Nautilus Biotechnology, Inc. (NASDAQ:NAUT) Q3 2023 Earnings Call Transcript

Nautilus Biotechnology, Inc. (NASDAQ:NAUT) Q3 2023 Earnings Call Transcript October 31, 2023

Operator: Thank you for standing by, and welcome to the Nautilus Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. As a reminder, today’s program is being recorded. And now I’d like to introduce your host for today’s program, Carrie Mendivil, Investor Relations. Please go ahead.

Carrie Mendivil: Thank you. Earlier today, Nautilus released financial results for the quarter ended September 30, 2023. If you haven’t received this news release or if you’d like to be added to the company’s distribution list, please send an e-mail to investorrelations@nautilus.bio. Joining me today from Nautilus are Sujal Patel, Co-Founder and CEO; Parag Mallick, Co-Founder and Chief Scientist; and Anna Mowry, Chief Financial Officer. Before we begin, I’d like to remind you that management will make statements during this call that are forward-looking within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated.

Additional information regarding these risks and uncertainties appears in the section entitled Forward-Looking Statements in the press release Nautilus issued today. Except as required by law, Nautilus disclaims any intention or obligation to update or revise any financial or product, pipeline projections or other forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast, October 31, 2023. With that, I’ll turn the call over to Sujal.

Sujal Patel: Thanks, Carrie. Good morning and thank you for joining us today. On this call, we’ll share our financial results for the third quarter and provide a brief update on recent activities. I’m excited by the progress we made in Q3 against our scientific and development goals and in the ways we’re preparing the various elements of our platform for commercial launch. That continued progress is the direct result of the great work being done by Nautilus across all parts of the business, especially but not limited to our R&D organization. I’m pleased to report that as of mid-September, our 100-plus person R&D organization now reports entirely into Subra Sankar, our SVP of Product Development, who’s been with us for almost three years.

Though it’s only been a little over a month since we’ve made the change, we’ve already begun to see the productivity and efficiency gains we’d envisioned. Subra has held many senior roles over the last two decades, notably at Solexa and Illumina, where he led instrumented consumable development efforts for next-generation sequencers and related products. Based on his extensive and successful product development experience, it has been our plan from the beginning to unite these efforts under Subra. With our product development efforts reaching the integration, verification, and scale up stage, our needs match Subra’s experience making now the right time to affect the change. Unifying R&D under Subra has the additional benefit of enabling Parag to significantly expand his outward-facing activities with the scientific and customer communities, while also maintaining deep involvement in both broad strategic issues and day-to-day scientific activities.

Joining Subra’s team just yesterday, we’re excited to welcome Dr. Martin Huber as our VP of Biochemistry and Flow Cell Development. For the past 13 years, Martin was a Co-Founder, CTO, and ultimately CEO of Quantapore, a company devoted to pioneering massively parallel of direct, single molecule DNA and protein analytical tools. Prior to that, he held senior scientist positions at Ion Torrent and Nanosphere. His deep expertise in chemistry and nanoengineering will not only broaden our team’s skill set, but also increase the depth of our R&D leadership bench. With an increasing focus on proteomics by the scientific community, moves by major life sciences companies to expand their proteomics-related offerings, and massive international investments in the study of proteins, it’s clear to me that the foundation has been laid for the proteomics era of biology and medicine to take root and flourish.

While the near-term opportunities that will emerge are exciting areas of focus for us, we believe that easy to use, high throughput discovery platforms that match the scale of the proteome, like Nautilus hold the opportunity to revolutionize more than just proteomics. We believe that the potential exists to fundamentally improve the way all biological research is conducted, improvements that could manifest significant advances to human health for millions across the world. In advance of making our platform available next year, we continue to broadly share, through white papers, scientific posters and presentations, one-on-one briefings webinars, and a range of other methods insight into how our platform works and its potential benefits. This type of transparency continues to build meaningful trust and early credibility with our potential buying audiences and underscores our philosophy of being a committed and contributing member of the broader proteomics community.

One recent event, the HUPO World Congress in mid-September in Busan, South Korea, provided a great opportunity to continue to educate KOLs and others about our platform and the ways in which we believe it will change what is possible in proteomics research. For more on that and an update on our R&D progress, I’ll now turn the call over to Parag.

Parag Mallick: Thanks, Sujal. As Sujal mentioned, HUPO was a terrific event for us again this year and provided a very effective vehicle for us to update attendees on platform progress and to encourage the community to re-imagine what’s possible in proteomics. At our booth, we conducted a well-attended fireside chat with Professor Bernd Wollscheid of ETH Zürich. Bernd did a great job of articulating some of the biggest challenges facing proteomics researchers today. Namely, that the field needs to agree on standard workflows to most consistently and effectively generate biologically meaningful data and that integrated workflows are necessary to make proteomics easier. He suggested that what we need is a “red easy button” for proteomics.

We also hosted a luncheon seminar during which Dr. Birgit Schilling from the Buck Institute for Research on Aging discussed postdocs to antibody, Joanna Bons and Jordan Burton, winners of the Nautilus First Access Challenge; plan to use our platform to study kidney injury. Their longstanding work has demonstrated dramatic changes to the proteome upon kidney injury. Now, Dr. Bons, Burton, and Schilling are planning to use the Nautilus platform to get a new view into the proteome that they believe will be hugely complementary to their existing mass spectrometry based workflow. We’re excited to work with them on this and other research initiatives. In conversations throughout HUPO and as we presented our scientific posters, we found that the community was most interested in hearing about our single molecule library preparation process, the relationship between the number of intact protein molecules measured and the effective dynamic range of the platform, the development and extensive characterization of our affinity reagents, the stability of the platform that enables it to perform a large number of measurement cycles and the rigorous approach we have developed to estimate false discovery rate to increase confidence in single molecule protein identification.

I also always enjoy hearing of the diverse applications that the research community envisions for our platform. This time at HUPO, we heard new applications ranging from understanding protein shedding into cerebral spinal fluid when looking at neurodegenerative diseases to examining the dynamism of subcellular proteomes and how they are impacted by disease and diverse therapeutics. As we prepare to bring to market a platform designed to comprehensively quantify the proteome, we continue to make good progress across a number of important fronts, all of which I have reported on in detail during recent calls, including nanofabricated chips for single molecule protein deposition, nanoparticles for affixing proteins to those chips, affinity reagents and their labels for probating affixed proteins, assay buffers and parameters, an instrument capable of reliably and routinely performing a series of single molecule binding measurements, and machine learning based software for determining protein identities and quantities from those measurements.

A critically important area that I’d like to more fully update you on is the work we’re doing to engage with external development and manufacturing partners to scale the platform to meet both anticipated commercial demands and cost targets. On the instrument front, we are actively engaged with our selected contract manufacturer on the design transfer. We expect this to be fully completed in this quarter with the initial externally built instruments validated in the early part of next year. In terms of the flow cell, we’ve completed development of the end-to-end process from nanofabrication to surface chemistry to flow cell assembly, and we’ll be further validating that process this quarter. The nanofabrication processes have been locked at our selected vendor and are production ready.

We are actively working with our downstream suppliers on surface chemistry and flow cell processes and expect to have those vendors qualified by the end of this year. We continue to utilize a combination of internal and external production resources to manufacture our reagents. We’re in the process of scaling up production processes to meet anticipated early access production volumes and have great confidence in our ability to support our current and upcoming production needs with our existing production processes. Overall, I’m very pleased with the development progress we made in Q3 and have made throughout the year. Our internal teams continue to increase the scale and robustness of the platform as we ready the platform for launch next year.

With that, I’ll hand the call back to Sujal.

Sujal Patel: Thanks, Parag. And I completely agree. I too am very pleased with the progress Nautilus has made this year as we continue our drive towards commercial readiness. We accelerated our development activities on a number of key fronts and remain confident that Nautilus’ core value proposition and our anticipated V1 launch that will deliver important and distinct advantages to the market. Based on that, we continue to target next year for the launch of our platform. With that, I’ll hand the call over to Anna for a look at our Q3 2023 financials. Anna?

Anna Mowry: Thanks, Sujal. Total operating expenses for the third quarter of 2023 were $19.1 million, up $3.3 million compared to the third quarter of 2022, and $0.1 million above last quarter. This modest increase in operating expenses year-over-year was driven primarily by an increase in headcount to support the ongoing development of our product. Research and development expenses in the third quarter of 2023 were $12.0 million, compared to $9.6 million in the prior year period. General and administrative expenses were $7.1 million in the third quarter of 2023, compared to $6.2 million in the prior year period. Overall, net loss for the third quarter of 2023 was $15.9 million, compared to $14.1 million in the prior year period.

Turning to our balance sheet. We ended the quarter with approximately $276 million in cash, cash equivalents and investments, compared to $287 million at the end of last quarter. Since the beginning of the year, we have burned approximately $38 million of cash. We continue to be focused on disciplined cost management while strategically investing in the business to ensure that we have maximum operational flexibility ahead of our commercial launch. Over the past year, we have hired additional leadership talent, particularly in R&D, increased the throughput of our development and production pipelines, and taken on new facilities. Even while making this important progress, we continue to improve on our operational efficiency. You may recall that last quarter we reduced our 2023 annual expense forecast to growth of 30% year-over-year.

With our team’s continued laser focus, we have further improved our efficiency and now expect our 2023 operating expenses to increase by slightly more than 20% compared to 2022. Importantly, we continue to expect to enter 2024 with a lower burn rate and a strong cash balance, extending our cash runway into 2026. Our expectations on runway include the initial buildout of our commercial organization and takes into account a range of 2024 product launch date scenarios. With our robust balance sheet and disciplined management of capital, we remain confident that we are strongly positioned to execute on a goal of launching a transformational platform in proteomics. With that, I’ll hand it back to Sujal.

Sujal Patel: Thanks, Anna. Needless to say, I’m very pleased with our continued focus on running this business as efficiently as possible while investing in the areas critical to bringing our platform to market. I want to take a moment to thank Anna for her diligent stewardship of our finances and the rest of our senior leadership team for their continued commitment to managing our resources in a way that maximizes Nautilus’ cash runway through the plan launch next year and into 2026. Our continued and frequent conversations with proteomics KOL, and other potential customers’ makes one thing very clear now is a great time to be pioneering a platform capable of establishing a new gold standard in the measurement of proteins and proteoforms.

The world of biological research is hungry for a breakthrough, and we fully intend to be the company that supplies it. We continue to make good progress against our goals and look forward to updating you along the way as we continue towards commercialization of our platform next year and beyond. With that, I’ll turn the call back to the operator.

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Q&A Session

Operator: Certainly. Thank you. [Operator Instructions]. And our first question comes from the line of Tejas Savant from Morgan Stanley. Your question, please.

Yuko Oku: Hello, this is Yuko on for Tejas. Thank you for taking our question. I saw some posters from Nautilus at ASHG. Could you give us a brief overview of the data that you’ll be presenting and what we should be looking out for?

Sujal Patel: Let me add, this is Sujal. Let me — I’ll pass this over to Parag to go and answer. The question was — the volume was really low, but I think the question is really around what to expect at ASHG.

Parag Mallick: Absolutely. It’s a great question. Our goal with ASHG is to continue to educate the market and to introduce the community to our platform. The specific data that we’re going to share will involve both the fundamentals of the platform. This is a slightly newer community focused on the genetics community. We’ll also discuss proteomics in the context of multiomics, and as well as aspects of how the affinity reagents are developed and characterized, and how we accomplish our single molecule array, and substantial data around platform stability, particularly across very large cycle runs. We’ll also discuss our computational analysis infrastructure for identifying proteins and characterizing false discovery rates as part of that.

Yuko Oku: Great. Thank you so much for the color. And then, just a separate follow-up question. OpEx is tracking lower now slightly more than 20% year-over-year growth versus 30% guided last quarter. Could you explain how you’re thinking about spend in 2024 as we head closer to that target launch date in 2024?

Anna Mowry: Sure, Yuko. Let me make a couple of comments on that. The team has just as Sujal mentioned been very diligent in how they’re solving problems by being innovative and creative and often figuring out solutions at lower cost, which is what’s really driving our reduced OpEx forecast for 2023. I don’t have any specific comments for 2024, but what I can tell you is that we will continue to be very tight with how we manage our spend. We will continue to invest in our development teams, but we’ll do so in a very targeted way. And I would think that growth there would temper a bit as we start to make room for hiring a handful of folks on the commercial side and the staff that supports them. I’ll be able to give more color on that at our call at the start of the year.

Operator: Thank you. [Operator Instructions]. And our next question comes from the line of Daniel Brennan from Cowen. Your question, please.

Daniel Brennan: Great. Thank you. Thanks for the questions. Maybe the first one just to level set things like, is there any change at all to thinking about the key aspects of kind of the launch, early access still by year-end, some data placements in Q2, and then still targeting a mid-2024 launch?

Sujal Patel: Yes, Dan. Thanks for the question. This is Sujal. So what I would say is that there are no changes to our plan, but I don’t think that — I think that your — what you just outlined is quite exactly what we said on the last earnings call in the Q2 call and it’s the same now for the Q3 call. So what we’ve said is that we continue to target roughly the middle of next year, middle of 2024, for the launch of our platform that means launching our product as instrumented consumables and software. And really, that’s the inflection point where any meaningful revenue begins. The early access period is a period of approximately three or four months ahead of that launch. And so that we don’t anticipate that we’ll be doing any early access in 2023.

And so as we head into 2024, you should look for us to make an announcement around our early access program availability. We’ll start signing up with customers, samples that we can analyze and then about three or four months before the launch roughly, we’ll begin analyzing those samples. And as a reminder, the goal of this early access period is really not — I mean that we will charge some modest amount of money to customers, but much more importantly, it’s about generating interest in the platform so that we can get preorders for the instrument or get grant proposals submitted and as well, it’s for marketing value so that we can get papers and publications with our potential customers, with our collaborators, and use that as a stepping stone to then go after the next set of customers.

Daniel Brennan: Got it. That makes sense. I know last quarter as well you discussed maybe making some small adjustments on the specs just to remain on track with dynamic range and kind of protein coverage I believe kind of where do you stand today? Are those adjustments still kind of intact? Were there any other changes made just in terms of the targeted kind of commercial specs by the middle of 2024?

Sujal Patel: Yes. That’s a good question. As a reminder, so on our Q2 call, we said that we would pragmatically take the steps of adjusting a few of the initial product specifications for our launch so that we could preserve our time to market. And we still believe that those specifications are not just competitive in the marketplace, but they’re market leading. In Q3, we didn’t change any of those specifications. Obviously, as we continue to move through the verification validation phase and we’re scaling up our reagents, there are lots of moving parts, but in general, the specifications and the areas where we were considering launching at slightly below our initial specifications or our full specifications and then ramping up to full specifications over time of consumable base, those changes are really intact here as we head into the end of the year.

Daniel Brennan: Got it. And then, in terms of papers, like what could be — obviously you’ll be at ASHG with some more — it looks like more like kind of a tech awareness understanding, really education for the customers down there. What can we — can you just remind us what can we expect from papers kind of before the early access kicks in?