic labs were impacted globally. Our academic revenue was $9.5 million versus $5.6 million in the second quarter of fiscal '21, reflecting our continued focus on growing the long tail of the market. I will now briefly cover our regional progress for fiscal '22. Our investment in building out our global commercial organization is reflected in strong international growth. EMEA second quarter revenue was $15.2 million versus $10 million in the second quarter of fiscal '21. APAC continues to deliver strong growth, with revenue increasing to $4.5 million, up from $2.7 million in the second quarter of fiscal '21. In the U.S., including Americas, revenue was $28.5 million for the second quarter versus $18.6 million for the same period of fiscal '21. Now moving down the P&L, our gross margin for the quarter was approximately $18.5 million or 38.3% of revenue as compared to 35.5% in quarter 1 fiscal '22. Now to operating expense. Our Q2 operating expense, which includes R&D, SG&A and change in fair value and mark-to-market adjustments of acquisitions, was approximately $79.2 million as compared to $70.9 million in the first fiscal quarter of '22. To break it down further, R&D for the quarter was $31.2 million, an increase from $22.6 million in quarter 1, primarily due to increased spend associated with biopharma, including Ambers and Revolo, IgG and data storage. SG&A in the second quarter was $54 million as compared to $51 million in the first quarter. The increase is due to approximately $3 million of stock-based compensation. Start-up costs for the Factory of The Future in G&A were $2 million, including facility lease expenses of approximately $1.1 million. Change in fair value of contingent considerations and indemnity holdbacks for the quarter resulted in a gain of $6 million versus a gain of $2.8 million in quarter 1. Stock-based compensation for the quarter was $22.2 million. Depreciation was $2.5 million for the second quarter, and amortization was $1.5 million, primarily associated with acquisition amortization of intangibles. Our net loss before tax was approximately $60.8 million as compared to $56 million for quarter 1, primarily due to increased investment in R&D and higher stock-based compensation, offset by higher gross margin. CapEx for the quarter was $22 million, mostly associated with our Factory of the Future investment. Given the global supply chain challenges, we have strategically increased our inventory to $45 million compared to $40 million at the end of quarter 1. I'll now provide updated financial guidance for fiscal 2022. We enjoyed strong bookings in quarter 2. Our customer base continues to expand, and our Twist Boston team that joined us through the acquisition is doing very well. We negotiated a 4-year contract with Ginkgo, and we're optimistic about opportunities. At the same time, more SARS-CoV-2 variants continue to emerge. For the year, we're increasing our revenue guidance, which is now expected to be in the range of $191 million to $199 million, up from the previous guidance range of $189 million to $198 million. Milestone revenue is estimated to be approximately 71% to 73%, and that's up from previous guidance of $70 million to $72 million. NGS revenue is estimated to be in the range of $94 million to $96 million, consistent with our previous guidance. Biopharma revenue, including Twist Boston, is estimated to be in the range of approximately $26 million to $30 million. Our gross margin for the year is projected to be approximately 37%, which reflects costs associated with our Portland ramp-up for our Factory of the Future. Operating expenses, which include R&D, SG&A, and mark-to-market adjustments are expected to be approximately $335 million for the year, including $130 million in R&D expenses, as we previously guided, including approximately $40 million of data storage spend. Mark-to-market adjustments for the year are projected to be $9 million favorable. Our net loss guidance before taxes for the year will be approximately $260 million to $265 million, which includes stock-based compensation of close to $85 million. This is an increase from our last projection of $74 million. Depreciation is projected to be $13 million. Amortization of intangibles is projected to be $5 million, reflecting the cost of amortizing and Veresen intangibles. Projected CapEx for fiscal '22 is expected to be in the range of $90 million to $100 million associated with increased investment in our biopharma business. We ended the quarter with approximately $604 million in cash and investments on the balance sheet. We'd like to thank all our investors for their recent support. We believe fiscal year '22 is the high watermark for cash usage. And as we continue to execute, we believe we have the cash runway to achieve adjusted EBITDA breakeven for the core business at $300 million revenue per year.

Thank you, Jim. As we move through the second half of our fiscal year, we intend to continue to focus on execution and revenue generation while pursuing opportunities to disrupt markets. We will also focus on controlling expenses and driving through our profitability for the core business. In July, we expect to begin our production qualification in the Factory of the Future, an exciting and important step to serve our customers as well as tap into the DNA makers market, and we remain focused on reducing overall turnaround time, especially for genes, while exploring new product offerings. For NGS, we expect a strong second half driven by continued customer growth and commercial execution. We expect to add more tools that enable our customers to perform groundbreaking research while we leverage our sales team to expand our market share around the workflow between the sample and the sequencer, particularly in the area of liquids, MRD, and RNA. In biopharma, we will continue to add partnerships and programs and move up the value chain, both for our service offerings and for our internally generated antibodies. In addition, we are planning an integrated portfolio of antibody discovery and optimization offerings as we integrate the Twist Boston team with our biopharma group. The combined solution truly differentiates Twist from the rest of the pack, and we look forward to cross-selling as well as broadening our reach as soon as the earnout is achieved. In data storage, we have a roadmap to reach terabyte scale. We have our first fully integrated CMOS chip with electronic control in-house and are actively developing the system to achieve synthesis of up to 1 gigabyte of data in a single run. We believe we will be able to generate initial revenue from these—once fully optimized through a central archive solution. In parallel, we are working on the Alpha chip and increasing the density per square centimeter to drive down the cost significantly with an eye to provide an accessible archive solution. With that, let's open the call for questions. Operator?

Our first question comes from Matthew Sykes with Goldman Sachs.

Maybe the first one just on SynBio and a bit longer term, but how should we think about the Factory of the Future coming online next year in terms of accelerating that SynBio growth? Are there certain capacity constraints that you're dealing with right now that can be alleviated or the speed of the turnaround time, either one of those factors could help accelerate that SynBio growth as we look into '23?

Very much, Matt. That's a great question. So we do not have today capacity issues. We have extended a little bit of capacity in the interim. So when the first demand comes, we're able to catch it. The Factory of the Future will have even more capacity. So as we are successful in grabbing market share, we'll continue to be able to test and produce as others scale up. In addition, I would like to clarify that a faster turnaround time will give us an opportunity to really expand into new markets where we don't currently serve today, particularly in a market that is very time-sensitive. We believe there is a significant portion of that maker market that we will be able to convert. So again, two objectives for the Factory of the Future in Synbio: One is, as we are more successful, to take more market share, and two, to expand into the rapid engineering market. I would add that we have a robust roadmap of products we want to launch around GMP DNA, proteins, and RNA. They all start from making DNA, and so the Factory of the Future will also be a great foundation for us to expand into those additional markets.

Great. And then just a second question on biopharma. Assuming you're generating gross margin on the upfront fees and the fee for service. Therefore, should we really look at in terms of initial success of this program, adding just more and more programs? Obviously, the larger economic work comes with the commercial success of the drug and the royalties. But how should we think about sort of your building of the initial programs and the potential revenue growth rate of those programs as they add?

Yes. We are very much focused on the upfront fees. As you mentioned, there is some good margin there, and that enables us to cover costs. So we're definitely not subsidizing anybody else's drug discovery, and so if we can secure a solid upfront revenue, it's a great position, and we've guided a significant revenue growth this year just on the upfront. In addition, we are indeed accumulating royalties, which should provide some significant economic return in the future. However, because those are difficult to anticipate in terms of exact timing and amount, at this point, we are not guiding on those. Any royalties we would receive above and beyond upfront payments would be seen as upside.

Next question comes from Luke Sergott with Barclays.

Can you just update us on what your cash burn was on an organic basis excluding the raise? Just trying to get a sense there of how you guys are thinking about that through the rest of the year.

Yes. For the total year, you can step back and look at the loss we are projecting. The loss for the year is about $260 million. That does include approximately $84 million for stock-based compensation. It also includes about $13 million for depreciation and $5 million for amortization. In terms of CapEx, we're projecting approximately $90 million to $100 million for CapEx. So that should help you frame the cash burn. When you look at that, around $260 million for the year is a good reference. A good chunk of that is being invested in ramping up R&D for biopharma, as well as reinvesting in the core business. We're investing about $40 million into storage, and obviously, for overall CapEx, the bulk of the investment, around $75 million of the $100 million this year, is for the Factory of the Future.

All right. That's great. That's helpful. On the Factory of the Future, you're talking about the breakeven for your base business at $300 million. Can you give us the assumptions by segment from a revenue and margin perspective?

Yes. Overall, we're forecasting approximately a 50-50 split between NGS and biopharma, and we're targeting gross margins of about 50% to 52%.

Okay. All right. And then the last one for me on the Twist high-throughput antibody production or the SWAP program. How integrated is that with the TAO, and on the new customers into that program, how many are new to Twist customers versus just coming from the TAO program?

Yes. Thanks, Luke, for the question. So it's two different products. One is TAO, where someone comes to us with an antibody, and using TAO, we design more sequences, produce those variants in-house, screen them in-house, and then provide them with answers for their improvement needs, be it enhancements in expression, binding, etc. That is basically a service. The new product we've launched is an antibody synthesis offering, where customers go on the website, choose which variant they want, then upload those, and we synthesize them, and the customer handles the screening for functionality. So in terms of end-users, we are targeting the same customers, but we aim to offer them a broad range of options. If you want to do the work themselves, they can do it online; if they lack capacity, we offer a faster TAO service.

Our next question comes from Rachel Vatnsdal with JPMorgan.

First one, how should we model the cadence of gross margins following the opening of the Factory of the Future, understanding that there's going to be some underutilized capacity at the start? How long will it take to ramp to those gross margins that you just called out, like the 52%? And then again, when do you think you can get to 60% gross margin for the total company?

Yes. In terms of modeling our gross margins for this year, the gross margin guidance we provide is 37%. We will give updated guidance for next year as we continue to ramp the Factory of the Future. Overall, we're targeting for a factory future $300 million revenue, about 50-52% gross margin, adjusted EBITDA breakeven. That holds for the core business, specifically for NGS and Synbio. As we continue to scale towards $500 million, we are projecting gross margins in the range of 55% to 60%, based on a 50-50 split in terms of revenue between Synbio and NGS.

Okay. And then you've previously mentioned for enzymatic that the error rates there will be equal to or lower than those of the standard chemical approach. So I'm just wondering what are the technical milestones that you'll need to hit to achieve that, and what gives you confidence that you can meet or surpass those error rates?

That's a great question. There are a few things that we are trying to optimize. Error rate is definitely one of them, as well as the length of the DNA. Another key parameter we want to optimize is the speed of the different reaction steps, and most importantly, the overall cost of the reactions to synthesize an oligo. It's a multi-variable optimization. In terms of milestones, we will need to optimize the enzymes, linkers, the buffer for the chemistry, and the debulking process. Today, there are several factors that will assist in optimizing all of those areas, including our NGS-based platform, which significantly accelerates the speed at which we can test those various conditions. Instead of testing just one condition at a time, we can evaluate thousands or even hundreds of thousands of different variables simultaneously. We are quite encouraged by our progress so far. Notably, a few weeks ago, our first patent was published. This covers one of the innovative avenues we are pursuing to achieve very low-cost scarless DNA.

Our next question comes from Puneet Souda with SVB Securities.

Have Michael on for Puneet. I just wanted to ask one quick question regarding pricing. So obviously, it's a key lever for Twist. But with the inflationary environment, we were wondering if you could share any thoughts on your potential pricing strategy.

That's a great question. Pricing is a topic that we spend a lot of time on. Historically, we have been the high-quality price leader, and that has served us well in ensuring we grow faster than the market. So we are exploring all opportunities to differentiate ourselves. Pricing is one lever, and we are also looking at throughput and user experience. While increasing prices can enhance revenue and margins, we also understand that the impact may be mitigated due to our relatively low variable costs. That being said, we are actively evaluating opportunities to adjust our pricing strategy. Our goal is to deliver continued revenue growth, margin growth, and market share growth, with pricing being a key element of that. Rest assured, we are spending considerable time focusing on it.

Got it. And when it comes to liquid biopsy, I was wondering if you could provide any updates on the number of customers you are serving and how much you see liquid biopsy contributing to the overall NGS guidance?

Yes. Overall, as a highlight in our larger NGS customer pipeline, the number of liquid biopsy accounts continues to scale, with approximately 20 key liquid biopsy customers tracked. As their test volumes increase, so does our volume. We see a huge opportunity in NGS based on the value of our products. Our second-half guidance of $94 million to $96 million reflects our confidence driven by sequential increases in bookings. The number of liquid biopsy customers we're tracking is, as I mentioned earlier, around 20.

Our next question comes from Catherine Schulte with Baird.

This is Tom on for Catherine. I wanted to touch on academic markets. Jim, you touched on that in your remarks, but any impact from Omicron in the quarter? And how are research activity levels trending? What are your expectations here for the remainder of the year?

It's a good question. The quarter was interesting. It started off weak from an ordering perspective; January was low. However, as the quarter progressed, activity picked up in February, leading to a strong March. Overall, from an academic standpoint, we continue to add many customers overall to the business, and the academic segment has performed extremely well. In terms of outlook, with our expanding portfolio and customer base, we believe we are well positioned for aggressive growth in this space, especially once the Factory of the Future comes online, allowing us to offer faster turnaround times addressing the long tail of the market, which represents a $1.4 billion opportunity. We expect to begin seeing revenue from the Factory of the Future in January next year.

Okay. Great. That's helpful. And then switching over to biopharma, are you still expecting Revlar to submit an IND for its COVID antibody in the first half of this calendar year?

Yes. Thank you for the question. Revlar is an independent company, so we allow them to make their own announcements. Nonetheless, the objective of submitting for IND in the first half of this year remains.

Our next question comes from Matt Larew with William Blair.

Just from the time that the Factory of the Future opens in July until you start shipping in January of '23, what are the key steps and hurdles that you need to clear from a validation and quality control standpoint?

Great question. We're following the classic industrial steps of IQ, OQ, and PQ. IQ is installation qualification, basically ensuring the instruments are plugged in. OQ is operational qualification, ensuring the robots move as expected. PQ is performance qualification, verifying that we get the DNA results we expect. Following this broad framework, we will navigate through several more complex aspects since this is a system—there are multiple pieces of equipment with sophisticated software that monitors all orders and controls order flows across different instruments. We are experienced in this area; we've moved the fab multiple times within the Bay Area, and while it's a new state, we've successfully handled engineering challenges before. We also have new hires to train, and many current personnel have volunteered to relocate to support the launch in Portland. These benchmarks—IQ, OQ, PQ—along with hiring and onboarding personnel, are critical metrics that we'll be measuring against. Once we complete that, the next steps are ramping capacity, turnaround time, and output volume. Eventually, we'll switch to a software load-balancing system for order management, and then we'll be ready.

Okay. That’s great. On biopharma, you've talked about the evolution of customer conversations becoming easier and building your brand. I've heard you reference being the drug discovery service of last resort before. I am curious if, given current market dynamics, that 'last resort' role might be happening earlier in the discovery process. And with funding challenges among small biotech firms, how open are you to negotiations around balancing the fee-for-service and downstream economics?

That's a great question. The position of 'last resort' has been effective for us from a branding perspective, and we continue to leverage that identity. As we know, once companies try us, they experience the speed and quality of the antibodies produced. Consequently, for their next projects, they are keen to bring the easier tasks to us and are willing to pay more. Regarding our flexibility on economic terms, we are open to negotiations but have to ensure that any agreement at the bare minimum covers our costs; we cannot subsidize research. However, if opportunities arise to balance upfront fees against potential downstream revenues, we are definitely willing to discuss them.

Our next question comes from Vijay Kumar with Evercore ISI.

This is Alexandra on for Vijay. I just wanted to start on R&D expense. You broke out that $40 million is for DNA data storage, and I was wondering if we can expect to see revenue contribution this year?

For DNA data storage, no, we're still in the development phase. As Emily highlighted, this year and next year are focused on development efforts. We are observing significant interest in the product. The alliance keeps expanding, and our technology developments are progressing positively. We have announced the 100-year archival product solution, and we feel encouraged from a development standpoint. However, we anticipate that it might take some years before monetizing data storage.

If I could just follow up on the alpha chip, could you give some color around that, including cost metrics and an estimate of when we can expect future-generation chips?

That's a great question. We are actively designing the alpha chip. Regarding storage costs, we're aiming for a terabyte scale, which will enable us to sell terabytes of storage to our customers. We are currently in market analysis for pricing strategies; however, I can't disclose too early what the pricing structure will be. That said, we aim to be competitive compared to existing technologies such as tape, hard drives, and flash memory. When you consider the long-term storage period of 100 years, the total cost of ownership for those traditional methods increases significantly due to required migrations and energy expenses over time. With DNA storage, we have an opportunity to position ourselves favorably in that regard.

I'm not showing any further questions at this time. I'd like to turn the call back to Emily for any closing remarks.

Thank you, operator, and thanks for joining us today. We look forward to seeing some of you in person at the UBS conference in New York, the William Blair conference in Chicago, and the Goldman Sachs conference in Southern California. Until then, thank you so much for attending today.

Ladies and gentlemen, this concludes today's presentation. You may now disconnect, and have a wonderful day.