Earnings Call Transcript - TWST Q2 2024

Operator, Operator

Welcome to Twist Biosciences Fiscal 2024 Second Quarter Financial Results Conference Call. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Angela Bitting, SVP of Corporate Affairs. Please go ahead.

Angela Bitting, SVP of Corporate Affairs

Thank you, operator. Good afternoon, everyone. I would like to thank all of you for joining us today for Twist Biosciences conference call to review our fiscal 2024 second quarter financial results and business progress. We issued our financial results release after the market and the release is available on our website at www.twistbioscience.com. With me on today's call are Dr. Emily Leproust, CEO and Co-Founder of Twist; and Adam Laponis, CFO of Twist. Emily will begin with a review of our recent progress on Twist business, Adam will report on our financial and operational performance. Emily will come back to discuss our upcoming milestones and direction. We'll then open the call for questions. We would ask that you limit your questions to only one, and then requeue as a courtesy to others on the call. 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 2 weeks. During today's presentation, we will make forward-looking statements within the meaning of the U.S. federal securities laws. Forward-looking statements generally relate to future events or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize, and actual results and 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 our press release we issued earlier today as well as those more fully described in our filings with the SEC. The forward-looking statements in this presentation are based on information available to us as of the date hereof, and we disclaim any obligation to update any forward-looking statements, except as required by law. We'll also discuss adjusted EBITDA, which is a financial measure that does not conform to generally accepted accounting principles. Information may be calculated differently than similar non-GAAP data presented by other companies. We reported a reconciliation between GAAP and non-GAAP financial measures will be included in our earnings press release, which can be found on our Investor Relations website at www.twistbioscience.com. With that, I will now turn the call over to our Chief Executive Officer and Co-Founder, Dr. Emily Leproust.

Emily Leproust, CEO and Co-Founder

Thank you, Angela, and good afternoon, everyone. I am thrilled to be here today to share the remarkable achievements and outstanding performance our company has delivered over the past quarter. Our strong results validate the hard work, dedication, and innovative spirit that define our team at Twist. We've made significant strides in executing our growth strategy, increasing our customer base, and moving towards profitability for the business. Our proprietary platform for making cfDNA remains at the core of our product portfolio, defining our competitive advantage in all markets and enabling our flywheel for growth and the strong financials we share today. Over the course of the second quarter, we continued our robust growth trajectory, increasing revenue 25% year-over-year to $75.3 million. Orders for the quarter reached a record level of over $93 million. The strong quarter was driven by growth in our synthetic biology product line, including Express Genes, and bolstered by consistent strength in NGS. We reported a gross margin of 49% for the quarter, an increase of 10 margin points versus the same period last year. We do see fluctuations in the margin quarter-to-quarter, which Adam will discuss in his remarks. That said, over the next several periods, we expect the initiatives we are undertaking will drive us to a gross margin above 50% by the end of fiscal 2025. To that extent for SynBio, revenue increased to $29.8 million, with very strong orders of $44.9 million. SynBio revenue grew 24% year-over-year and 11% sequentially. Other than SynBio, we included significant blanket purchase orders where customers placed a single blanket order for a large channel and then orders against that PO over the course of the next several quarters. Twist receives blanket POs routinely, primarily in the first quarter of the calendar year as budgets reset. That said, these levels of blanket orders still exceed prior year significantly. We believe this increase is due to our diversified product line, including Express Genes and consistent rapid turnaround times, both of which give our customers confidence to commit to Twist for the year. As you know, in late January, we expanded our Express Genes offering from a limited launch including about half of our clonal gene volumes to include all clonal genes. At that time, we began a marketing campaign and outreach to potential customers buying from competitors or making their own genes. While still relatively early days for Express Genes, we are pleased with the progress to date. Keeping in mind that our current quarter, our fiscal third quarter will be the first full quarter that includes all Express Genes offering. We want to provide a bit more color around the success to date. Approximately 15% of clonal genes revenue for the second quarter came from Express Genes. As of March 31, we had received more than 1,600 orders for Express Genes since launch in November with more than 700 accounts purchasing Express Genes to date. This includes more than 100 net new accounts specific to Express Genes. We define net new accounts as a new customer organization entirely or a new shipping address as an existing institution, both count as net new accounts. Customers received Express Genes in about 5 to 7 days, significantly faster than our standard gene turnaround time. We vary this premium price based on capacity within our lab Twist in Oregon facility, the site custom-built for this product line, and as a side note for expansion into other significant products. Because we make all clonal genes on the Express timeline, the increase in price premium fully drops to gross margin. At the end of February, we began differentiating the premium between academic and industry customers. Within these two groups, we'll be seeing a higher premium, a common practice in the industry. Moving to NGS, we posted another very strong quarter as revenue grew to $40.8 million, an increase of 40% year-over-year with $42.5 million in orders. This quarter, strength for the NGS portfolio came from customers who have advanced their assets into clinical studies and become commercial as well as growth in the smaller NGS customers who are earlier in the development processes. Several clinical customers are using Twist in their assets, and we are proud of the incredible progress that is being made for patients in rare disease, cancer detection, and early cancer detection, and monitoring of minimal residual disease. Our panels are incorporated into a number of different, sometimes competitive tests and what we see over time is that providers are adopting these tests. The volume of commercial tests increases with patient adoption as each sale test requires DNA. We have customers who are doing very well, leveraging the Twist chemistry advantage and others who need additional funding to continue scaling. The benefit of our business model is that we have diversified our revenue across many customer navigation flows with no single customer accounting for more than 10% of our revenue. In addition, we continue to add smaller accounts that have the potential to grow significantly as the volume of their application or test brands increase. Until this year, our NGS product portfolio has been focused primarily on target enrichment for the analysis of DNA and RNA levels. As we have said before, we want to offer our customers a complete workflow solution from the sample to the sequencer, and we are confident that our latest products solidify our leading position in the liquid biopsy and MRD while expanding our differentiation within other areas of the workflow. Importantly, we introduced differentiated products to enhance science and clinical capabilities. In February, we launched an incredibly powerful cell-free DNA library prep that captures many molecules that may otherwise be missed in these assets, because the sensitivity of liquid biopsy laboratory prep is crucial. Capturing more molecules can improve the signal-to-noise ratio and sensitivity of the test. We believe our innovative cfDNA laboratory prep provides an advantage here, and initial commercial performance has been very encouraging. During the quarter, we offered technology early access for a second truly differentiated laboratory prep, the Ultra High-Throughput laboratory prep. We believe this is the highly differentiated product we need to contact customers using microarrays for NGS panels plus sequencing with applications in AgBio and genotyping. We believe this is a very large market opportunity, and we expect that these products will drive NGS revenue in the medium to long term as they require a change in workflow for customers from microarray readers to sequencers. Separately, for our customers in Europe, we launched a CE-marked portfolio of Precision Dx products to support the evolving regulatory landscape in that geography. This is our first foray into the regulated market, and we look forward to continued evolution in markets beyond Europe. We believe our experience with regulated products will inform any future product developments driven by the move to regulate laboratory tests in the U.S. For Biopharma, revenue was $4.7 million with orders increasing to $5.8 million. We'll continue to deliver on programs for our partners across the spectrum of offerings. Importantly, we expect at least one partner to initiate human studies with an antibody discovered in Twist Platform within the next year. For data storage, we remain focused on technology development and enablement of the Terabyte Century Archive workflow for early access in calendar 2025. Progress continues, and we see this area of our business as a valuable asset with optionality at multiple points of development. As we look at margins, in fiscal Q1, we reported a strong gross margin driven primarily by mix and significant NGS revenue. We maintained our margin in the second quarter, beating our guidance by 2 points with continued strength in our NGS business as well as contribution from Express Genes. As we look over the next 18 months, in addition to driving revenue growth, which is the primary driver of margin, we intend to continue to focus on margin improvement initiatives, including product investment, operational excellence, insourcing, and process optimization. In addition, we are in the process of negotiating contracts with suppliers and in some cases, with customers willing to provide volume commitments for fixed premium pricing in Express Genes. We believe these initiatives as well as further volume leverage of our fixed costs, enable our ability to improve our margins by several points, and we see gross margin exceeding 50% by the end of fiscal 2025. With that, I'll turn over the call to Adam to discuss our financials.

Adam Laponis, CFO

Thank you, Emily. Revenue for the second quarter increased to $75.3 million, representing growth of 25% year-over-year and approximately 5% sequentially. Orders increased substantially to $93.2 million, driven by a significant number of blanket purchase orders expected to be used over the next three quarters. This includes approximately $21 million for SynBio and $9 million for NGS. As Emily said, gross margin came in higher than expected at 41% for the second quarter of fiscal 2024. During the second quarter, we shipped to 2,253 customers. We ended the quarter with cash, cash equivalents, and short-term investments of approximately $293 million. Taking a deeper dive into revenue, SynBio revenue increased to $29.8 million, growth of 24% year-over-year with orders increasing to $44.9 million. We shipped 193,000 genes in the quarter. Synthetic genes revenue, which includes both clonal genes, gene fragments, and IgG, increased to approximately $22.4 million, reflecting growth of approximately 24% year-over-year. Approximately $15.6 million or 52% of our SynBio revenue was from clonal genes with $2.2 million in revenue coming from Express Genes. Within the SynBio umbrella, overall pool revenue increased to $3.9 million, and DNA libraries revenue increased to $3.5 million, year-over-year growth of 19% and 25%, respectively. NGS revenue for the second quarter grew to approximately $40.8 million compared to $29 million in the second quarter of fiscal 2023, representing an increase of 40% year-over-year. For the quarter, revenue from our top 10 NGS customers accounted for approximately 36% of revenue. Orders increased to $42.5 million, which we anticipate sets the stage for further NGS growth. We served 558 NGS customers in the quarter, with 138 having adopted our products. For Biopharma, revenue was $4.7 million, with orders increasing to $5.8 million. We had 67 active programs at the end of March 2024, and we started 34 new programs during the quarter. Looking at revenue by industry, healthcare revenue rose to $40.9 million for the second quarter of 2024 compared to $33.8 million for the same period of fiscal 2023, reflecting the increased uptake of our products by pharma, biotech, and diagnostic companies. Industrial chemical revenue rose to $20.3 million in the second quarter, up from $14.4 million in the same period of fiscal 2022, demonstrating strong growth year-over-year. Academic revenue was $13.7 million for the second quarter of 2024, up from $11.1 million in the same period of fiscal 2023, with growth coming from both SynBio and NGS customers. Looking geographically, Americas revenue increased to approximately $45.9 million in the second quarter compared to $34.9 million in the same period of fiscal '23, reflecting growth of 32% year-over-year. EMEA revenue rose to $22.3 million in the second quarter versus $18.8 million in the same period of fiscal 2023, showing growth of 19% year-over-year. APAC revenue increased to $7.2 million in the second quarter, compared to $6.5 million in the same period of fiscal 2023, representing growth of 11% year-over-year. China revenue was $1.4 million, a small percentage of our total revenue for the quarter. Our gross margin for the second quarter increased to 41.0%. We saw strength in Express Genes revenue lifting margins, offset by a contracted SynBio customer who placed and received a large order with unique discount terms in Q2. Our NGS offerings continue to maintain strong gross margin performance. However, we did see, and expect to continue to see, fluctuations in gross margin based on contracted customer mix where margin varies based on the individual customer orders in a quarter. Finally, I am encouraged by the enterprise-wide focus on gross margin improvement initiatives and also expect these initiatives will take multiple quarters to result in a material impact. In total, operating expenses for the second quarter were $124.2 million compared with $121.8 million in the same period of 2023. Breaking this down, the cost of revenues increased to $44.4 million in the second quarter of 2024, compared with $41.7 million in the same period of fiscal 2023, primarily due to higher product volumes as well as increased depreciation and amortization expense, mostly due to the build-out of our new manufacturing facility in Wilsonville, Oregon. R&D decreased to $24.1 million compared with $27.4 million in the same period of fiscal 2023, primarily due to the reduction in headcount as well as lab supplies. SG&A was $55.6 million for the second quarter compared with $54 million. The increase was driven largely by stock-based compensation and bonus accrual catch-up as the business is performing above forecast at this time. Operating expenses included approximately $7 million for data storage. Stock-based compensation for the quarter was approximately $13.8 million, and depreciation and amortization were $8.3 million for the quarter. Net loss attributable to common stockholders was $45.5 million or $0.79 per share for the second quarter of 2024, compared to a net loss of $59.2 million or $1.04 per share for the same period of fiscal 2023. Cash flow from operating activities continues to improve, and we are driving towards breakeven. For the six months ended March 31, 2024, net cash used in operating activities was $42.4 million, compared to $98.4 million for the equivalent six-month period in 2023. Moving forward, we will also provide adjusted EBITDA, a non-GAAP measure. A reconciliation between the GAAP and non-GAAP financial measures will be included in our earnings documents, which can be found on our Investor Relations website. Looking back in time, for the second quarter of fiscal 2023, the adjusted EBITDA loss was approximately $46 million. In the second quarter of fiscal 2024, adjusted EBITDA loss was approximately $27 million. For the fourth quarter of fiscal 2024, we anticipate a path to an adjusted EBITDA loss of less than $20 million. Turning to guidance, for fiscal 2024, we now expect total revenue to increase by $12 million across the range to approximately $300 million to $304 million, which represents anticipated growth of 22% to 24% year-over-year. Increased SynBio revenue guidance is $118 million to $120 million, reflecting an increase across the range with year-over-year growth anticipated to be 20% to 22%. NGS revenue guidance is $162 million to $164 million, reflecting an increase of $12 million across the range and anticipated growth of 31% to 33% year-over-year. Biopharma revenue is expected to be approximately $20 million, which is a decrease of $4 million in prior guidance and 13% year-over-year. We are increasing our expected gross margin to approximately 41.5% to 42% for the year. We are reducing our expected loss from operations before taxes to approximately $183 million to $188 million, a decrease compared with prior guidance of $189 million to $194 million. CapEx is still projected to be approximately $15 million for fiscal 2024, unchanged from prior guidance. We project ending cash of more than $245 million at the end of fiscal 2024. For the third quarter of fiscal 2024, we expect overall revenue of approximately $77 million. SynBio revenue will increase to approximately $31 million with the full launch of the Express Genes portfolio. NGS revenue is expected to be approximately $41 million, on track with our increased annual guidance. Biopharma revenue is projected to be approximately $5 million. Gross margin for the third quarter is expected to be in the range of 41% to 42%. For the fourth quarter, we expect overall revenue in the range of $77 million to $80 million, with gross margin estimated at 43% to 44%. In summary, I am encouraged by the progress in the enterprise-wide focus on financial discipline that I've observed during my first quarter with Twist. We will continue to maintain financial discipline throughout the organization and make progress on the path to profitability.

Emily Leproust, CEO and Co-Founder

Thank you, Adam. In closing, we are very confident in the continued impact and growth opportunities generated from our proprietary DNA-sensitive platform, our growing customer base, our increasing revenue profile, our diversified product portfolio, and of course, our exceptional employees who positively influence our customers across multiple industries. I also had the privilege of talking to our customers and listening to how they drive groundbreaking scientific investments in wide-ranging fields from healthcare to chemicals to academia, AgBio, and more. I am very proud that Twist plays an important role in facilitating this work, and we are only getting started. While enabling our customers to produce proteins to target and destroy cancer cells, to create new diagnostic tools that detect diseases early and accurately, to make compounds that are more sustainable and less expensive, to name only a few applications. We manufacture our DNA in two locations, one in California and one in Oregon, with a global commercial and support team to deliver superior service to all our customers. As we look ahead, we are more excited than ever about the vast potential that lies ahead for us. With our cutting-edge technology, world-class team, and laser-focused strategy, we are poised to capitalize on the immense opportunities that await us in synthetic biology, NGS, biopharma, and data storage. I am incredibly proud of what we've accomplished, and I'm confident that our best days are yet to come. Let's open up the call for questions. Operator?

Operator, Operator

Our first question today is coming from Matt Sykes of Goldman Sachs.

Matthew Sykes, Analyst

Congrats on the quarter. Maybe I could just start out on margins. You obviously beat gross margins this quarter. It looked like, on the back of NGS, but a small contribution from Express Genes is like $2.2 million. So I expect most of that beat was from NGS. But as the year progresses and Express Genes continues to grow, could you give us a sense for the contribution of margin expansion from Express Genes, maybe either providing some expectations for Express Genes revenue growth or volumes for the balance of the year and what contribution to margin expansion is already in the guide from Express Genes specifically?

Adam Laponis, CFO

Matt, thanks for the question. This is Adam. I'm happy to provide some quantitative insights on this, and then we can jump in with more color as well. First, we are very excited about the Express Genes launch this quarter. Remember, when we launched it here in late January with a full offering, it was still only a partial quarter, so we expect that the current quarter, Q3, which ends in June, will be our first quarter of full Express Genes performance. We have not broken out the exact Express Genes volume in the guidance. We do see that contributing to the gross margin sequential improvements we have in our guidance, and it helped with the movement we observed this quarter. Still, we're in early days, and we continue to monitor our pricing as we assess the current market conditions.

Matthew Sykes, Analyst

Got it. And then just on the NGS Tools business, I've heard from some of your competitors in that space that are having challenges. It seems as if, given your results, you're continuing to take market share there. Could you help us understand, for context, what the market share opportunity is in the NGS Tools business for you? And what is the runway you have for accelerating growth, either given the market structure, your current penetration and share, and what it could be?

Emily Leproust, CEO and Co-Founder

Yes, thank you, Matt. This is Emily. You are correct that we are definitely taking market share, and it's not by accident. It's based on the innovation that we have built into our products, from the quality of our panels that reduce the cost of sequencing to expanding into other applications, including RNA. Additionally, we now offer a complete workflow solution from sample to sequencer, and importantly, we are a supply chain partner to our customers as they grow. The vast majority of our revenue comes from liquid biopsy applications. The market potential for liquid biopsy is significant. We are still at the beginning of liquid biopsy adoption, and as adoption ramps, the liquid biopsy market as a whole will grow. Our goal is to capture about 10% of the COGS of our customers. We believe that there is a lot of room for growth in liquid biopsy. For other markets, such as mRNA, it's early days. Initial tests are encouraging. We have a strong position in the AgBio market currently being addressed using microarrays; we aim to transition this to Twist sequencing, which we estimate alone could represent a $500 million market opportunity.

Operator, Operator

And our next question will be coming from Vijay Kumar of Evercore.

Vijay Kumar, Analyst

Congrats on a really good print here, Emily. Maybe my first one here on the orders, that's a big number, up 45%. Were there any one-timers, was there any pull forward, or maybe just characterize the order trends as the quarter progressed?

Emily Leproust, CEO and Co-Founder

Yes, great question. Thank you. There are two types of orders: actionable orders, meaning the order or PO comes with the sequence. In SynBio, it gets made in five days. In NGS, it gets made in a few weeks, we ship, and we book the revenue. One thing unique this quarter is that we received a larger number of the second kind of orders, which are blanket PO orders. These come from customers who usually have a budget and decide where they will spend that budget at the beginning of the year. The blanket PO provides us with a sense of volume that's coming. As researchers design their sequences, the order is already there; we produce, ship, and book revenue. So, this quarter had a higher volume of blanket POs than we've typically experienced in the first quarter of the calendar year. I believe this to be a reflection of the confidence in our offering as more customers have tested our Express Genes in the previous quarter, with many realizing its value and thus contributing to this significant blanket PO adoption.

Vijay Kumar, Analyst

That's fantastic. And then, Adam, maybe just back to the question. So you don't think there was anything one-off, these are underlying trends? Is that what's driving the sequential gross margins in the 3Q and 4Q? That's a pretty meaningful step-up in gross margin for Q4.

Adam Laponis, CFO

This is Adam. It's a great question. It's fair to say that this is not a one-off, but it also breaks from our historical behavior. Oftentimes, some of our larger customers do put in blanket purchase orders at the beginning of the year. We're seeing a larger volume of that this year. I believe it's a vote of confidence, but it's not something I'd expect sequentially to occur every quarter due to the nature of the calendar year. Moving forward, the growth in the business and the increase in guidance of about $12 million from where we were before for the year, as well as the expansion of gross margins for both full year and sequentially, all play into our favor. We talk about Express Genes and the NGS mix driving margins, but the primary driver for margin is the continued growth of volume revenue.

Operator, Operator

And our next question will be coming from Steve Mah of TD Cowen.

Poon Mah, Analyst

Great. Congrats on the quarter. I've got a three-part question on Express Genes. So first, now that you have another quarter of experience, can you give us a sense of the customer feedback on the dynamic pricing? I know on the last call you also mentioned that there is a push by larger accounts to trade the dynamic pricing for a sort of fixed subscription-like pricing model. And then second, how is the increased marketing effort on Express Genes going? And then third, on the 100 net new accounts ordering Express Genes, what's the profile of that customer? Is it academia, pharma, biotech, or mixed?

Emily Leproust, CEO and Co-Founder

Thank you, Steve. Great question. In terms of the customer feedback, we haven't received any negative feedback about the premium pricing. I think people understand that we've made a significant investment. The product differentiation is very strong, and again, the performance is what we promised. So the feedback is positive. Meanwhile, several customers have expressed a desire for predictability and are therefore willing to provide volume commitments in exchange for fixed premium pricing. This was reflected in the strong blanket POs we've received. That covers your first question. About the second question regarding marketing efforts, we are pleased with the progress, and as we continue to engage more customers, we anticipate further growth. Lastly, for the 100 net new accounts, there was a healthy mix, with many coming from big and small pharma customers, but notably, a significant portion are academic groups who are testing and reordering, demonstrating our outreach is effective in both industrial and academic markets.

Poon Mah, Analyst

Okay, great. Maybe just a quick follow-up on that. Did you mention that you had a different pricing structure for academic versus industry?

Emily Leproust, CEO and Co-Founder

Yes, in the middle of the quarter. Initially, the premium pricing was uniform for academic and industry customers. However, midway through the quarter, we began differentiating the premium, with the academic premium being less than that for industry. This aligns our practices with standard industry practices.

Operator, Operator

And the next question will be coming from Matt Larew of William Blair.

Madeline Mollman, Analyst

This is Madeline Mollman on for Matt Larew. I wanted to touch a little bit on Biopharma. I noticed that Biopharma is still an area where the guidance came down. I know you mentioned previously that you were in the process of onboarding your new BD hires. It takes about six months to get fully ramped. Can you talk a little bit about where the BD hires are in the process, and how much of that ramping contributed to the change in Biopharma guidance?

Emily Leproust, CEO and Co-Founder

Yes, thank you for the question. Our team is now fully staffed, although not all members are fully ramped yet. I have traveled quite a bit with that team, and it's evident that the market is very receptive. There are no market headwinds at all. Our technology, product, and service offerings are extremely strong across in vivo, in vitro, and in silico. So, personally, I feel victory is certain, but the timing remains to be seen. We are focused on building the funnel. The $5.8 million in orders for this quarter was encouraging, and we simply need to replicate and grow this business over time. It's the smallest portion of our company right now, and it currently represents the lowest growth rate, but it possesses all the characteristics of a very strong business. As we connect with more customers and convert them, I’m confident we'll perform excellently.

Madeline Mollman, Analyst

Great. I think you said that Express Genes were 15% of clonal genes revenue for the quarter. Can you provide any color on how Express Genes as a proportion of clonal genes has trended on a monthly basis, and include this into the current quarter as well?

Adam Laponis, CFO

Sure. This is Adam, and I'm happy to talk about it. Since launch, we've seen sequential increases in the Express Genes business consistently month-over-month. This is partly due to the full commercial launch in late January this year, which naturally leads to an uptick. Additionally, larger institutional customers order in high volumes, so a couple of large orders can have an impact, especially early on, but we are observing a sequential step-up across different markets.

Operator, Operator

And our next question will be coming from Tom Peterson of Baird.

Thomas Peterson, Analyst

Congrats on the quarter. I just want to start with Express Genes and the metrics you've provided, whether it's the percentage of clonal genes or customer conversions or new account wins. How are you defining what medium-term success looks like for the Express Genes offering? And if you could share any specific targets you're looking for over the medium term, I think that would be helpful.

Emily Leproust, CEO and Co-Founder

Yes, I think, for us, success is measured by three numbers: revenue, gross margin, and overall product performance. We do have internal targets for all of our product lines, Express Genes being a significant focus. One advantage we have is a diverse range of customers working on varying applications. So, it’s all product lines that contribute to our overall performance. I can assure you that we are pushing our team to leverage not just Express Genes but all of our high-differentiated products.

Thomas Peterson, Analyst

Great. That’s helpful. And then maybe just one regarding the gross margin outlook, specifically that 50% plus exit rate by 2025. Given the quarterly guidance for fiscal '24, how can we think about the cadence to get to that target in fiscal '25, based on the '24 guidance?

Adam Laponis, CFO

That's a great question, and it's one we are internally excited about. Comparing four quarters ago, we were at a 31% gross margin that has now grown to 41% over the last four quarters, which reflects our aggressive strategy. However, it hasn't occurred in a perfectly linear fashion. Our expectations are to see sequential gains continue as we approach 2025, though we anticipate some variations in margin growth due to process improvements. For example, we might initially incur costs to implement process improvements before realizing the benefits on our financial statements. Overall, we expect sequential increases throughout 2025.

Operator, Operator

And our next question will be coming from Puneet Souda of Leerink.

Michael Sonntag, Analyst

You've got Michael on for Puneet. My first question pertains to the regulated diagnostics products you're launching. We recently saw the FDA publish final rules for LDT. I was curious if any of the changes affect your plans regarding Twist's approach to diagnostic products, and if there's any incremental work that needs to be done?

Emily Leproust, CEO and Co-Founder

Thank you for the question. We are closely studying those rules and generally feel encouraged by the new regulations, which seem to grandfather certain LDTs. Overall, regulation may benefit larger players, potentially reducing market fragmentation. Given our strong presence among these larger players, this would position us favorably. The necessity for new test validation will likely offer us a tailwind. Over time, as diagnostic tests require modifications, it'll introduce additional complexities. One area where we excel is in making modifications easier for our customers. Therefore, we believe these rules might ultimately prove beneficial. As you mentioned, we recently launched CE-marked products in Europe and while those specific products cannot be directly imported to the U.S., going through the launch process helped us develop internal capabilities that will be leveraged in the U.S. with the new regulations.

Michael Sonntag, Analyst

Great. My second question pertains to Biopharma funding. We've observed a slight uptick in the first quarter, and I was wondering if you have thoughts on where that might lead, including potential lag times, and if you've detected differences in buying activity between large and small pharma?

Emily Leproust, CEO and Co-Founder

I’m not sure we're observing major differences. Our main focus is on market share gains. The last few years have seen tighter funding and budget issues for our customers, but our highly differentiated products have enabled us to gain more than our fair share. Now, with budgets easing, I am optimistic that we can continue to capture a larger share. I'm encouraged by the performance of Express Genes in particular, as it consistently delivers on our promises. Additionally, we have many products slated for launch shortly, which should allow us to take advantage of those budgets. The order volume in Q2, which represents the start of more substantial commitment from large blanket orders, is a good initial step toward making sure we can capitalize on loosening biopharma budgets.

Operator, Operator

Thank you. This concludes the Q&A session for today. I would now like to turn the call over to Emily Leproust for closing remarks. Please go ahead.

Emily Leproust, CEO and Co-Founder

Thank you for your time and attention today. Our unwavering commitment to pushing the boundaries of innovation has allowed us to unlock new opportunities and drive value for our customers, shareholders, and the broader community, and we will continue on our path towards profitability. We look forward to keeping you apprised of our progress. Thank you.

Operator, Operator

This concludes today's conference call. You may all disconnect.