NEW YORK – Singular Genomics Systems said on Tuesday after the close of the market that it is behind schedule in ramping up production of its G4 next-generation sequencing instrument.
The San Diego-based sequencing technology firm shipped one unit to an undisclosed customer in June, company officials said on a conference call following the release of the firm's second quarter financial results. But it could be a while before any more make it out the door.
While Singular may technically be off the starting line in the race to compete with Illumina and a bevy of other new short-read sequencing platforms, the firm has been tripped up by supply chain issues as it tries to accelerate its business.
Specifically, it has had trouble obtaining certain "complex" electronic components for the G4 instrument, CEO and Cofounder Drew Spaventa said, attributing these issues to shipment delays as well as particular vendors not meeting their commitments to the firm. These issues in building the instruments have triggered a cascade of delays in subsequent phases of the manufacturing process, hampering Singular's ability to scale up.
Spaventa estimated that Singular is approximately three months behind where it wanted to be. "In addition to a later start, we expect a more gradual ramp," added Dalen Meeter, senior VP of finance.
"[We're] building the right foundation to have bigger success longer term, and we just need the extra time right now," Spaventa said. "The last thing we want is to get out over our skis and have customers have a negative experience with the instruments."
In Wednesday morning trading on the Nasdaq, shares of Singular fell 35 percent to $2.88.
"No individual reason was given for these delays, but the genesis of the issues came before Q2," Cowen Analyst Dan Brennan wrote in a note to investors. "Management in hindsight indicated their launch targets didn’t leave much room for any issues, hence a more conservative target plan could have been more appropriate (though we don’t believe this was well communicated in the quarters leading up to now)."
The production issues, coupled with macroeconomic conditions, have also led the company to reevaluate its growth plans. Singular "called out softening customer demand due to macro-induced budget cuts at biopharma customers that make up two-thirds of the company’s initial customer base," JP Morgan Analyst Julia Qin wrote in a note to investors.
"The change in mindset has had a downstream impact on how aggressively we hire and spend," Spaventa said. Previously, the firm expected 2022 operating expenses to double, year over year, but this will no longer be the case. The company is also adding different instrument acquisition models, including leases and reagent rentals.
Despite these troubles, Singular was able to add three new partnerships on sample preparation in the second quarter. The firm will validate Integrated DNA Technologies' xGen NGS library prep kits for DNA and RNA, the Takara Bio single-cell RNA-seq kit, and the Parse Biosciences Evercode single-cell transcriptomics kit. Financial and other details of those deals were not disclosed.
Singular's net loss for the quarter totaled $24.0 million, or $.34 per share, compared to a net loss of $37.5 million, or $1.18 per share, in Q2 2021, beating the consensus Wall Street estimate of a $.38 loss per share.
The number of weighted average shares of common stock used to compute net loss per share was approximately 70.8 million, compared to approximately 31.6 million in the year-ago quarter. Singular went public in May 2021, raising approximately $258 million in gross proceeds.
The firm's R&D expenses jumped 57 percent to $12.1 million from $7.7 million a year ago. Its SG&A expenses were $12.2 million, nearly double the $6.2 million a year ago.
As of June 30, Singular had $153.1 million in cash and cash equivalents and $134.4 million in short-term investments.
Meeter said that with a cumulative cash burn of $163 million, the firm has "historically been capital efficient" and believes it has enough cash on hand to take it through the first half of 2025.
Late last month, the firm also filed a $250 million shelf registration with the US Securities and Exchange Commission and disclosed a $100 million sales agreement with Cowen for an "at the market" offering. However, Singular told the SEC it "has no current plans to issue securities under the registration statement."
Meeter estimated that the firm has the ability to produce one or two instruments per month through the end of the year. At the beginning of 2023, he expects Singular to increase that to about two to four instruments per month. JP Morgan's Qin noted that she had previously expected six to seven instruments to be produced per month throughout 2023.
Meeter noted that it could take several quarters before the firm is able to provide formal revenue guidance and that it likely won't begin recognizing revenues until the fourth quarter.
When the firm will send out its second unit is unclear. "Being limited on instruments coming out of manufacturing, the next series of instruments will serve internal demand and be placed in R&D and the customer care lab," a Singular spokesperson said in an email.