Twist Bioscience Corp (TWST) 2022 Q1 法說會逐字稿

Welcome to Twist Bioscience's fiscal 2022 first quarter financial results conference call. (Operator Instructions)

Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to turn the conference over to Angela Bitting. SVP of Corporate Affairs and Chief ESG Officer.

Thank you, operator. Good morning, everyone. I would like to thank all of you for joining us today for Twist Biosciences conference call to review our fiscal 2022 first quarter financial results and business progress. We issued our financial results this morning, which is available at our website, www.twistbioscience.com.

With me on today's call are Dr. Emily Leproust, CEO and Co-Founder of Twist; and Jim Thorburn, CFO of Twist. Emily will begin with a review of our recent progress on Twist businesses. Jim will report on our financial and operational performance, Emily will come back to discuss our upcoming milestones and direction, and we will then open the call for questions. (Operator Instructions)

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 be making 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 in financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth in the press release we issued earlier today as well as those more fully described in our filings with the 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 cannot, at this time, predict the full extent of the ongoing impact of the COVID-19 pandemic and any rebuilding business or economic impact. We disclaim any obligation to update any forward-looking statements, except as required by law.

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

Thank you, Angela, and good morning, everyone. We continued our momentum through the first quarter of fiscal 2022, reporting a record revenue of $42 million and almost $50 million in order, setting the stage for robust growth in 2022. Our investment in new products, biopharma and data storage continues to accelerate innovation and create upside opportunities in the medium term.

Beginning with SynBio. I'm pleased to report record revenue of $18 million and orders of $22.2 million. We shipped 125,000 genes in the quarter, a new record for Twist, and have increased our gene capacity to 65,000 genes per month with an eye to 90,000 gene per month in the near future. The increased capacity allows us to accommodate both the ongoing and search demand as we work to bring the Factory of the Future.

For NGS, revenues and orders for the quarter were $19.2 million and $21.8 million, respectively. NGS revenue and orders were impacted by the timing of the early days as well as some customers' labs impacted by Omicron, with strong growth projected for the remainder of fiscal 2022. We have a great product offering and market at it to grow as our customer for clients move from development to commercialization.

To give you a bit more color, I'd like to dive into 2 opportunities we see for 2022, and beyond in India. The first is liquid biopsy. The market in BCC Research estimates would be $19.6 billion by 2025. While we do not develop liquid biopsy test ourselves, we estimate that the DNA portion is approximately 5% to 10% of the total market, adding $1 billion to $2 billion of serviceable market to Twist. Our liquid biopsy customers are at various stages of development, both in their own drive to our commercialization and in their use of Twist products. Some are just starting to create test and piloting our products. Others have completed the design and product specifications, including our NGS products and our connecting clinical studies, and a few are already commercial.

At the clinical trial and commercial stages, each patient samples processed used some with DNA. So as they advance in their drive towards commercialization and around the commercial test volume, our NGS revenue increases proportionately. Once the liquid biopsy customer receives clearance, from the U.S. Food and Drug Administration, the components of the tests are set for the foreseeable future and changing those components is discount. As a result, these customers are extremely sticky. To get a bit more granular, we are currently working with more than 20 companies developing liquid biopsy test. Many of these customers use our fully inclusive workflow to detect methylation in the assays.

In addition, we introduced separating to our DNA reference, which may play an important role in tuning the accuracy of cancer detection. We believe that developing and standardizing this ultrasensitive yet accurate DNA-based asset is paramount to ensure the resulting analysis from the test informs clinical decisions reliably. As the test come to market and as the reimbursement landscape becomes clear, liquid biopsy customers represent a tremendous supply cost of risk.

Another key market where we see a significant opportunity is in minimal residual disease, or MRD. MRD assays are used to determine if cancer treatments are working to check for repulsive cancer and to guide further treatment plans. MRD assays are primarily being used for blood cancers, but there are many testing development for other oncology applications.

There are 3 ways that we work with customers in this application. The first is through low pas sequencing where we provide the library preparation. This is straightforward. And again, every patient sample needs A-level preparation. The second is whether it's a universal panel for all patients similar to the liquid biopsy assay. The third way we can work with them or the customers is a scenario where every patient gets their own (inaudible) panel. When it is difficult for others to offer a (inaudible) panel that is cost-effective for patients custom panels account for 80% of our NGS revenue. So custom is something we know well and do well at a reasonable cost. These are just 2 opportunities we see for growth in 2022 and beyond.

In addition, we have launched several products in the December and January time frame. That we believe will contribute meaningfully to growth, including Exome 2.0 with industry-leading content and performance. The 96-Plex Library Preparation Kit, a testified version of the product we acquired from iGenomX that we believe will drive the conversion of SNP microarray to Twist Enzymatic, and a robust can we make our panel that was designed with the both institutes with applications not only in the culinary medicine, but also human health as well for cancer, heart disease, rheumatic disease and to immune conditions.

We also launched a Omicron control in 14 days, a record on time, and critically important for the research community as COVID continues to evolve. Importantly, we offer 3 separate Omicron control, which includes the stealth Omicron variant in more recently in the United States and earlier in other geographies.

Moving to Biopharma. We closed the acquisition of Abveris in early December, and the integration is going well. From an external perspective, we expect them to continue to operate relatively separately and collaboratively through the end of calendar 2022, which will allow for a thoughtful and nondisruptive integration as well as account for a specific revenue target ML at that point in time.

Moving to 2023. We have said a combined offering will be the most comprehensive discovery platform in the industry with synthetic in vivo and AI-based tools to identify and optimize the best biologics against a wide range of time. We reported Biopharma revenue of $4.8 million for the quarter and $5.6 million in orders, which includes 1 month of Abveris.

In the first quarter, we added 8 new partners for Swiss Biopharma, with 42 partners in total. We initiated 21 new programs with 52 active programs ongoing at the end of the third quarter. We completed 7 programs during the quarter for a total of 39 completed programs of Swiss Biopharma.

Of our 91 total active and completed programs, 50 at milestones and our royalties, an increase of 16 programs with downstream economics during the third quarter of fiscal 2022. Abveris has 72 projects underway, which, as a reminder, our fee-for-service, and typically takes 3 to 6 months to complete. We recently announced a collaboration with abcam for discovery around antibodies for diagnostic and research applications. This is a robust partnership that provides license fees and commercial milestone payments for Twist.

We have collaborations with Sosei Heptares to antibodies discovered in the GPC update, and Artisan for discovery of next-generation cell therapeutics. In addition to our work for partners, we published data detailing our COVID antibody development in the peer-reviewed journal map and Revelar Biotherapeutics published a preprint paper showing that our bispecific antibodies have these licensed from us, RBT-0813 neutralizes both Omicron and Delta variants of SARS-CoV-2.

This bispecific hits all nonviral are concerned today, and whether I expect to submit an IND to begin clinical studies in the first half of end of calendar 2022. Recall that Revelar was launched by Twist in November 2021 and Life Sciences Twist Biopharma discovered COVID antibodies, including RBT-0813. We are eligible to receive success-based milestones payments spending over $100 million or for the achievement of key development, regulatory and commercial milestones as well as mid-single-digit royalties on any future net sales of RB2-0813.

We are committed to create up to $10 million in initial funding. In addition, Revelar can enter into to find additional lease program directed at non-COVID targets over the course of the next 4 years. With each program subject to additional milestone payments and royalties for Twist. For data storage, we know that today, the amount of data storage is increasing dramatically with the (inaudible) market expected to reach 60% to 80% of the total storage market.

Last year, about 1 [zettabyte] of enterprise data storage was shipped, an estimate show that by 2030, the amount of enterprise data storage shipped is expected to grow to 12 to 32 zettabyte . According to this estimate, in this decade, there will be 10x to 30x growth in the amount of data storage needed. The current technology to store data in hard drive, flash and tape are just not able to scale to these levels. And there is a huge amount of potential insufficiency. And in our view, DNA is the only technology that all promise to scale to its future demand.

In January, we announced our first solution will be essentially archived, enabling storage of data for 100 years without any migration, energy or maintenance needed. This product is not available from any provider and archived data currently needs to be migrated on a 5- to 7-year time frame over and over.

Moving to the technology road map. We expect that our next silicon chip, the Alpha chip will be a revenue driver for Twist. These chips move us into the terabyte scale of DNA storage capability with further cost reductions as we develop future chips. For the Century Archive, we intend to offer storage-as-a-service, and we will share additional details as we refine our product performance.

Looking further into the future, as we always think long term, even as we execute day-by-day, we know that hyperscalers in an enterprise class of storage, and that it will have to run within their facility. For this market, they cannot use as others chemicals and will likely need Enzymatic Synthesis. While we can look into the available options for Enzymatic Synthesis, we fund that there are hurdles to overcome.

Besides error rate and land, which are not yet optimized, the main issue is that as Enzymatic Synthesis offerings today are very expensive. In these other efforts to make DNA using enzymes out about 1,000x more expensive than buying oligos on our website. There are 2 reasons for that high curve. The first is that Enzymatic Synthesis requires nucleoside triphosphate, which is a very expensive region. The second issue is the biological issue where Michaelis constant tells us that the high concentration of entities is required for each base to be added using Enzymatic Synthesis. So not only as at the entity is expensive, with a large excess of them is needed.

So let me get this challenge, our scientists developed a chemistry where we tether 1 entity with 1 enzyme, which massively reduces the cost. And now we have a low-cost Enzymatic Synthesis method but there is an additional problem created by linking the entity to the enzyme that we need to navigate. And that problem is that a link here that tether the entity to the enzyme typically creates a scar when the ACG is introduced.

Over time, as these scars accumulate, enzyme can't have mondipurotide and any synthesis start, limiting the length of the oligonucleotide. In addition, the scar made the DNA un-natural, which may create issues in (inaudible) applications. At least, we are overcoming this challenge by developing an unique and innovative way to tether, which provides a scarless DNA that is identical to natural DNA.

So now we have an Enzymatic Synthesis process that is low cost, scarless. And finally, we have the ability to develop and perfect the enzyme quickly because we have built an NGS-based platform to screen hundreds of thousands of mutants at the same time.

That means that we can engineer accuracy faster we can cover the IT space more effectively because we have already tested more sequences. While we are quite excited about our new approach. Today, we use chemical synthesis for all of our products, and we do not see that changing any time soon. We believe clinical synthesis will remain instrumental as we continue to ship billions of bases to a year to thousands of customers.

However, we also believe Enzymatic Synthesis to be useful in enterprise offering for data storage, increasing new product lines for our core business like cell-based synthesis of testing DNA and in decentralized DNA synthesis. But we do not have to develop all of those applications ourselves, we are happy to OEM (inaudible). An important thing to know for Twist is that as we grow, we will not lose our spirit of innovation. We are still (inaudible) the market, and we will always be executing while we work to perfect our next innovation to continue to drive the future. Enzymatic Synthesis saves is a perfect example of our future of innovation and execution.

And now I'd like to turn it over to Jim to review our financials.

All right. Thank you, Emily. We started off fiscal '22 on a strong note as we continue to scale our platform. Revenue for quarter 1 was $42 million, which is a sequential growth of 11% and year-over-year growth of 49%. Orders were $49.6 million for the quarter a sequential increase of 10% and 48% year-over-year growth. Gross margin for the first quarter was 35.6%, and we shipped to approximately 1,800 customers for the quarter, and that's up from 1,500 in the first quarter of fiscal '21, and we ended the quarter with cash and investments of approximately $409 million.

Now I'll give some more color on orders. NGS orders for the first quarter were $21.8 million, which is an increase of 28% year-over-year. And during the quarter, we received orders from approximately 700 NGS customers, and the top 10 accounts placed orders of approximately $7 million as compared to approximately $10 million for the top 10 in the previous quarter, confirming we're seeing continued diversification of our customer footprint.

Our pipeline for larger opportunities continues to scale, and we're now tracking 225 accounts, up from 199 we noted in our last earnings call. In quarter 1, 96 have adopted Twist, and that's an increase from 88% last quarter. This growth reinforces the robust and growing market opportunity, our expanding portfolio, investments in our commercial organization, expanding our customer base with increased adoption of NGS applications including liquid biopsy, MRD, diagnostics, RNA controls and clinical applications.

Now turning to SynBio. We saw robust growth in our SynBio orders, which includes genes, DNA preps, IgG, live base and Oligos. Orders rose to $22.2 million in the first quarter, up from $20.1 million in the fourth quarter of fiscal '21. This sequential growth of 10%, and up approximately 40% from $15.9 million in the first quarter of fiscal '21. The major contributor to growth is the Industrial segment -- sector to health care and academia were also very strong in the quarter.

Now to Biopharma. We continue to scale our biopharma business, including Abveris as orders rose to $5.6 million for the first quarter, and that's up from $3.4 million in quarter 4 compared to $1 million in the first quarter of fiscal '21. For a Twist Biopharma antibody platform, we have 42 partners, with 52 active programs, and now have 50 milestone and royalty programs, and that's up from 35 in the last quarter.

Please note, orders may not translate into revenue, but provide a trend line for each product group.

Now moving from orders to revenue. Revenue for the first quarter was $42 million, representing approximately 49% growth from $28.2 million in the first quarter of fiscal '21. NGS product revenue was $19.2 million, in the first quarter of '22, and that's 23% growth year-over-year. In quarter 1, fiscal '22, top 20 customers accounted for approximately 44% of our NGS revenue.

Our SynBio product revenue for the quarter was approximately $18 million, up from $13.9 million in the same quarter of fiscal '21. Some of the highlights include shipping to approximately 1,300 SynBio customers in the quarter. Genes revenue was $13.5 million, up from $8.9 million in the first quarter of fiscal '21. We shipped approximately 125,000 genes. Like (inaudible) biopharma. Our revenue for the quarter was approximately $4.8 million, which includes 1 month of Abveris.

I will now cover our revenue breakdown by industry. Health care revenue in quarter 1 was $21 million, up from $16 million in the first quarter of fiscal '21. Industrial Chemicals was $12.5 million versus $7.1 million in the first quarter of fiscal '21. Even though we're operating in a pandemic where many academic labs were impacted globally, our academic revenue was $7.9 million versus $4.9 million in Q1 '21, reflecting our continued focus on growing the long tail, and agricultural revenue was $0.6 million versus $0.2 million in the first quarter of fiscal '21.

I will now briefly cover our regional progress for first quarter fiscal '22. Our investment in building out our global commercial organization is reflected in the strong international growth. EMEA had a great start to the year with first quarter revenue of $15.4 million versus $9.1 million in the first quarter of fiscal '21. APAC had a terrific quarter 1, with a revenue of $4 million, up from $1.8 million from the first quarter of fiscal '21. U.S., which includes Americas, revenue was $22.6 million in the first quarter of fiscal '22 versus $17.3 million for the same period of fiscal '21.

Now moving down the P&L. Our gross margin for the quarter was approximately $15 million or 35.6% of revenue versus 35.5% in quarter 1 fiscal '21. Our gross margin this quarter was influenced by a combination of the production challenges we highlighted in our previous call and higher mix of SynBio products.

Now to operating expenses. Our quarter 1 operating expense which includes R&D, SG&A and change in fair value of acquisitions was approximately $71 million. R&D for the quarter was $22.6 million, an increase from $19.4 million in quarter 4, primarily due to increased biopharma spend associated with Revelar and the Abveris acquisition.

Our SG&A costs in quarter 1 was $51.1 million as compared to $38.2 million in quarter 4 due to an increase in stock-based comp of approximately $9 million, change in fair value of contingent considerations and indemnity to holdbacks for the quarter resulted in a gain of $2.8 million. Stock-based compensation for the quarter was $18.1 million, up from $9.2 million in quarter 4 due to a combination of annual stock grants and the Abveris acquisition.

Depreciation was $2.8 million for quarter 1. Our net loss before tax was approximately $56 million as compared to $40.9 million for quarter 4, primarily due to the aforementioned increases in operating expenses primarily stock-based compensation and costs associated with Revelar. In quarter 1, we recorded a tax gain of $10 million associated with the Abveris transaction, which brings our loss after tax to approximately $46 million.

CapEx for the quarter was $22 million, mostly associated with our Factory of the Future investments. Given the global supply chain challenges, we have strategically increased our inventory to $40 million compared to $32 million at the end of fiscal '21. We ended the quarter with cash and investments of approximately $409 million.

I will now provide updated financial guidance for fiscal '22. As we noted, quarter 1 bookings were strong, and we're optimistic on our opportunities. And at the same time, there remains uncertainty associated with pandemic. For the year '22, we are increasing our revenue guidance to $189 million to $198 million, and that's up from the previous guidance of $183 million to $193 million. SynBio revenue is estimated in the range of $70 million to $72 million compared to $67 million to $70 million in our previous guidance. NGS revenue is estimated to be in the range of $94 million to $96 million as we're projecting strong second half, based on our increased pipeline production scaling.

Biopharma revenue, including the Abveris acquisition, is estimated to be in the range of approximately $25 million to $30 million as compared to previous guidance of $22 million to $27 million. There is no change in our projected FY '22 gross margin guidance in the range of 35% to 37%, which reflects costs associated with our Portland brand. Excluding these costs, gross margin guidance would be 42% to 44%.

Operating expenses, which includes R&D and SG&A are expected to be approximately $335 million for the year, including $130 million in R&D expenses, as we previously guided.

Our net loss guidance for the year will be approximately $260 million. Stock-based compensation for the year is projected to be approximately $74 million. This has increased from our last projection of $47 million, primarily due to the Abveris acquisition. Depreciation is projected to be at $13 million, and projected CapEx for FY '22 continues to be $80 million to $90 million, including $75 million for a Factory of the Future investments in the Portland area.

In summary, we'd like to welcome all the Abveris team on board and thank all the Twisters for delivering another terrific quarter of record growth as we continue to execute our strategy.

With that, I'll turn the call back to Emily.

Thank you, Jim. Looking ahead, we have amazing opportunities across each area of our business to both grow our revenue and expand the market reserve. In Synthetic biology, we plan to continue to build our business and expand our customer base. We remain focused on bringing up the factory of the future to reduce overall turnaround time, especially for genes. And with the additional space that we have, we expect to be able to launch new products in helping us to address new markets with some of those products offering the potential of increased margins.

In NGS, we believe our serviceable market is growing and could expand significantly as liquids and MRD assets from our customers reach the commercial marketplace, which we expect will expand our revenue base accordingly. In addition, we aim to own the space between the sample and sequence. We'll continue to grow our customer base in liquid biopsy in MRD as well as adding RNA and library preparation products and driving SNP microarray conversions now that we have launched the 96-Plex Library Prep Kit.

In Biopharma, subject to regulatory approval, we expect to have the first Twist discover antibody in the clinic this year through Revelar and with the integration of Swiss and Abveris, we believe that we have a great opportunity to ramp revenues and monetize our platform through retaining customers, cross-selling additional partnerships, out-licensing and advancing our internal pipeline. In data storage, we have a roadmap to reach the terabyte scale of DNA storage offering with our first Alpha chip. We plan to introduce a century archive solution and will work to continue to drive down the cost of storage significantly. Finally, I'd like to mention that we issued our first report at the end of January, and you can find this on our website. We are extremely pleased to share our results in this front.

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

(Operator Instructions)

Our first question comes from Catherine Schulte with Baird.

I guess first maybe on the Enzymatic Synthesis platform. Can you just talk through the path forward there? What development milestones or updates should we be expecting to hear from you in '22? And it sounds like you might not be set on developing your own instrument there, but rather work with a partner or license out your chemistry. At what point do you think the chemistry will be in a state that's ready to start potential partner conversations?

Thank you, Catherine, for the question. So the impetus initially for the Enzymatic Synthesis development where our road map for data storage. The first product that we're going to launch is Century Archive that will be run as a storage as a service. However, in our roadmap in future generation, we know that we need to develop an enterprise version of our data storage, and that enterprise would be used at hyperscalers in their facilities.

And there, we won't be able to use the harsh chemicals of chemical synthesis Therefore, for the hyperscalers and the enterprise data storage, we need Enzymatic Synthesis. And there, we probably -- we will do the development. So we will develop our own hardware that works for Enzymatic Synthesis in a decentralized manner, at least for data storage. We have not closed the door for other markets to do it ourselves. However, we do believe in being disciplined and focused on what we do. And so that means that for other markets, it could be done with partners or it could be ourselves. But -- so we have not closed any door. We have created optionality. But at the same time, we have a very strong internal roadmap for SynBio and NGS. And as we develop the Enzymatic Synthesis approach, and we get the length and error rate that we want. As we launch new products internally, we'll have a choice. And at that time we'll choose whichever is the best technology to produce the product at the time.

Okay. Got it. And then maybe for NGS, we get a lot of questions on pricing variation for that product. And you talked a little bit about liquid biopsy today. Is there a different average pricing when it comes to liquid biopsy customers? How much can pricing per sample vary for a panel versus an Exome and so on? And then do your methylation panels have different pricing?

So yes, pricing is a little bit complex in NGS just because there are many different combinations of the product. In general, the more probe in the panel, the more expensive it gets. And so if you have a panel that has 1 million probes to have very wide analysis of different genes that would be more expensive than if you have a narrow panel that has 50,000 probes. And then the pricing per sample goes down as the number of samples goes up. And so if you buy a panel that will capture 1,000 patients, the percent price would be higher than if it's an order that will be able to capture 1 million samples or more.

So those are the 2 components. In addition -- so that's what the DNA. In addition, there is (inaudible) cost and so depending on whether the customer through the Twist for the adapters, the blockers, the buffers, the beads, at the enzyme, there's additional cost. In general, we tend to incentivize customers to bundle. And so that enables us to drive revenue up and margin. So yes, it is a relatively complex metrics. That being said, in general, we tried to -- our aim is that the part that Twist collects from a liquid biopsy revenue point of view is about 5% to 10% of where the liquid biopsy in market is. Hopefully, that gives you a little bit of a sense of the revenue that we are targeting per patient in liquid biopsy.

Our next question comes from Tycho Peterson with JPMorgan.

This is Casey on for Tycho. So it looks like EMEA had a strong quarter of growth. Can you talk a little bit about where the strength came from in that region, and if the growth there is sustainable?

Sorry, I was on mute there. Yes. So sorry, I just missed your question there because the line went fussy on me. So if you repeat the question?

Yes. Yes. So EMEA looks like it had a strong quarter growth. Can you talk a little bit about where the strength came from in that region, and if the growth is sustainable?

Yes. No, the growth EMEA continues to sequential growth every quarter. We've invested heavily in a commercial organization in EMEA, delivering on SynBio, large pharma. We're seeing opportunity in biopharma antibodies as well plus EMEA is doing exceptionally well in NGS. We're seeing across all key countries, and that would be Germany. You see Netherlands, you see Nordic, and you see U.K. as well. And so there's a couple of drivers. This product quality, the strong customer support and the commercial capabilities of our team in Europe. So really pleased with what's happening in Europe, and we see significant opportunity to continue our growth in Europe.

Got you. And then just on the cash burn guide here, are there any supply chain or inflationary headwinds that are baked in there? And maybe what are some sources of upside here as we progress through the year?

Yes. Supply chain has done well. We've increased our inventory. We continue to manage that very aggressively. We get a fantastic operations and purchasing team and they have worked well with our partners. I mean obviously, it's -- there's a lot of work keeping on top of it. But if we go back to the beginning of the pandemic, we continue to invest in our inventory. We've now increased that to $40 million. In terms of going forward, we see plenty of opportunity for upsides and bio is extremely strong. As Emily has highlighted, we're seeing opportunities in NGS liquid biopsy. We continue to see the number of large NGS customers. The pipeline continues to grow. And we continue to see significant growth opportunities, not only in EMEA, but we see opportunities in APAC. And then we do the iGenomX upside coming as we see more opportunity from microarray to NGS conversion.

Abveris is doing extremely well. The team there is fantastic with a good first month. This quarter is looking good, and we're very optimistic and bullish on the outlook there.

Our next question comes from Puneet Souda with SVB Leerink.

So first one is really around the quarter. I mean you delivered strongly in SynBio, but NGS was impacted by Omicron as you mentioned. So I just want to make sure that the production challenges that you had for the quarter were all -- for the last quarter are all resolved. If you could confirm that? And if you can clarify what was the catch-up in SynBio there? And what are you currently seeing among the labs, especially the academic labs, returning back and overall NGS volumes, currently? And then I have a follow-up on guidance.

Maybe I'll start on the production issue, and Jim can answer the NGS part of the question. So yes, the production issue is behind us, in terms of identification, resolution of the problem and shipping out all the backlog that may have been created by the production issue. Again, customers never got any bad products because they -- that was -- that we do that some of the genes we had to make. And so some customers experienced some delay.

And again, a clarification. The production issue was only limited to gene production. So it did not impact NGS at all. And so we're quite pleased with the number of genes that we shipped last quarter, 125,000 genes. That's a record, and we had strong orders in SynBio.

Yes. So Puneet, orders were very strong in SynBio with 22 million orders in SynBio, up sequentially. We're seeing strong demand from an increasing customer base. So we've got wind in our sales in SynBio. In terms of NGS, we had booking our almost 22 million in the quarter, and that's flat with our quarter 4 September quarter tends to be strong with news on NGS. We feel very good about the outlook for NGS in terms of 94 million to 96 million. And as said, the number of customers, large customers continues to scale adoption increases. We're continuing to launch more products. We get the genomics opportunities coming ahead. So I think the setup for NGS looks very good.

Plus, if you go back to SynBio. We had very strong gene shipments. We shipped 125,000 genes. That's one of our strongest quarters ever. We've got the production issues behind us. We've increased capacity in genes. We're getting set up to open up Portland in July. That also gives us more capability, and position us to have a really strong fiscal '23.

Okay. That's great. And then on the guide -- I appreciate the guide raise that appears to be about $6.5 million at the midpoint, including Abveris. And it seems that about half of that is on SynBio, other half is on biopharma. Your NGS guide remains the same. So just given the number of comments that you've made throughout the call for liquid biopsy, MRD, a number of other products. Overall, just given the momentum you're sort of seeing in NGS, the NGS guide is still flat for the year. So just wanted to clarify if what I'm missing there, and just want to make sure that we're capturing that. Is this just sort of a near-term conservatism with Omicron, and we're just emerging out of that? Or is there more to this? And if you could clarify.

So a couple of points, near-term conservatism. Secondly, we're getting set up for a very strong second half on NGS, and that's driven by adoption, driven by the growth in the customer base, and just our outlook in terms of where we see the market going. So if you just step back and look at the numbers. We billed about $19 million in the first quarter, and we're seeing significant step-up from that as we progress through quarter 3 and quarter 4.

Our next question comes from Luke Sergott with Barclays.

I just wanted to get a clarification to get an idea of how you're thinking about when you're going from -- you were at 40,000 genes per month, now you're at 65,000, and then you're going to 90,000 in the near future. Can you give us a -- so how should we think about that rolling through the revenue? I mean you're not seeing that type of step-up implied in the guide. Just kind of the dynamics there. And then if you could give any clarification on near future, that would be helpful.

Yes. Thank you, Luke, it's a great question. And so the impetus for the increased capacity to be able to capture search demand, right? So we have 2 types of customers. We have the big -- bigger accounts. And then we have the long tail of few genes at a time. And so last quarter, we had 125,000 genes shipped. And so in theory, with 45,000 genes capacity per month, we can do it. However, depending on when those genes come in, we also need to be able to capture the search demand. And so by increasing the capacity. That means that genes never have to wait as soon as they hit the website for the next day, they can go online. So this is the first impetus, the search demand.

And then the second is -- give us a little bit of protection from what happened in August and in a small way in October where we had a problem in the fab. And when the fab is full, and you have to really make some genes, it's very hard to catch up because the fab is full, you have margins coming in, you have to remake. So it takes a lot longer to recover from something that relatively simple to fix. And so by having extra capacity, if we have an issue in a fab where we are done for a day or 2, it becomes completely transparent to the customer because we have additional capacity to just catch up. So that's really the impetus for it.

And over time, as we keep delivering, we capture more and more to market. We're growing about twice the rate of the market. So we are going to grow into that capacity. And so the capacity of the Factory of the Future is going to be important for us. And in addition, in the Factory of the Future, we'll have new product features such as increased speed that will enable us to increase the price of the product at about -- at the same cost, and to get better margin. So that's really why we're doing it.

Okay. That's helpful. And then lastly, you guys have been signing a bunch of deals. You did one with Abcam. Most recently, you have someone with Artisan to do next-generation cell therapy. So can you give us a sense of -- or update us on any expected milestones kind of the pacing throughout the year? Anything from any of the biopharma partnerships other than -- I understand the guide, but any particular programs that stand out that we need to keep up on.

And a little bit a big focus of ours is from those deals, we get upfront payment, which is good. It pays the bill, 50%, 60% margin. So that's great. But as you suggest, the majority of the economic value is actually in the milestones and royalties. And so what we've been doing is taking the number of milestones and royalties. Last quarter, out of 21 new programs, 15 of them in milestones and royalties, so that is great. Timing is uncertain.

We do our work in about 6 months, then it can take 18 to 24 months for our partners to go to A&D that will start -- where we could start collecting some milestones. So we know it will happen, difficult to guide. I'll point out that Abcam is especially good -- or exciting deal for us because it's not in the therapeutics area. It's more in the research area in diagnostics. So that means that the potentials for milestones and royalty is a lot faster to happen than a therapeutic deal. And so that was -- and especially a strategic one for us. And the last thing I'd say is that we definitely are working hard to coax partners to be able to be more public about the types of deals we are making.

For instance, we were quite successful with Boehringer Ingelheim where we were able to describe the $710 million of milestones that we can earn with them. So we want to make more of those disclosures, but unfortunately, we need the cooperation of the partners, and they are not always willing to do that. But in the other day, we are taking those milestones or royalty deals. And we are quite excited at the prospect of starting to receiving some of them.

Our next question comes from Matt Sykes with Goldman Sachs.

Maybe along the lines of last question, just on the biopharma. I'm just curious from a high level, Emily, as you talked about it early stages, the conversations you were having from an economic standpoint weren't as beneficial because you're still trying to prove out your capabilities. But now you've gained a lot of momentum. You signed a number of new collaborations and agreements. I'm just wondering how the nature of the conversations have changed, not just from an economic standpoint, but perhaps folks coming to you as the word gets out in terms of your capabilities, and how you see that business in terms of growth trajectory today versus what you might have imagined it would have been a few years ago?

Yes. It's quite exciting, the change. A few years ago, we were a very risky bet. And really the most likely deals we will get were from small companies that we're looking for a bleeding-edge advantage. However, now that we are generating a lot -- generated a lot of data, we are starting to develop a reputation. And it's quite exciting that as we engage more and more in the biopharma world to hear -- people that I met for the first time, oh, Twist, you guys are doing great tiers are respected.

And so we are -- it's becoming a lot easier -- and in a sense, we're kind of almost crossing the chasm in biopharma as we went from being a risky bet to being a sure thing that even companies that are a bit more prudent, a bit more conservative are thinking to embrace. And so that's really the benefit of science focused. We knew that our customers were skeptical scientists on the head of the -- VP of Biologics, Discovery, they are scientists, they are very skeptical. And so we made an effort of building a strong data set. And now that data set is speaking for itself and that translates into more partnerships and in the conversation around economic sharing.

Great, Emily. Very helpful. And then maybe just one for you, Jim, just on the expense side. You've been pretty clear about the margin guidance and the CapEx guidance and the impact from Factory of the Future. I'm just wondering from a conservatism standpoint, as you look out of the build out of Factory of the Future, kind of what's been built in for that and any potential issues that might come up over the course of the year?

Yes. I mean so for Factory of the Future, we're projecting about $25 million of spend -- OpEx spend. As we -- for the year. And as we ramp into the future, that's going to start impacting Q3, Q4, margin impact in Q4, we're probably going to see roughly about $7 million, $8 million, depends on timing to hit the COGS in Q4.

But one issue I'd highlight is that what's interesting in our margins this year, we've given guidance that 35% to 37%. Just 1 point to note, if you look at Q1, and you look at Q1 versus Q4, why is it down. What we had in Q4, 56% of our business was NGS, Q1 is 46%, and we're going to see that NGS claim in terms of revenues through the year and NGS one of our stronger margins. So we've got a couple of areas that we're looking at that we're still managing. But we feel good about the 35% to 37% guidance for the year.

Our next question comes from Vijay Kumar with Evercore ISI.

Jim, I had -- I want to start off with the guidance here. In Q1, the guide was 37% to 38%, you basically by -- call it, roughly $5-ish million. The guide raise was by a similar amount. So one, was there any timing impact in Q1? Why wouldn't the strength carry through to the back half? And what was the M&A contribution in the Q? Like, when I look at the guide raise, I think some of it was biopharma. Was there ever a deal? Or was it the base biopharma increase?

So good question. A couple of things. Abveris did contribute, and we're also seeing growth in the base biopharma business. So combination. We're doing well there in terms of -- against the original guidance. We had a very strong SynBio in Q1. NGS has continued to do well. And at the same time, we're still got some issues with pandemic. So as always, we're prudent in terms of our guidance. So we're looking at strong orders. In Q1, orders were close to $50 million. And at the same time, we've got to -- we're dealing with pandemic. We're managing supply chain issues. And we're prudent in terms of our guidance.

Sorry, just what was -- what is being assumed for Abveris contribution? I think the prior guidance had a $10 million. Does that change?

Abveris has changed a little bit. We're not going to break that out now. We're going to keep the -- we're going to just -- how biopharma's total number, but Abveris did increase a little bit, and our antibody discovery projections to increase a little bit as well.

Our next question comes from Matt Larew with William Blair.

Obviously, you broke out some of the revenue by industry, but I'm curious more around the growth in the SynBio customer base, assuming most of those customers are probably start small, so might not be tied to the revenue growth. I'm just kind of curious where you're seeing the fastest areas of new customer growth, and if you can tie any of that to some of the new products that you've added in the last 6 months?

Yes. No, the customer growth is SynBio. I mean we had a strong quarter. Industrial was strong. The number of genes we shipped was a record. So we saw a very broad customer demand from industrial, health care, pharma and also academic. So the -- I would say it's very broad demand. And it just highlights the strength of the portfolio. So genes had a strong quarter. We saw a little bit of IgG come on last quarter. All the good pools. We had another good quarter, another good pool. So it's a broad, broad range across SynBio.

Okay. And then obviously, you're just a few months away here from Factory of the Future opening. You mentioned last quarter that the focus was on sort of adding the capital equipment, starting to get the hiring funnel going. What do you see as potential risks to the opening? Or do you feel like at this point, you have the equipment, most of the hires have been made. And it's just a matter of really getting through the way up to go live.

Yes. I mean, we -- for the equipment, I mean, obviously, we started engaging with suppliers last year. So we keep close tabs on the supply chain. Construction is going well. We are hiring. Obviously, the other key component is software. Software team is on track with the new software, don't have too many issues on the supply chain. We will keep managing it. Hiring, as I said, starting off, so that started up well. So we feel good about where we're at. We're tracking to our internal plans and the target date is July for early starts.

Our next question comes from Dan Brennan with Cowen.

Maybe the first one just on the Revalo opportunity for COVID antibody. The $100 million of potential payments is pretty sizeable. Just wondering, can you just walk us through timing catalysts? And what's the potential for milestone payments this year?

Yes. Thanks for the question. So in terms of timing, they are driving very hard to have IND in the first half of this calendar year, and then going to clinic. In terms of milestones, we have classic structure at IND Phase I, Phase II launch and so on. And in addition, we have opportunities to earn additional fees and milestones when they start declaring additional targets that they're going to go after.

Got it, Emily. Maybe the SNP conversion opportunity I haven't heard it come up on the call, but just kind of walk us through how those discussions are going, anything likely to close. Just kind of walk us through what the opportunity could look like for this year?

I'm sorry, I missed the first part of the questions? Conversion?

Yes. The SNP microarray conversion opportunity.

Yes. Yes. Yes, so very pleased with that. And we've made the -- so we made the acquisition of iGenomX. It took us a few quarters to testify the kit. The kit has been relaunched, as the 96-Plex Library Preparation Kit. And so now we are putting it into the Twist channel that we've built. And so yes, we're quite excited that to see the contribution that this acquisition will make, and so we should see more conversion in the near term.

And I'm currently showing no further questions at this time. I'd like to turn the call back over to Emily Leproust for closing remarks.

Well, thank you very much, and thank you for joining us today. While the stock market has been a bit rocky lately, we continue to deliver solid revenue growth across our businesses by focusing on executing every day. And we look forward to keeping you apprise of our innovations and advancements that are all driven by the very hard work of all the Twisters. So with that, thank you very much.

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