Nautilus Biotechnology, Inc. (NAUT) CEO Sujal Patel on Q3 2021 Results - Earnings Call Transcript

Nautilus Biotechnology, Inc. (NASDAQ:NAUT) Q3 2021 Earnings Conference Call November 2, 2021 8:30 AM ET

Company Participants

Sujal Patel - Co-Founder & Chief Executive Officer

Parag Mallick - Co-Founder & Chief Scientific Officer

Anna Mowry - Chief Financial Officer

Conference Call Participants

Brandon Couillard - Jefferies

Operator

Good day and thank you for standing by. Welcome to the Nautilus Third Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your speaker today, [indiscernible], Investor Relations. Please go ahead.

Unidentified Company Representative

Thank you. Earlier today, Nautilus released financial results for the quarter ended September 30, 2021. If you haven't received this news release, or if you'd like to be added to the company's distribution list, please send an email to [e-mail]. Joining me today from Nautilus are Sujal Patel, Co-Founder and CEO; Parag Mallick, Co-Founder and Chief Scientist; and Anna Mowry, Chief Financial Officer.

Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking within the meaning of Federal Securities Laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appear in the section entitled forward-looking statements in the press release Nautilus issue today. Except as required by law, Nautilus disclaims any intention or obligation to update or revise any financial or product pipeline projections or other forward-looking statements whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast, November 2, 2021.

With that, I'll turn the call over to Sujal.

Sujal Patel

Thanks, Alex. Good morning, and thank you to everyone for joining us on the call. Today, we'll review our results for the third quarter of fiscal '21 and provide an update on a range of recent activities. Since our call in August, I've been pleased with the progress we've made against our key annual objectives; that progress is the result of the outstanding work being done by our talented and innovative teams in San Carlos, California, and Seattle. Every member of the Nautilus team understands that our goal as a company is to provide ubiquitous access to the podium [ph]; to every lab, every researcher, and every clinician around the world. That is an important and achievable goal worthy of their full commitment and focused effort. And as we'll discuss today, that commitment is delivering continued progress.

As I speak with potential customers, partners, and key opinion leaders; I'm energized to hear what's becoming a common refrain. The primary role they see for next-generation proteomics is to drive revolutionary improvements in drug discovery, diagnostics, and human health in the coming decades. There is no doubt in my mind that Nautilus is helping to drive and should be a key contributor to a vibrant and valued space. Current estimates are that the proteomics market is worth approximately $25 billion and growing at a 12% CAGR. While this opportunity is an immediate and exciting area of focus for us, we believe that technologies that improve accessibility and reproducibility and deliver faster turnaround time with reduced complexity, like Nautilus, will be the catalyst to expand this market opportunity.

As you know, our vision is to bring to the market a complete end-to-end massive scale proteomic analysis platform comprised of instrumentation, reagents, and software, which takes sample in and returns unique biological data and insight out. As we've shared in the past, we expect to move through a number of milestones related to our proteoform and broad-scale proteomic profiling capabilities. Today, we're working with partners on proteoform quantification. Beyond that, our next goal is to quantify 2,500 proteins per run in 2022 on the way to comprehensively quantifying the proteome in 2023. We believe that every step of this journey represents a fundamental advancement of what's possible in terms of unlocking the value of proteomic data.

From biopharma customers to academics and researchers, we believe our instrument will fit the needs of a wide range of proteomics users with the common thread being their need to dig deeper and more quickly into proteins and proteoforms of interest. Doing so will enable them to develop more effective therapeutics to build more precise diagnostics or to pick the best therapy for a particular patient. As we shared on our last earnings call, the substantial technological progress we've made has allowed us to transition into the partnership phase of our commercial strategy. As you know, last year we signed a research collaboration agreement with Genentech to use the Nautilus platform to analyze and map the proteoform landscape of a particular protein target in which they have an interest. We continue to work together on this important and demanding work and hope to jointly submit a paper for publication by the end of the year.

Recently, we entered into a research collaboration agreement with Amgen, in which the Nautilus platform will be used across a number of projects to investigate proteins and proteoforms of interest to the company. We're very pleased to be partnering with Amgen and look forward to our work together. We've also recently signed a research agreement with an investigator at the University of Texas MD Anderson Cancer Center. Our platform will be applied in measuring the quantity and patterns of post-translational modifications on specific oncology protein targets of interest across different settings, such as pre and post-treatment. We're excited that this project has the potential to provide new and unique insight on the role of PTMs in oncology research by investigating them at the single molecule level.

When we went public earlier this year, we said that we intended to use the additional capital to ramp up our product development efforts and look for opportunities to de-risk the planned launch of our platform in late-2023. One of the primary ways we will de-risk our platform launch is by partnering with third-parties on the development and supply of affinity reagents. To that end, we recently initiated a strategic partnership with Abcam, a world-leader in the design and production of assay kits, reagents and antibodies. We're excited to be working with such a respected and successful partner and believe our relationship with them provides yet another vote of confidence in the promise of our platform.

The type of development and supply agreement we have with Abcam is expected to provide Nautilus with antibodies additive to the affinity reagents we're creating internally. It also highlights the flexible nature of our technology. With a labeling kit, our platform is designed to be able to use a wide range of reagents in the library of biologicals that have been created by biopharma, academia or leading commercial antibody manufacturers like Abcam; this flexibility is a powerful aspect of our technology, potentially allowing the biological research community to tailor the technology depending on which affinity reagents are introduced to ask and answer their most pressing research questions. We believe that working with Abcam, and other similar relationships we may establish, will enable us to most efficiently achieve broad-scale proteomic profiling. In addition, we anticipate that it will enable us free-scale reagent production as demand for our platform grows. We're excited to continue our work with them and look forward to updating you on our combined success and the success in the coming quarters.

Our science team has begun to share their important work through a series of planned publications. The first articulates the value of modular fluorescent nanoparticle DNA probes for detection of peptides and proteins. Another manuscript, a foundational description of Nautilus's core technology, is now available on BioArchive and has been submitted for publication. You'll hear more on this from Parag in just a few minutes. These and other soon to be submitted papers underscore the fact that we believe Nautilus's innovation has the potential to spark a renaissance in proteomics that could unlock high-value applications in precision and personalized medicine, in drug discovery, and in diagnostics, making strong progress across all dimensions of our business. And while we're just at the start of our journey, we're accelerating towards the large and growing opportunity in front of us.

With that, I will now turn the call over to Parag.

Parag Mallick

Thanks, Sujal. I'm pleased to report that we continue to meet key internal milestones across a range of R&D and engineering activities, ranging from advances in how we scale production of key reagents, to hardening of our chip fabrication processes, to working with manufacturing partners. As I shared on our last call, these initiatives all support our goal of platform commercialization in late-2023.

When setting out to create an entirely new approach to proteomics, I came to the problem from the perspective of a proteomics insider, someone who had wrestled for many years with the challenges and limitations of existing approaches. My experiences gave me a distinct point of view on what the goals of any platform should be, how it might be used, and what it might be used for. The need for a breakthrough in proteomics was clear, and that early vision continues to be at the heart of Nautilus's current innovation. Building upon our foundational perspective, we recognize that it was critically important to fully understand the needs of a broad range of researchers, and to ultimately build the platform to address their needs and wants, not just mine.

So back in 2016, when we founded the company, we began listening, and we've not stopped listening ever since. From those earliest conversations through a series of lengthy interviews we've recently completed with KOLs and potential customers across a number of domains, we've heard about a wide range of used cases, but we've also consistently heard some common themes that have helped us refine the characteristics of our initial product offering. Specifically, researchers want to be able to access a substantial portion of the proteome with quantitative measurements that are reproducible, accurate, and highly sensitive across a wide dynamic range. They want a platform that is easy to use, with data that is straightforward to interpret; and they want sufficient speed and throughput to crunch through thousands of samples. We believe the design and implementation of our platform is uniquely differentiated on these critical axis [ph].

Our recent and planned publications are aimed at elaborating the key scientific attributes of our platform that enable us to achieve the specifications most requested by our future customer base. For example, the recently published paper that Sujal mentioned, articulates a strategy for using nanoparticle labels on our affinity reagent probes. This paper is notable as it highlights a unique aspect of our platform that allows us to have the wider dynamic range and throughput requested by the community. In any single molecule platform, dynamic range, throughput and measurement time are inextricably linked. Using ultra-bright labels gives us substantial signal amplification relative to other approaches, thus enabling us to scan a massive number of protein molecules more efficiently than other methods. As an added benefit, it simplifies the complexity of the instrument allowing us to bring down the cost.

Sujal also mentioned our second manuscript recently submitted for publication and currently available on BioArchive. This manuscript is the most detailed description of our approach that we have shared to-date. Doing so at this time, affirms Nautilus's commitment to scientific openness, helping scientific community fully understand our unique approach. Key findings in that manuscript include the ability of our platform to work across multiple organisms which is critical for translational research. A potential to efficiently decode greater than 95% of the proteome across a dynamic range of 11.5 orders of magnitude in plasma, far exceeding the capabilities of other approaches. In addition, as an impact protein platform, data interpretation is straightforward and highly quantitative.

In addition to the technical performance criteria I just discussed, we have also set out to build a platform that's incredibly easy to use, so that any lab in the world can run it, not just specialized proteomics labs that have spent years tweaking and tuning their mass spectrometry environments. Ubiquitous access to deep, rich proteomic data is not just something we've heard from customers, it's something we recognized will be required to achieve the type of market expansion that Sujal mentioned earlier. As we have been completing designs our instrument, we have been extremely mindful of customer workflow and usability ensuring that our platform is tractable for the widest range of life science customers.

As we continue our progression towards the release of our MVP, and ultimately the full commercialization of our platform, we are committed to sharing robust data on our platform, all of which will be validated against the evolving desires of the market. As such, you can expect an ongoing cadence of manuscript submissions as we head into 2022 and beyond.

In summary, I'm pleased with the progress we made in Q3 and with the strong effort of our R&D and engineering. gearing teams as we continue our journey to deliver the transformative proteomics platform required to meet the needs of labs around the world.

With that, I will turn the call over to Anna for more details around our financials.

Anna Mowry

Thanks, Parag. Total operating expenses for the third quarter of 2021 were $14.6 million compared to $4.0 million in the third quarter of last year. Research and development expenses for the third quarter of 2021 were $8.2 million compared to $3.3 million in the third quarter of last year; that increase was primarily driven by growth in personnel costs, as well as increases in spending on laboratory consumables as we run a greater volume of experiments. We also saw an increase in development services tied to the development of our platform.

General and administrative expenses for the third quarter of 2021 were $6.3 million compared to $0.7 million in the third quarter of last year. That increase was primarily driven by growth in personnel costs, and professional services related to operating as a public company. Overall, net loss for the third quarter of 2021 was $14.5 million compared to $4.0 million in the third quarter of last year.

Turning to the balance sheet; we ended the quarter with approximately $374 million in cash, cash equivalents and investments. With this capital, we plan to continue to add more staff across our scientific, engineering and commercial teams as we accelerate the development of our platform. Today, we have crossed the mark of having over 100 people as part of our team, and continue to be on-track to more than double our total headcount this year. As you heard in Sujal's remarks regarding our partnership with Abcam, we also intend to use our strong balance sheet to supplement our in-house capabilities and de-risk our product development through the addition of strategic relationships with external suppliers, and partners whose core competencies we can leverage. We expect these partnerships will result in an increased pace of investment in Q4 and into next year. In addition, we have recently moved into two new facilities in Seattle and San Carlos, growing our footprint to over 60,000 square feet across both locations.

As one of the initial tenants in a significant new Bay Area Biotech Hub, we envisioned this will be the home for growth over the next few years. These facilities are bringing together our cross functional team that includes protein biochemists, nanofabrication engineers, software and machine learning engineers, and single molecule biophysicists, along with many other disciplines, allowing them to work side-by-side to bring this innovation to the world.

With that, I'll turn it back over to Sujal.

Sujal Patel

Thanks, Anna. We all recognize that despite it's enormous value, the world has had such an incomplete picture of what's going on at the protein level. Nautilus and the advancement of the proteomic space more broadly, holds the potential to see biology in a way that has never existed before. And that, in short, is our primary goal for fiscal '22, to measure the proteome more deeply and more broadly than has ever been done before. We fully anticipate that the depth and richness of that data may fundamentally change what biologists believe is possible, and may set a new gold standard for measuring the proteome.

I'm incredibly proud of our team and the progress we're making to transform proteomics and empower the scientific community. I'm equally confident that Nautilus is well positioned to achieve the ambitious goals we've set out for ourselves. And we look forward to updating you on our progress as we knock down key milestones on our journey towards commercialization.

With that, we'll now open the call up for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question will come from right now Tejas Savant from Morgan Stanley. You may begin.

Unidentified Analyst

Hi, this is Hugo on for Tejas. Thank you for taking our questions. Just a couple questions for me. What are the key publications outside of Genentech collaboration paper that we should be watching for over the next 12 months? And when can we see data updates from these new collaborations announced today?

Sujal Patel

Thanks, Hugo. Let me hand over that to Parag and have him stress that.

Parag Mallick

Great, thanks. Thanks so much for the question. So I think what you'll see over the course of the next year are several foundational manuscripts describing different aspects of our platform. So, both showing experimental detail, elaborating on the approaches that we use for single molecule deposition, and generally trying to walk through all the key elements of our of our platform; you'll also see an increase in publications working with our partners. So I -- as Sujal mentioned, our hope is to submit the Genentech publication by end of year. And I can't comment on future publications with other partners.

Unidentified Analyst

Got it, thank you. And then, your recent publication outlined potential to introduce two affinity reagents at a time to accelerate time to protein identification. Do you anticipate dual color imaging could be a feature of the first instrument that you launch? Or do you anticipate this is something that might be introduced down the road?

Parag Mallick

So, I -- we're constantly looking at ways to improve the throughput of the platform. And so, I -- whether dual color imaging is extra [ph] of the first iteration of the platform that we launched, it's an area that we're looking at very closely.

Unidentified Analyst

Great. Thank you so much.

Parag Mallick

Thank you.

Operator

Thank you. Our next question will come from the line of [indiscernible]. You may begin.

Unidentified Analyst

Hi, thanks for taking the questions and congrats on a nice update. So first, on the Abcam partnership, if you think about the time and resources required to develop Abcam-er solutions internally versus partnering with an external antibody platform? And what were the key driving factors in signing this strategic partnership? Was it centered more around developing higher performing affinity-binding relationships or more around securing reliable access to these products in an environment where there is clearly some manufacturing and supply bottlenecks?

Sujal Patel

Parag, do you want to take this one first, then I'll add to it.

Parag Mallick

Sure. I guess I'll start off by mentioning that inside of Nautilus, we've been working on a number of different classes of probes. So, Abcamers [ph] being one of them, but protein-based probes as well. And one of our excitements around working with Abcam is, they have -- they really have two different components; one, as you mentioned, they have a tremendous catalogue that they have been developing over many years that allows us to bring that content in the future, potentially to our platform, which is really exciting. The second is about developing -- taking advantage of their experience, and scale in the development of probes that -- or other regions that are specific for our platform, and really giving us an additional stream to complement the internal work that we're doing. And then third, in the longer term from a supply chain perspective, giving us a partner in developing, manufacturing, creating the reagents that will work for our platform. So there are really multiple exciting components of the other relationship, as well as a company of their stature, I think it's a real vote of confidence in our platform to have relationships with them.

Unidentified Analyst

Great. And then you've now signed biopharma collaborations with Genentech and Amgen as well, today -- as well as today's partnership with an investigator at MD Anderson. So I know we're still in early days here but we'd be curious to hear what portion of any of inbound interest is coming from biopharma companies versus researchers? And how this may compare to the logical early adopters of the technology following the broad commercial launch?

Sujal Patel

This is Sujal, let me take that one. And -- you know, so first and foremost, what I'd say is, we have been super pleased with the inbound activity and the excitement of potential partners and collaborators that we've been talking to. And you know, as you mentioned, we have three now to-date that we've announced; Genentech, Amgen, and an investigator at MD Anderson. And from my standpoint, I think that those three are pretty representative of the types of conversations that we're having. And I think that that is indicative of the fact that unlike the genomics world where genomics revolution started in academic and research, because frankly, scientists didn't really know what to do with the genome and how to practically apply a full genome to improving health of humans. In protein, well, that's really different. Today, all of the large biopharma organizations that we're talking to have sophisticated proteomics efforts underway, they spend millions of dollars on proteomics every single year. And so, when we're talking to potential partners and collaborators, it definitely is the biopharma companies that we're having most of those conversations with, and all of those organizations have been feeding into the initial design specifications for our product. And frankly, you know, it is those conversations over the last four to five years that have shaped the first generation products design criteria.

Unidentified Analyst

Great. Thanks for taking my questions.

Sujal Patel

Thanks, Max [ph].

Operator

Our next question comes from the line of Brandon Couillard from Jefferies. You may begin.

Brandon Couillard

Hey, thanks. Good morning. Sujal, most of my questions have been answered but I just want to confirm a couple of timeline data points. You talked about 2,500 proteins, is that still expected kind of in the first half of '22? And do you still think about early access programs or beginning of mid next year as well?

Sujal Patel

Yes, thanks for the question, Brandon. I think that from our standpoint there is no new information that is causing us to change those timelines. And I think that, you know, early access period will start right after we get to that 2,500 protein milestone. That being said, we are incredibly excited by the three partnerships that we now have signed, and one that we're actively have been working on in the proteoforms space because we think that there is a lot of interest from our biopharma collaborators and partners in proteoforms and targeted protein analysis in conjunction with proteoforms at single molecule level.

Brandon Couillard

Got you. And then, just one follow-up for Anna. [Indiscernible] is tracking over a bit ahead because of the target that you laid out earlier this year. Can you just give us an update on kind of how we should be thinking about the fourth quarter? And then the run rate moving into next year, particularly in the context of kind of the new external partnership with Abcam which you alluded to, perhaps bring in a little bit higher level of spend in near-term? Thanks.

Anna Mowry

Hey, Brandon. We are actually on-track, as far as we're concerned, against our projections that we provided which were on a non-GAAP basis. The partnerships were anticipated as part of our planning process; so there is no change to our expectations on total spending.

Brandon Couillard

Okay, got you. Thank you.

Operator

[Operator Instructions] Our next question comes from the line of David Dylon [ph] from Goldman Sachs. You may begin.

Unidentified Analyst

Hey guys, this is Dave on for Matt. Great to hear about the partnerships, especially a highly respected institution like MD Anderson. Do you know if they'll be looking at oncology broadly or are there any specific subtypes they are focusing on more?

Sujal Patel

Yes. So this is Sujal, I'll take that one. And for the collaboration with the investigator at MD Anderson, we're -- we can't be very specific about it but they are working on specific oncology protein targets; and it's a pretty a form-based projects, so it's proteoforms on specific oncology targets.

Unidentified Analyst

Got it, thanks. And you mentioned that you're working on hardening the chip-fab process. Could you tell us a little bit more about what that entails?

Parag Mallick

Sure, I can -- I can take this one. I think as you -- as we mentioned throughout the company, we've been broadly making the transition from development to product. And part of that involves working with external partners on increasing scale, as well as quality of the chips. And part of that is working internally on making sure that we have all the QA/QC validation processes in place for both, the patterning and functionalization of the chips.

Unidentified Analyst

Great. Thanks, guys.

Sujal Patel

Thank you.

Operator

Thank you. And I'm not showing any further questions in the queue at this moment. And I'm still not showing any further questions in the queue.

Sujal Patel

Great. Well, it sounds like there is no further questions. Thanks everyone for taking the time to talk to us this morning. We look forward to updating you on our next earnings call.

Operator

And this will conclude our program for today. You may now disconnect. Thank you for your participation. Have a great day.