Rapid Micro Biosystems, Inc. (RPID) Earnings Call Transcript

Hello, everyone. Thank you for coming. My name is Zach Conte. I'm with the JPMorgan Healthcare Investment Banking team. It's my pleasure to introduce Rapid Micro Biosystems today. Today, we're joined by Rob Spignesi, President and CEO; and Sean Werle, CFO. Thank you.

Thanks, Zach. Again, I'm Rob Spignesi, CEO of Rapid Micro Biosystems, and I'm joined by Sean Wirtjes, our CFO. Thank you for your time and attention today. It's good to see folks here in the room. And for those online, the presentation deck is on our website under Investors. The deck will not sequence automatically, so I'll do my job to keep us in sync. So disclaimers on Slide 2. We'll jump right in on Slide 3. So by way of a quick background and context at Rapid Micro Biosystems, we're focused on a critical part of the global pharmaceutical quality control infrastructure called microbial quality control, which is a regulated process all pharmaceutical companies anywhere they operate in the world go through to ensure their products are free from microbial contaminations, I think bacteria mold, et cetera, and are safe for patients. The fundamental problem with this process that's pervasive globally is it hasn't innovated or changed in the past 100 years or so since Louis Pasteur invented it and it's causing significant risks and cost to the industry. So we developed a Growth Direct platform that we'll walk through today that's designed to replace this critical process and bring it into the 21st century where it belongs. So before we get into the product and our markets, I wanted to give you a brief snapshot of who we are by the numbers, if you will, on Slide 4. So in 2024, we'll finish with approximately $28 million in revenue, which represents approximately 25% year-on-year growth. And notably, and I'll go through this throughout the course of our discussion, we have a strong recurring revenue in our business. Our business model is we place our Growth Direct system, which you can see in the photo here in the bottom right. And then we pull through a high rate of recurring proprietary consumables and recurring services. And that's -- we're going to finish at approximately $15 million or so of 2024. So you can see at least 50% of our revenue is recurring. From a system perspective, we have over 160 systems placed globally, and I'll go over our customer base in a few slides. Of those, notably, over 135 are validated. So we also validate these systems for our customers. And this is a critical process that we go through with our customers to validate our system and our technology for use in their manufacturing operations, typically under GMP or good manufacturing principles. There's over 135 plus of those validated. And then subsequent to that validation is when these systems go into routine use and start using our consumables on a routine daily use basis. And we operate globally. We operate in a global market. So we go where our customers are. So we're in roughly 20 countries around the world. Again, from a customer standpoint, and we'll review our customer footprint in a few slides. Again, we're proud to have about 70% of the global top 20 pharmaceutical companies as our customers and many of the large CDMOs as well. And we address all modalities of manufacturing, but we're especially strong in biologics manufacturing and cell and gene therapy. And 100% actually of the commercially -- FDA commercially approved CAR-T manufacturers are using the Growth Direct as well. Okay. Some of you may have seen on Tuesday afternoon, we preannounced our Q4 and 2024 revenue and KPIs, a record quarter in Q4, ninth quarter in a row exceeding -- meeting or exceeding our revenue guidance. Again, over 160 cumulative Growth Direct systems placed around the world. Another highlight is we inflected into positive gross margins in Q3 and expect sequential improvement in Q4. And we had an exciting announcement regarding our collaboration with Lonza, and I'll get into this in more depth later. But a quick snapshot. Lonza and Rapid Micro partnered on deploying the Growth Direct System and their software platform, their MODA-EM system across their cell and gene therapy network as well as one of their biologics and small molecule sites in Switzerland. From a financial results standpoint, Q4, again, record quarter, about $8.2 million in revenue, which represented about 30% growth compared to the prior period, $4.2 million of that recurring, 6 systems placed and 4 systems validated. On the year, again, around $28 million, $28.1 million in revenue, which was about 25% growth year-on-year, $15.5 million of that recurring, 21 systems placed throughout the year and 16 systems validated. So we're happy with these results. So on Slide 6, for those of you online, I just want to step back and start to frame the problem that we're going after. So for those of you who have not been inside a pharmaceutical Micro QC lab, this is what Part of 1 would look like. So what you'll see is you'll see a lot of people, petri dishes, pencils, paper, a very manual process. And quickly, I'll go through how this works, but it could be a handful depending on the size of the site or literally dozens and dozens of quality control technicians will come in, they'll gown up, they'll grab stacks and stacks and petri dishes, and they'll test essentially the entire environment in the manufacturing environment. So the air is tested, the water systems are tested, personnel are tested, typically humans are the #1 source of contamination in a pharmaceutical environment. The manufacturing services, the product itself and then a final sterility test. So it's a very high-volume pervasive. And as I mentioned before, regulated process. The FDA and the EMA will inspect and audit these processes within the customer base. It's very insecure. Again, it's people doing these tests. And what they'll typically do is once they've done taking all these samples, they'll bring it to an incubator. Size this room for those of you here, for those of you listening online, as big or larger probably in the room that you're in. And they'll come back a week, maybe 2 weeks later, visually inspect each petri dish and manually count and transcribe. What they see on that dish effectively into account, ultimately put that into a computer system. More and more of our customers before they adopt the Growth Direct also have 2 analysts to ensure what we call data integrity, which you'll hear a lot about. So it's a high volume. The big takeaway of this is a high-volume process. It could be hundreds or thousands of tests per day in larger pharmaceutical companies or campuses, incredibly insecure and lacking data integrity and the regulators are focused intently on data integrity. Basically, can you trust that sample was taken and it was read properly because it's linked to a pharmaceutical that could be going to a patient. And if it's contaminated, it can cause significant problems. Clearly, human error, it's very manual and paper-based and slow. And we'll go after this in a couple of slides when we chat about what Lonza and other customers are doing to solve this problem with the Growth Direct. On Slide 7, this is our view in context of the strategic, if you will, pharmaceutical value chain of what's going on effectively. I think we can all agree that scientific and technology innovation has changed the way we discover drugs upstream from an R&D standpoint and clearly impacted the downstream bioprocess and manufacturing with advanced modalities. But unless the Growth Direct is installed, you have this legacy and the vast majority of the market is not automated. You have this legacy modality that was invented effectively well before new research and new manufacturing modalities were even conceived. So you have this incongruent situation where you have the fundamental QC infrastructure ill prepared and ill-equipped to serve modern pharmaceutical manufacturing. And this is the problem that we're going after. And we solved this problem on Slide 8 for those of you online with the Growth Direct platform. It's the only fully automated, high throughput and secure microbial QC solution available. The platform itself consists of the Growth Direct System on the left, fully automated, fully robotic walkaway system, a full suite of proprietary consumables. Our approach is to validate and automate the vast majority of daily routine use test volume in any pharmaceutical manufacturing environment. So we automate environmental monitoring, water testing, bioburden testing and most recently, sterility testing. So our system is a high-capacity, high throughput, fully automated walkaway system. And our consumables are what customers use to take the samples and ultimately help create the analytic. We have a full data and software system that will seamlessly interface our Growth Direct with the customers' lab information management system to create a paperless 2-way secure data platform with very strong data integrity. And we have worldwide global validation and support services. As I touched on, we work with our customers in the validation process to move them from an installation to a fully validated ready for prime time manufacturing production. Our teams do that globally. From a value prop standpoint, customers receive a notable value proposition. The first is data integrity. And we talked about this, the current environment is very weak data integrity. So customers go from a challenged environment in some cases to a highly robust regulatory compliance data integrity environment. Operational efficiency is a big driver. So our system is not only automated, it's rapid. So we can provide results, test results in typically half the time or less. So customers can do something with that information. They can ship to market faster. They can move to the next processing step faster. They can find problems faster. Imagine finding a problem day 2 versus day 7. You're not producing 5 days effectively of manufacturing scrap. So unlocks and there's labor leverage, there's cost efficiency. So this is a big part of the ROI for customers. And then accuracy, insight and accuracy, machine-driven, computer-driven system. There's an error rate, human error rate associated with the current process, which causes challenges up to include potential recalls and our system eliminates or dramatically reduces error associated with the humans involved in the process. And Slide 9 is the -- it's a transformation. This is a high-level transformation of what customers go through and get effectively in conjunction with the value prop I just mentioned. They go from the top side of the slide, which was that long convoluted process I spoke about a few slides ago, 15 steps, very manual, error-prone, a long time, 2 weeks or more in many cases and unsecure to a leaned out, fully automated walkaway streamlined process that's rapid and accelerated. That's fully secure from a data and data integrity standpoint. And Slide 10 is problem fix. It's kind of how we view it. This is just meant to juxtapose the previous slides where this is our view of bringing a new quality control infrastructure to modern pharmaceutical manufacturing as Growth Direct is on par from a quality, from a speed, from a reliability and robustness standpoint to the balance of the pharmaceutical value chain, again, marrying up with the modern discovery and research technology and downstream in the manufacturing environment. On Slide 11, for those online, this is just pulling up and looking at the strategic and market landscape on forces that are long-lasting that are pushing effectively the pharma companies to adopt automation. We view these to be long-lasting and powerful. So first, a large market. We're going after a large market. We size that as about $5 billion in annual recurring revenue, consumables, services, things of that nature on our platform and about a $5 billion global system opportunity as well. From a regulatory standpoint, the regulators are effectively applying pressure to improve data integrity, which in turn provides pressure to adopt automated platforms. And we chatted about the inherent challenges with the high-volume nature, the high precision effectively required in the counting and manipulation. For humans, we do a lot of things really, really well. Repetitive high accuracy steps aren't always at the top of that pile. It's the first or a fantastic business case for automation. And this is a very important force in the industry. Most of our customers adopt our technology in part because of improved data integrity. And then industry change. As I mentioned, the industry itself is putting pressure on the quality control environment to adopt new technologies to move faster, to be more accurate, advanced modalities, biologics, cell and gene therapy. Some of these have very, very fast turnaround, high-value therapies that need accuracy and speed and turnaround and the legacy modalities just cannot keep up in many cases. And it's a fantastic business case for automation. On Slide 12, this is a bit about our growth strategy. So our fundamental commercial strategy is predicated on a land and expand. By land, I mean, we acquire a customer. And again, we'll go through that -- we'll go through our customer set in the next slide. And then we expand with them. So a customer will typically buy 1 to 4 systems to start, and then they'll expand. And there's multiple ways customers can expand with us. Some will automate a therapy globally, EM globally, for example. Others may automate multiple types of tests within a site network or a region and some may automate various geographies. It really depends on what problem they're trying to solve in which order they're trying to solve, but we have this expand phase that we work with customers on. So we land initially with customers and then we seek to expand across their manufacturing networks and across our suite of tests. Again, as part of our strategy is to provide that full breadth of routine daily test for customers. We've also expanded into new geographies. We're historically quite strong in North America and Europe, but more recently are growing well in Asia, which is a good example of how we're expanding our reach geographically. Another important part of our growth strategy is innovation. I mean the best way to think about how we look at technology and R&D, if you will, pipelines is we're a platform technology. So we have a platform Growth Direct in the middle of a customer -- a critical customer workflow that is, as I mentioned, in need of automating. So we automate the fundamental test, and then we can go upstream and downstream in that workflow and provide more value propositions upstream and downstream to include data as well. And we'll talk about our Rapid sterility application in a couple of slides. But that could be automating more parts of sample collection, for example, downstream, automating potentially identification of organisms, things of that nature. Our Mold application which I won't go into great depth today is a good example of providing more information about the organisms in a customer environment underneath the ages of the Growth Direct value proposition. And a final area that is a growth opportunity for us is adjacent markets. We are focused right now on pharmaceutical markets globally in all modalities. But for example, personal care could be an adjacent market that we extend into, either ourselves organically or via a partnership. Personal care is a lot like pharmaceutical manufacturing, a lot of testing. It's a bit more of a fragmented market, but still a very big market and the Growth Direct is a really good fit for personal care as well. So on Slide 13 for those online, those of you in the room can see our -- you can see our customer logos. Those of you online cannot. But this is a look effectively at a select set of our customers' names, our logos and where they are around the world. But to help you summarize this, think of our -- think of the majority of our customer base as larger pharmaceutical companies, top 20, top 30. As I mentioned, we have about 70% of the global top 20 or so. And most of the therapies are biologics, which is our largest therapy we automate, but also cell and gene therapy. Also large CDMOs, historically, we've mentioned we're working with Samsung. More recently, we mentioned we're working with Lonza. So we do have a large CDMO customer network as well. And those of you in the room can see more. It's important to note, though, while we're especially strong in advanced modalities, we also have customers and we also automate and solve problems with a very high -- very strong value prop in small molecules and other modalities, vaccines as well. From a geographic footprint standpoint, we're equally balanced between North America and Europe. We've got -- think of us as roughly 40% to 45% of our customers in business between North America or 45% in North America, 40% to 45% in Europe. And the balance in Asia, a bit smaller, but growing quickly. And about 100 customer sites around the world have Growth Directs and growing. So on Slide 14, I want to provide a little more information on the Lonza collaboration that we announced. Lonza is a long-standing customer, and they were out to solve problems a lot like we've talked about today. Lonza solved the problem of more accurate testing, more secure testing in order to get critical medications in their cell and gene therapy network to patients faster. So they adopted the Growth Direct. They married that with their own proprietary software platform, and they rolled and are rolling the platform out across their manufacturing network in North America, Europe and Asia. Again, I touched on this, but the big ticket, if you will, or the major takeaways of their value proposition were more accurate testing, much faster processing speed. We spoke about how fast the Growth Direct can be. They're getting a less than 3-hour result versus 8 days previously. And for cell and genes and parts of other advanced modalities, it's really important to get that accurate test quickly so you can move things to the plant and out to patients much, much faster, improved compliance and cost reduction. It's a hard dollar cost savings. And we view this as a clear template for the market to adopt. And many customers are, frankly, adopting this approach with MODA in some cases and other platforms as well. For those of you who want to learn more and get a little more in-depth into how Lonza solve the problem and the steps they went through, there's a white paper available on our website. On Slide 15, for those online, I touched a bit about our growth strategy, having a strong innovation element and rapid sterility is a really good example of that. So we developed a rapid sterility system. It's effectively the Growth Direct with new menu, a rapid sterility consumable. And you can see that on the left-hand part of that slide, and that was released last year in 2024. Before I go into what ours does a bit about sterility. Sterility is an end-of-line critical test that determines the final sterility state of a product, typically in its final format, a syringe or a vial. And the test is designed to detect any organism is an automatic fail in a sterility test because it's going to a patient right after it leaves the plant. So the current methods are similar to the ones we discussed. They're slow, they're legacy. It's actually a broth-based technology, human red broth that turns a little cloudy, it's contaminated. So it's got some subjective elements to it. And it takes about 14 days if things go well for the test to finish. What our system does is it brings all the benefits that you've heard today about the Growth Direct to include rapid release, which is really important, because for a gating test, when that passes its test, it's usually go into market. So our system can -- time to detection, which is important for sterility because that's the point in time it discovers its first organism, which is an automatic failure. We can do it in as little as 12 hours versus the legacy method takes 3 to 5 days. So a huge time advantage to find a problem. Things are going well with the test and it's pass effectively, we can get the final TTR, the final clear to ship in 1 to 3 days and the legacy method is about 14 days. So as you can see, all the benefits of the walkaway testing, the data integrity, the 2-way communication, all that is consistent with all of our tests, but this also gives incredibly fast turnaround time for an end-of-line critical test. we're very excited about the potential for this in the market. On Slide 16, for those online, while we're very happy with Q4 and 2024 results, it's important to note that we've had good growth, good strong growth over time. So let's just look at the past few years, a 28% CAGR from '22 to -- revenue CAGR from '22 to '24. And also, it's important to note the increasing level of our recurring revenue consistent with, again, our consumables being used by customers and our recurring services business as well. Consistent with that, significant gross margin improvement. So over that same period of time, increasing our gross margins 50 percentage points from 2022 to 2024. And as I mentioned, we inflected into positive gross margins in Q3 and expect a sequential improvement in Q4. And all of this enables and supports our focused goal of achieving positive cash flow by the end of 2027 without additional financing. So on Slide 17, to wrap up, there's multiple reasons why we're very excited about where Rapid Micro Biosystems is and where it's going, a large market that's growing. We've got strong barriers to entry, first-mover advantage being one of them, which is very important in a market like this where customers will standardize on a platform and word of mouth is also important. Clearly, the industry-leading automated platform across the world today. We address all modalities, but have -- are very, very strong in the advanced modalities of biologics and cell and gene therapies. And a proven -- as I hope you agree based on what we've shown today, a proven business, high-growth business model where we place capital equipment and pull through a very high rate of consumable revenue with expanding margins. So that's what I have from a formal presentation standpoint. Do some questions, Zach.

Thanks a lot for the powerful presentation. I guess to start, Rob, so in your press release yesterday and in today's slide deck, you kind of highlighted the collaboration with Lonza. Are you able to provide any more details on that?

Well, I think it's a really good case study of our core value proposition that you heard today. So a customer who had a need to cut costs in some cases, to streamline manufacturing to get products to market faster, to improve data integrity and global compliance. That's why the Growth Direct was built. And we're super excited to be partnered with Lonza and have a very, very clear example. I can say that other customers have done and are doing this as well. It's becoming more and more common for customers to expand like that and integrate with their data systems and harvest the benefits that Lonza outlines in their white paper as well.

A model for others to follow. And I guess for both Rob and Sean, you guys preannounced Q4 and '24 revenue Tuesday afternoon. Is there any additional details to share about that?