Twist Bioscience Corp (TWST) 2019 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Twist Bioscience Fiscal 2019 Third Quarter Financial Results Conference Call.

At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, today's conference is being recorded.

I would like to introduce your host of this conference call, Mr. Jim Thorburn, Chief Financial Officer. You may begin.

All right. Thank you, Kevin. Good afternoon, everyone, and thank you for joining us today for Twist Bioscience conference call to review our fiscal 2019 third quarter financial results and our business progress. Please review the press release we issued earlier today which is available at our website, www.twistbioscience.com.

With me on today's call is Dr. Emily Leproust, CEO and Co-Founder of Twist. Emily will begin with a review of our overall progress, and I will report on our financial and operational performance. Then Emily will discuss our upcoming milestones and direction. We will then open the call for questions. And as a reminder, this call is being recorded. The audio portion will be archived in the investors section of our website and will be available for two weeks.

During today's presentation, we will make forward-looking statements within the meaning of the federal securities law. 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 the press release we issued earlier today as well as those more fully described in our filings with the Securities and Exchange Commission. 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.

With that, I'll now turn the call over to our Chief Executive Officer and Co-Founder, Dr. Emily Leproust.

Thank you, Jim, and good afternoon, everyone. Over the course of 2019, we are very well across all areas of our business, driving growth in both synbio and NGS, and investing in continued technological advancements and product offerings that will establish additional sources of revenue and solidify our leadership position in the space. At the beginning of the fiscal year, we outlined a series of ambitious objectives for each of our verticals. I am pleased to report that we are meeting and, in some cases, exceeding these goals.

Overall, we have shipped to 1,091 synbio and NGS customers in the first three quarters of this fiscal year compared to 717 customers in the full 2018 fiscal year. And we reported revenues of $13.6 million for the quarter.

While our revenue was flat sequentially over the fiscal second quarter, our top line revenues accrued a significant accomplishment. Indeed, last quarter, we had a single customer accounting for almost $3 million. Excluding this large liquid biopsy-related order, our revenues would have increased by close to $3 million sequentially.

For synbio, we have now shipped to almost 1,000 customers this fiscal year, and we continue to see revenue growth in this segment. During the third quarter, we prepared the move of our back-end gene production into a new manufacturing facility in South San Francisco. We are pleased to report that the move went smoothly in the first weeks of July without any production interruptions and with only minimum delays for gene orders that came in during the period from July 1 through [July 12].

In Q3, our number of customer orders increased 3.2x year-over-year, while the average order size decreased by about 60% year-over-year, indicating that while we're at the beginning of the trajectory, we're reaching smaller customers and [DNA] makers in the market. We believe this is fueled by our e-commerce platform reaching the long tail of the market.

Revenue from Ginkgo for the third quarter was $2.2 million, and we continue to expect them to meet or exceed their contractual obligations of $9 million this year reflecting Ginkgo's continued need for large quantities of DNA from Twist.

During the quarter, we co-hosted an event with Arzeda, Labcyte, and TeselaGen, showcasing the integration of the respective individual platforms to create a workflow that accelerates the design-build-test cycle. And in April, there was an insightful article in The Economist that detailed the value of the growing field of synthetic biology.

What is described in the article, a convergence of technology and a readiness of the market to embrace the growing benefits of synbio is playing out in integrating different technologies to spur new and exciting research. We continue to play an integral part in the investment of synbio with our pivotal DNA writing capabilities and the products that [we produce] from our proprietary technology.

As a testament to our continuous innovation, on Monday, we announced the introduction of our long oligonucleotides or oligos up to 300 bases in length, which we believe is the longest commercial oligo offering in the industry. Historically, it has been difficult to make oligos longer than 200 bases due to chemical reaction inefficiencies. We have identified a proprietary way to make our oligos a record 300 bases at a very low error rate. We believe this provides us a competitive advantage, not only in our oligo product where longer oligos are useful in drug discovery and development, but also in data storage, where longer pieces of DNA can store more digital data per strand.

In addition, we believe long oligos will be very useful for CRISPR gene editing as well as in protein engineering. Indeed, 300 bases enabled a direct synthesis of two guide RNAs to study cooperative and synergistic effects of multiple guides. And for protein engineering, 300 bases correspond to 100 amino acids or about the length of a protein subunit.

As we look forward for synbio -- as we look for continued synbio revenue growth, we believe we have a significant opportunity in the pharmaceutical segment through enhanced product offering. We are currently targeting several new products late in this calendar year, which we believe will add to our top line synbio growth in 2020 and beyond.

For genomics and targeted NGS, in the third quarter of fiscal 2019, we shipped out target enrichment products to more than 150 customers with 26 of these customers now in production. For NGS, our revenue continues to grow nicely, and our customer base is moving through our pipeline from pilot to production. As we have said previously, we expect that large orders will be lumpy as customers purchased a bolus of products and then require several quarters to work through their inventory before placing another large order.

In addition to growing our base of large diagnostic testing companies, which is a source of the majority of our revenue to date, we seek two additional market opportunities. The first is in the research market. In June, we introduced the mouse exome, leveraging our strength in generating custom panels rapidly and cost effectively. While sequence data for mouse and model organisms is constantly being collected, the mouse exome offering from our competitors was based on sequence information that is over five years old. Our mouse exome includes the most up to date consensus genome build and we expect this to be a significant source of differentiation.

In addition, offering a large panel in an entirely different species quickly and cost effectively is an exceptional feat in custom panel design and reflects our capabilities and the value of our technology platform. Moving forward, in addition to broadening our human NGS product line, we intend to offer additional panels specific to non-human species for a broad range of research need.

The second area where we see growth is in the conversion from SNP arrays to NGS. In July, we received $800,000 in orders that are the beginning of the conversion from micro array to NGS. As we have mentioned previously, several customers have demonstrated that sequencing using Twist for library preparation and target capture with sequencing of the Novaseek platform can be less expensive than running DNA microarrays for SNP analysis, and we intend to continue to enable this conversion. While SNP arrays are used extensively in the consumer DNA testing space, they are also used extensively in the agricultural biotech market to genotype chicken, beef, salmon, and other food products.

We believe that together, the SNP array market segments represent a total market opportunity of $500 million. We do expect it to take some time to penetrate this area as the shift in workflow is substantial. That said, the unique combination of our platform with sequencing on Novaseek provides richer genotyping data at an attractive price point compared to SNP arrays. And it represents a medium to long-term opportunity for Twist to expand the available market for our platform.

During the fiscal third quarter, we launched our e-commerce platform for several of our NGS products. All NGS customers are now able to track their order status, and selected customers can purchase standard NGS products through our e-commerce platform. During the current quarter, we intend to launch several additional e-commerce features for design and custom panel implementation.

Looking ahead at the costs in bioengineering businesses, orders remain strongly ahead of revenues at $18.1 million in Q3, indicating future revenue growth in the near-term and as these orders turn into revenues. Therefore, we remain on track to meet or exceed our topline guidance for the fiscal year, and I will let Jim provide detailed commentary.

Moving on to verticals. For biopharma, we continue to collaborate with our partners, Pandion Therapeutics and LakePharma, as we have continued to internally validate our GPCR libraries. As previously reported, we have identified additional functional leads against GLP1R, which promotes insulin suppression from pancreatic beta cells and plays an important role in type 2 diabetes and as well as Parkinson's and Alzheimer's.

I'd like to note that being able to identify several functional antibodies against one GPCR target is in and of itself an important scientific demonstration of the power of our platform. In addition, I am pleased to report that last quarter, we identified functionalities against two other relevant and important GPCR targets for a total of three targets. Going forward, we are running these leads through the typical characterization workflow in order to build the data packages needed to explore their monetization.

We're also continuing to explore other targets to build a pipeline of leads against multiple targets. We have also created a series of single domain antibody libraries. Single domain antibodies are antibody fragments that are much smaller than a whole antibody. While a whole antibody is composed of two heavy chains and two light chains, single antibodies are engineered from heavy chain antibodies and also called VHS fragments. These fragments are small and modular antibodies that are both stable and robust for potentially [science] discovery and development. The initial characterization of these libraries had started as well as the design of other library.

Further on, our ability to make such diverse libraries quickly and cost-effectively enables us to rapidly manufacture biological content that can be screened for specific functionality in everything else who have multiple opportunities to find future leads against difficult targets. With these new tools, we are making good progress toward establishing collaborations and partnerships for our discovery and early development capabilities.

Turning to data storage. We are continuing our negotiation for non-dilutive funding through a government contract on DNA data storage. We remain encouraged with the progress on this front, though there are no guarantees that we will receive funding under this contract. We're also excited to announce that in anticipation of this program, we are proceeding forward with the design of our next generation silicon chip specific to DNA data storage.

A similar driver chip would be designed and fabricated to be compatible with multiple device designs and will be a key part of our methodical development path to our cell micron feature density. A similar chip will require multiple quarters for design and production. After which, we will continue to execute the engineering roadmap, dramatically increasing feature density. The first phase will be to characterize device designs of 1 to 5 microns.

As a reminder, as the feature size decreases, the cost of oligo and the cost of bytes stored decrease quite radically. For instance, going from 50 micron to 5 micron, which is 10 times smaller, will decrease the cost by 10-squared or 100x. Also, as a reminder, once a similar [product chip] is obtained, different device designs can be turned, fabricated, and tested relatively quickly. So, this represents a key milestone to future improvements. Overall, we are encouraged by our progress and the potential to make DNA storage cost competitive with long-term storage options.

During the quarter, we also added Nelson Chan to our Board of Directors. Nelson has consulted for us for the last year and a half and brings an incredible depth of experience both in the semiconductor industry and in the storage market. And importantly, he was instrumental in introducing and building the market of flash storage at SanDisk.

Finally, we recently signed a contract with Imagene, a French company that supplies DNAshell, very small stainless steel capsules that store digital data encoded in DNA for thousands of years without degradation. This is one more piece of the commercial infrastructure to bring DNA digital data storage to market as a commercial product.

Finally, with regard to our China strategy, I'd like to reiterate that we would be keeping all of our advanced proprietary technology in the United States. By building a facility in China to assemble the more standard backend process of our NGS product for the Asian market, we will be able to expedite the time from order to delivery for these customers. In this way, we will be able to protect our intellectual property and still meet the needs of our customers who need their NGS products quickly. We still expect the space will be ready with initial shipments from this facility before the end of calendar 2019.

At this time, I would like to turn the call over to Jim to review our financial results for the quarter.

All right. Thanks, Emily. First of all, we would like to thank all the shareholders who supported our recent follow-on offering in May. We raised approximately $84 million in net proceeds, which allowed us to close the June quarter with $161.8 million in cash and short-term investments. As Emily noted, the results for this quarter confirm we're executing well and now anticipate our revenue for the year will be in the range of $52 million to $53 million as compared to our previous guidance of $50 million to $52 million.

I'll quickly touch on some quarterly highlights. Revenue is $13.6 million. Bookings are $18.1 million. That's a record for the company. Our commercial team is executing extremely well, continuing to deliver. Our book to bill ratio is 1.3 to 1. Our year-to-date orders are $50 million. Our gross margin for the third quarter is positive 16%. Our Ginkgo business is doing well. We had $2.4 million in orders and billings of $2.2 million in the quarter. And we're doing a good job in terms of expanding our customer base beyond Ginkgo and extending our synbio reach. We have invoiced over 1,000 customers quarter through year-to-date.

I'll now dig into some of the details of orders for the third quarter. $18.1 million in orders represents year-over-year growth of 69% and sequential growth of 8%. Our synbio orders, defined as genes, libraries, and oligos, were $11.3 million for the quarter, including Ginkgo. Sequential growth is 7%, non-Ginkgo sequential growth was 10%. I'd like to highlight our genes business is doing very, very well with orders of $9.3 million with strength in EMEA and the US markets primarily driven from industrial, biotech, academic, and the pharma segments.

NGS orders were approximately $6.8 million for the quarter, which is up sequentially from $6.2 million in quarter two. We received orders from 178 accounts in this quarter, up from 137 in quarter two and had broad-based ordering with no single large customer dominating the bookings.

Our pipeline continues to grow. We have now 58 in pilot and validation and that's up from 42 last quarter. Remember, we tracked the larger accounts that can deliver more than $250,000 in revenue. We're now tracking 84 of them. In addition, two more large customers are now scaling to production volumes, bringing our total customers in production to 26.

How are we doing globally? Well, our global expansion is going well. Approximately 41% of our bookings were ex-US. EMEA delivered another strong quarter with 6.1 million orders, which included 2.1 million from NGS and synbio 4 million with solid orders across industrial biotech, academic, and the pharma segments in EMEA. APAC, our orders were stronger, 1.4 million. And that includes China bookings at 0.8. America orders for the quarter were 10.6 million, which includes 7 million for synbio.

I'd just like to note we provide orders not to directly translate into revenue for the following quarter, but more to provide the trend line for each product group. Currently, both synbio and NGS are growing strongly, although we anticipate both NGS and Ginkgo orders to be lumpy quarter to quarter.

I'll now comment on revenue. Quarter 3 revenue is $13.6 million. This is really a terrific quarter for Twist, with growth of 108% year-over-year compared to $6.5 million Q3 2018. Our NGS business was strong with $5.6 million in revenue, and we're now billed approximately $15 million year-to-date in NGS as compared to $1.8 million year-to-date same period in 2018.

As we noted on our previous earnings calls, NGS orders and revenue can be lumpy. In Q2, we billed one single customer $2.7 million in NGS tools as Emily highlighted earlier. And this customer will use the product over several quarters. Consequently, we did not ship to this customer in Q3. So excluding this $2.7 million from our second quarter results, our sequential growth in NGS was 97%, with shipments to 153 NGS customers during the quarter. This is demonstrating that we're really a strong product line and the product offering is being adopted. Please note the prior quarter shipments to NGS customers shipped about 104.

Synbio revenue was $8 million, up from $7.1 million in quarter two, with synbio revenue year-to-date now $23.6 million, which includes Ginkgo. Excluding Ginkgo, our synbio revenue has grown by 70% year-over-year, demonstrating we're making great progress. It's also worth noting our genes revenue was $6.2 million, including $2.2 million from Ginkgo. Genes grew sequentially 3% for the quarter, with revenue from our longer genes, 5kb, accounting for $1 million. It is worth noting, we had 110 customers sampling and buying our 5kb product.

Genes year-to-date were $19 million compared to $11.9 million. And when excluding Ginkgo, our genes business is growing by close to 90% year-on-year. I'd just like to summarize $13.6 million for quarter three was good because when you back out the $2.7 million, we've grown, as Emily highlighted, almost $3 million sequentially and also are in the middle of our move.

So I just want to thank the whole organization for executing. It was a great quarter, and I am very supportive of the Twisters and obviously they continue to deliver. Good job, team.

Turning to regional commentary. In fiscal third quarter, we continued to expand our global presence. US revenue was $9.2 million, which brings US revenue year-to-date to $27.4 million. This accounts for approximately 70% of our total revenue and represents 125% year-over-year growth. As noted earlier, this is an excellent quarter for the US as the previous quarter reflected the large $2.7 million NGS shipment.

EMEA revenue was $3.5 million for the quarter, up from $3.3 million in Q2, representing approximately 6% of sequential growth. EMEA revenue for the first nine months of fiscal 2019 was $9.3 million, up from $4.1 million in the same period of fiscal 2018, representing approximately 125% year-over-year growth. APAC revenue for the third quarter was $0.9 million, growing sequentially from $0.7 million. For the first nine months of 2019, the revenue in APAC was $2 million, up from $0.7 million in the same period of fiscal 2018, representing 127% year-over-year growth.

In terms of segment revenue this quarter. Academia, which includes synbio and NGS, was strong. For the first nine months of fiscal 2019, our two largest segments are industrial chemicals, accounting for about $16.1 million of revenue and healthcare, accounting for $12.4 million.

Now, moving down to P&L -- gross margins, as we highlighted, our gross margins for the last half of the fiscal year are in the mid-teens, and we actually delivered 16% margin in this last quarter. So that's $2.2 million margin. We're tracking based on our original guidance. Our operating expenses excluding the cost of revenues for the third quarter increased approximately $30.3 million from $28 million.

R&D increased to $9 million compared to $8.9 million for the fiscal 2019 second quarter. Our SG&A increased to $21.3 million in the third quarter compared to $19.1 million in the second, mainly due to some higher legal fees and additional commercial costs associated with our continuing investment in our commercial organization.

During quarter three, we added 11 personnel to our commercial organization and have over the last year scaled our organization from 57 to 106. Our net loss for the quarter was $27.9 million, up from a loss of $25.9 million in the second quarter, primarily due to higher operating expenses.

In summary, our revenue for the first nine months of fiscal 2019 is $38.6 million, which is 127% growth compared to the same period fiscal 2018 with a robust demand for products continuing. Our genes orders are strong. Our NGS products have good momentum as more customers adopt and begin to scale to production volumes. The result is we are increasing our revenue guidance to a range of a $52 million to $53 million in fiscal 2019, which compares to $50 million to $52 million we discussed previously.

Ginkgo revenue is estimated to be approximately $9 million. Non-Gingko synbio is estimated to be approximately $23 million and NGS is estimated to be approximately $20 million. Our net loss guidance for the year is $102 million to $104 million, up from previous guidance of $97 million to $99 million.

We are stepping up our investment in the commercial organization to position us for strong growth in 2020. It takes about six to nine months to recruit, on board and ramp our sales personnel to full capability. We want to staff to approximately 70 field sales personnel. We anticipate approximately $1 million in move-related expenses associated with our new facility in San Francisco, [assuming the] new facility combined with the four new writers will give us the ability to scale to $200 million in revenue.

In summary, over the last year, we've executed ahead of plan. We've made strategic investments in our business and have strengthened our balance sheet. The business is doing extremely well and our organization is executing, and we're positioning ourselves to deliver strong growth.

I will now turn the call back over to Emily.

Thank you, Jim. As we are now in the final quarter of our fiscal year, we have achieved several key milestones with an aggregate plan to continue to grow our business. For synbio, we expect an uptick in revenue from Ginkgo as we have continued growth from the larger synbio market. We expect contribution from long Oligo pool as well as our long genes and gene (inaudible).

Looking into 2020, we have a solid roadmap to introduce products we believe would drive growth in the pharmaceutical market. For the genomics market, we continue to move customers along the continuum from pilot to production. And as (inaudible), we are encouraged by the early inroads we are making in the large SNP array market. We will continue to focus in both the traditional diagnostic market as well as the ag bio research and direct-to-consumer NGS opportunities.

For biopharma, our science continues to progress, and we plan to build our capabilities through non-dilutive collaborations and partnerships. We also look forward to signing additional revenue generating partnerships moving forward, beginning with smaller agreements focused more on services and moving along the value spectrum into true discovery partnerships. In data storage, we look forward to continuing the contract negotiations from non-dilutive financing and expect it to drive to completion.

One final note, we did post case updates detailing developments in both May and June in the ongoing litigation with Agilent, which can be found under the News & Events section within the investor relations section of our website. We continue to believe the case is meritless and intend to defend ourselves vigorously. As you can appreciate, we will not be discussing the litigation on the call. So we do encourage you to read the updates on the website.

With that, let's open up the call for questions. Operator?

(Operator Instructions) Our first question comes from Tycho Peterson with JPMorgan.

Hey, guys. This is Tejas Savant for Tycho. I wanted to start with the NGS business. Emily, can you just -- I know you mentioned 150-plus customers that you shipped to in the quarter, really strong order book as well. How much of that was driven by the e-commerce platform launch and how has that been shaping up over there?

That's a great question. Thank you very much. Most of that growth has not yet been reflected by the e-commerce launch. So we are still waiting forward for the benefit of e-commerce.

Got it. Following up on NGS, I think you mentioned only two incremental customers moving to production mode. Was that surprising to you? Was it normal quarter to quarter lumpiness? It sounds like between the first and second quarter, you had six or seven customers who went from validation to production. Anything to read into the cadence there?

It's a timing issue. I think if you look at a number of customer invalidation as well quite a bit, so it's the timing. And at the same time, the people [has all read] the instruction, picked up the difference in the one-time $2.7 million order we had last quarter.

What I would add, Tejas, is that we have almost 40 customers in validation stage now. Most of them are in the late validation stage. So it's going through the pipeline. And part of that is therefore we're having a lot of negotiations, teams tied up in terms and discussions. And I think in terms of scaling, it's not a surprise. What surprises me is how many are actually moved into the late validation stage, which is encouraging.

Got it. And one quick follow-up here on LakePharma. I mean can you talk a little bit about the success you had so far in terms of penetrating that customer base with your discovery and optimization platforms?

Yes, so we are in -- very useful in getting us in front of people. So in discussion with multiple LakePharma clients, as you can imagine, those types of busy activities take some time to reach to a conclusion. But it's been quite positive so far.

The other thing I would add on NGS is we did move our lab this quarter, consolidated in South San Francisco. So we've been very cautious in terms of how we're managing our customer base for that process. And the team have actually executed extremely well.

Got it. That makes sense. On China, was there a slight delay in terms of opening up your facility there? It sounds like it's now going to be end of calendar year. So anything to elaborate on or was it just normal course of business?

In previous quarter, we had guided to end of fiscal year for the first shipment -- sorry, I misspoke. In previous earnings calls, we had guided to the end calendar year. So [I think] we are on track here.

I see, okay, got it. Got it. It makes sense.

Plus, our priority is to get our consolidation in South San Francisco.

Got it, and then --

In the meantime, we can ship to China from here. It would be better when we're in China, but we can still serve from here.

Got it. And then, Jim, I know you probably don't want to speak too much specifically in terms of the next fiscal year just yet, but given that you've guided to mid-teens gross margins in the back-half of this fiscal and obviously you're ramping up some commercial investments in the back half of the year here, how should we think about the margin progression? I mean is that mid-teens gross margin a good baseline number of which to think of sequential improvement as we move to the next 18 months or so? Or are there any other sort of like moving parts which might sort of alter that trajectory materially?

So good question. One we focus on. So part of consolidating into San Francisco is we can leverage the organization of synergies. We are adding four new writers toward the back end of this year. That's going to help us scale to approximately $200 million. And as a way we think about the business, between $100 million and $120 million and $130 million, we should be targeting roughly around, delivering roughly around 50% gross margins. And our goal is to scale to that level as quickly as possible. We anticipate we should be at that run rate towards the end of the next calendar year.

Got it. That's very helpful. Thanks so much, guys. Congrats on the quarter.

Thank you.

Your next question comes from Ross Muken with Evercore ISI.

Emily Leproust: Hi, Ross.

Ross, your line is open. You can ask your question. (Operator Instructions).

Hi, can you hear me?

Yes.

Hi, it's John [ph] on for Ross. Focusing on data storage and the imaging deal, I was wondering what your vision was for how you're going to commercialize. What does it take to have a full commercial package in the space? And does it require complementary technology such as throughput reading?

That's a great question. So in order to (inaudible) in data storage, you need to be able to data in/data out, which means you first need to encode the data in DNA. So that's software. Then you need to write the DNA; so that's our silicon chip. Then you need to store the DNA; so that's the (inaudible) really useful for that. And when the data is needed, you have to PCR it out, which PCR is well understood, and then you have to sequence it and decode, which is, again, software.

In terms of our go-to-market strategy, initially, where it makes the most sense is to go for cold data, so data that is not read very often. So it means that you need to be able to read the data when needed, but only a small percentage of the data will ever be read. What that means is current sequencing technology, for example, Novaseek, will be perfect for that at this point.

As sequencing technology improves over time, there maybe even cheaper sequencing technology which will enable us to go into markets where the data is read more often. But because we don't control the reading side, initially we focus on markets where the data is read very infrequently. FYI, that data is called WORN, which means write once and read never. The vast majority of the data in the world is WORN data.

Got it. Thank you. So as far as this imaging deal is concerned, how much closer does it get you to an offering in (inaudible) WORN data? Do you have a general timeframe of when we could expect to see anything along those lines?

We sell today. We have a small number of sales in data storage. But today, what's limiting the ramp is actually the cost. That's limited by the density in the silicon chip. Today it's about $1,000 per megabyte. If you're storing bitcoins, it is very inexpensive to store bitcoins. But if you want to store financial data or your personal photo books, that could be quite expensive today. So, that's why there's only a limited market.

So the next opportunity for us is when we can significantly lower the cost of writing. Through the CMOS silicon chip that we are developing, we are enabling that transition. So the next target point would be somewhere around $100 to $1,000 per gigabyte. At that point, once you have that, you can start serving some very interesting markets. So the opportunity would be bigger and then the next step after that again will be to go for $100 per terabyte, which is about the price of a hard drive. At that point, you can go after the entire market.

So it will be gradual, but the next step is the $100 to $1,000 per gigabyte. And as we mentioned, it will take a few quarters to design and build that first silicon chip. But the good news is we have a roadmap, we are executing it, and we are moving forward. And if I may add, the non-dilutive funding that we expect to get will accelerate that.

Understood. That is really helpful, thank you.

Our next question comes from Doug Schenkel with Cowen.

Good afternoon. I want to go back to an earlier question or maybe just frame it a different way. So just recapping some of the numbers that have been covered a couple of times, the number of customer evals jumped from around 100 to over 150, 42 pilots went to 58, and then the number of folks that are in production went from 24 to 26. So you're getting a lot more evals. The pilots are jumping, too. I think what we're waiting for is a bigger jump in production customers.

Is there some rule of thumb that you can share with us on typically how long it takes to move from one stage to another? And then maybe building off of that, what type of dollars we're talking about? That second one may be a little bit tougher. But as we look at, obviously at this point, we've had three quarters of revenue. We know what your guidance is for the NGS segment for the year. It seems like you don't have a lot baked in in terms of additional conversion into the fourth quarter, which my guess is just conservativism at this point. But I ask this because it seems like you're clearly building momentum heading into the end of the fiscal year. And if you can give us some rules of thumb on these things, I think it will allow us to at least think a little more intelligently about what could happen in this segment next year.

Yes, so there is some conservatism. Remember, part of the conservatism, Doug, here is because we are consolidating into -- well, we're conservative anyway -- consolidating to the facility in South San Francisco.

We're still tracking this. What we're finding over the last few months is we have got a lot of negotiations going in terms of customers. I think what's interesting is if you take one order that we had on the microarray, which came in in July, the 800,000, we started negotiating that one --

In February 2018.

February 2018. So that's taken us, what, just over a year and almost six months to convert that. And we'll start shipping that, when, probably September quarter. So in terms of what we'd be expecting, this year, we're going to do roughly around 20. We would have to step back. And you're right, we're getting momentum. There's more sitting in the validation and that's late validation negotiation. We should be anticipating that we should be looking at almost doubling that business next year. It's difficult right now to say when those validations are going to flip into adoption, but my view is once they get into validation, you're probably talking about three to six months for adoption.

And that's super helpful (multiple speakers) -- go ahead, sorry, Jim.

And then that's late validation.

Okay.

And we define late validation as we're actually negotiating the terms and talking about the pricing and the T's and C's.

Okay. And is it -- I mean you've got a ton of momentum. It's still early days, too early to comment on any signs that these conversion timelines where you move from one phase to the other are tightening up. I'd imagine that big one has taken a year, year and a half from day one to getting to where we are now. My guess is if there's another one like that out there today, it would presumably take a bit less time. Is that fair?

Definitely. Now that we've done it several times, we can anticipate better what people want. So there is less exploration of what the needs are. A lot of those are already in the funnel. I don't think there are a lot of people that we are not talking to yet. So that's why I think it seems conservative for this fiscal year. I feel like we are very well-positioned for what we want to deliver next year in terms of growth.

Okay.

The other point there, Doug, is we have increased our investment in the commercial organization to support the growth. If you look at it, we're ramping up to almost 70 salespeople of that, 30-odd are going to be supporting NGS, and we build technical resource around that because it is a technical sale.

As we start to segment the business, each segment within NGS, whether it's clinical or diagnostics, it really requires a different touch and different value proposition and they've got their own idiosyncrasies. So we're building that knowledge. And so part of the ramp has to be to get the right people in the right place talking to the right customers as well. We definitely got a good product.

Let me ask one more follow-up on this topic just because I think that last point about the 70 new folks you're bringing in, 30 are focused on this segment. Do you expect them to help you? I think you've already been strong with basically converting some of the big research and big commercial labs that need good target capture tools at a lower price. (Technical difficulty) with some really big customers. Does the commercial reach help you more with those types of customers and converting more quickly? Or does it actually allow you to go after the bigger part of the market at least in terms of number of customers who may be spending a little bit less but there's just a lot more of them.

I think it's all of the above. I think more people on the ground enables you to do more of the high touch account managing that you have to do with the big accounts. At the same time, if every time we get into the account and there's a pilot we win, then it behooves us to put more people to knock on more doors early so that we can grow the funnel and move more people from pilot to production. So definitely a little bit of both. It will help with the big accounts as well as the more medium ones.

Got it. Thank you. Thank you, Emily. Maybe a couple of real quick cleanup ones. Where do you think gene turnaround time will be by yearend? And how important do you think that is in terms of opening up more of the market?

I think it's a critical focus of ours for growing our reach. Basically, in the market, the more flavors of DNA we can add, the more it will be appealing to more researchers and faster turnaround time is, in a sense, an additional product features that enabled us to reach more people.

So our goal is to be consistently below 12 days' turnaround time in the near future and then push that given further. At 12 days, we'll be extremely competitive. Then as you get to 11 and 10 days, then it's almost irresistible at the price point and the scale that we have.

One last one. In the context of discussing your newer growth drivers in your prepared remarks, you mentioned the ability to use Twist-enabled SNP RNA tools to drive customers to increasingly migrate from arrays over to Novaseek. Is it fair to say that a nice validation of that would be on an upcoming call being able to disclose that you're getting early indications of interest from some of the big ag accounts? Is that what we should look for next as a validation that you guys are progressing there?

There's a number of segments that do genotyping. One of them is, like you mentioned, the ag market. Another is the direct-to-consumer DNA testing. I think any of those will be a proof point. I think we were quite happy with our order of $800,000 in July for one of those early conversions. So that is, in a sense, the first proof point that we can compete in that market.

As we mentioned, it's going to take some time because it's a big shift in workflow, but once you prove that price point is there, which is the most important part in genotyping, then it shows you can do it. If you can do it once with the commercial team that we have, then we can go and repeat it.

Got it. Okay. Thank you again.

Thank you.

Our next question comes from Catherine Schulte with Baird.

Hi, thanks for the question. Going back to NGS, just curious, how has the uptake been on the products you launched at AGBT, particularly the Fast Hyb protocol?

Thank you. Fast Hyb has been a great product. It's really enabled us to open some doors, where I think as we had mentioned before, what we enable people is a lower cost of sequencing per samples, but for some people, they already have an asset that's already validated. The cost saving that we bring may not cover the entire cost of revalidating under the new switching product. In that case, the Fast Hyb is a fantastic door opener because at that point, we not only bring cost saving, but we bring a workflow advantage.

And so, overall, it's been very well received. And actually, it exceeded my expectation in terms of the customer, the positive customer reaction to it. It's really been a door opener.

Okay. And then you've talked a lot about starting to see that conversion from SNP arrays to NGS. How many customers are you currently serving in that application today switching from arrays?

It's a few digits, it is less than five. It's very small numbers at this point.

We're very early in that full inning. I mean we've been obviously working on it for some time. And actually, we did get the order in July, which is fairly close to when we expected. So I would say we're tracking based on our plans. It's tracking probably slightly ahead.

Okay. And then just lastly, on the drug discovery side, what else do you need in terms of your data package before you think you can monetize that capability? And how far out do you think we might be from that?

Yes, that's a great question. So, right now, we know that we have (inaudible) we know they are functional. I think having a little bit of NVivo data will go a very long way. So that's mostly the area where we are focused at that point. Once you have NVivo data, then it's a clinical candidate.

Great. Thank you.

Thank you.

And I'm not showing any further questions at this time. I'd like to turn the call back over to our host.

Thank you very much, Kevin. So to conclude, it's an exciting time to be at Twist Bioscience. As we move into the final quarter of our fiscal year, we continue to deliver strong growth across our synbio and genomics businesses, and we are investing in our long-term opportunities of biopharma and data storage. With a growing revenue stream driven by customers truly demonstrating the ability to change the world, long-term vertical market opportunities, and a great team in place to execute on our aggregate plan, we are very well on our way toward implementing our mission to provide sensitive DNA to improve health and sustainability.

We appreciate your continued support and look forward to keeping you up to date on our progress. Thank you very much.

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