Hi, my name is Yuko Oku, and I'm on the life science tools and diagnostics team at Morgan Stanley. Before we begin, I'd like to remind our listeners important disclosure information can be found at morganstanley.com/researchdisclosure. If you have any questions, please reach out to your Morgan Stanley sales representative. With that, it's my pleasure to host Rapid Micro Biosystems. Speaking on behalf of the company is CEO, Rob Spignesi, and Sean Wirtjes. Thank you for joining us today. Thank you. Thank you, Yuko, and good morning, everyone. To start, for the audience who are new to the story, could you provide a brief overview of the company and your Growth Direct platform? Describe the key advantages of owning Growth Direct system over the existing microbial testing methods today, and how does the upfront operational cost of Growth Direct for the customer compare to the traditional MQC method? Okay, sure. I think there's three questions in there, so we'll take them in order. First, a bit about Rapid Micro Biosystems. So we're focused on modernizing a critical part of the global pharmaceutical quality control infrastructure, and it's called microbial quality control. This is a regulated, high-volume testing process that every pharmaceutical company in the world conducts to effectively ensure their products are safe and sterile for human consumption. The problem is this method that's used almost universally globally hasn't innovated in about 100 years since Louis Pasteur invented it. It's literally a slow, Petri dish, laborious, error-prone method, and it's causing risks and additional costs on the industry, and it's under pressure to change with regulatory pressure on data integrity and the advent of advanced manufacturing modalities such as biologics and cell and gene therapies. That's putting pressure on the fundamental pace of how this test is conducted. So in response, we've developed the Growth Direct system. It's a fully automated system that automates and replaces this legacy process and brings it into the 21st century, on par with the balance of the pharmaceutical value chain. That consists of a system itself, the Growth Direct system, a fully automated system, proprietary consumables, and services, and provides compelling value prop and ROI advantages to our customers. We've got a high-growth, attractive business model, where we place capital equipment and pull through a high yield, a high rate of, consumables and services, it's a proven business model. We're proud to, we're proud to count the vast majority of the global top 20 pharmaceutical companies and CDMOs, as our customers and continue to expand inside their global manufacturing networks. Off to a great start this year, our Q2 earnings call, we announced 30% growth, record consumable sales, you know, through the first half, 25% growth as well, and reaffirmed our full-year guidance, of, of at least $22 million, in, in revenue, at least 30% growth, and at least 15 system placements. That's a bit about the company. I think you also asked about the advantages of the Growth Direct. Yeah, so, so the current method is a, think of a 15-step, five-day to two-week process with lots of people, incubators, manual counting, clipboards, paper. That's how this is fundamentally conducted today. So it's, it's, it's long, it's costly, it's error-prone, it's, it's, it's unfortunately subject to falsification of data. The regulators are really focused on the data integrity, the quality of the data that's being generated. Basically, can you trust the fact that those samples were conducted and properly read, and as a consequence, is the fundamental drug product safe for, you know, human use? So that's the, that's the current state. When customers implement the Growth Direct, they, they go from potentially a challenged data integrity environment to a very robust, to fully automated system, computer-driven system, with two-way paperless secure links into their information management system. Data is handled in a completely different way. It's fully automated, so it's basically a walkaway system. A sample is taken, it goes on our system. It's fully still growth-based, so it's fully processed and handled without human intervention, and it's rapid. We provide results in half the time or less. Customers have quality information they can trust much faster. What can you do with that? You can ship product to market a lot faster. You can potentially shut down a manufacturing line faster if you find a problem, right? You can redeploy labor. There's, as you may imagine, significant labor savings. Also, it's computer-driven, as I mentioned, and a deep learning- based system that counts extremely accurately. Fundamentally, you're counting the organisms in any given testing environment. So it's incredibly accurate, as opposed to the human method, which is less accurate, which reduces potential for errors to happen, costs associated with that, and potential recalls as well. So it's a comprehensive and broad-based value prop and ROI against it. And there's a third question as well, I think in there. I think- I may have touched on it. I think you touched it. Okay, great. Okay. Well, that was a great overview. Thank you for that. The pandemic hindered your access to customer sites, impacting placements in 2022. Mm-hmm. You launched a comprehensive action plan earlier this year, and I want to dig into each of these topics. Sure. The comprehensive action plan was really launched to accelerate Growth Direct placements, develop and commercialize new products, and expand gross margins and manage cash. Right. What do you believe are the key factors holding customers back from adopting Growth Direct, and how are you addressing these barriers and accelerating placements? Sure. So just as a point, just to, we implemented the action plan actually last year, in the August time frame. Yeah, so we don't believe there's necessarily clear elements holding the customers back, but what we do face in this environment is we're fundamentally addressing pharmaceutical manufacturing quality control, which is a standardized environment. So you're asking customers to change a standard process, so there's time involved with that. The good news is, you know, many slash most of our customers seek to automate large swaths of their operations. So that typically involves multiple stakeholders, we'll call it, kind of weighing in and going through the process, and that can take time, and I think we all probably recognize big pharma has created a lot of things and but they can tend to move a bit more slowly. So I think of it as a process to implement, you know, change management and in some cases a fairly significant change to their operating processes. So that's really the, you know, kind of our job is to manage that with customers. So how do we go about that? And there's multiple different elements that we've implemented that is proven to be, you know, quite effective. You know, the first is a fully deployed and enabled sales team, which we've spoken about. So this helps customers to secure budget, to position the value proposition properly, to work on business cases. Most of our initial sales go through a business case analysis, then once we're installed in a customer, it kind of propagates from there. But that initial sale, that initial process is typically done through a business case. Then critically, our validation and service teams, which we believe are among the best in the industry. Again, this is all about changing a legacy process to a new, more modern process. There's under GMP, which is how our customers manufacture, there's a change process, it needs to be validated. So we go on site with our customers, work hand in glove with them to go from the legacy method to the current method in a, in a regulatory compliant manner. And so we've, we've continued to build out that team, and we've done a lot of learning, over 100 validations globally. So we, you know, we do that, we do that very well. And, another element and the last element relative to this, is our supply chain. So we've, we've built and operate a highly reliable, redundant supply chain. We have a proprietary consumable and services, and we're serving a mission-critical need in our customers, and in many cases, we're installed in some of the customers', I would say, crown jewel franchise products. So our supply chain has to be incredibly robust and rigorous, and redundant. So those are some of the, I would say, the larger programmatic elements that we continue to do well to work with our larger customers to help them implement and overcome any potential objections and roll out our systems globally in their networks. Great. And when customers order Growth Direct, do they typically place multi-system orders or a single unit? And if you could describe- Mm-hmm. the mix, that would be great. Yeah, both. So, the quick answer is both. So we serve... I think it's important to note that we talk a fair bit about our large customers, which is the majority of our sales. But we can address large customers, small customers, large molecule manufacturing, small molecule manufacturing, and we have examples of all of the above. But a typical customer journey for, I would say, a larger customer, would typically be going through that business case analysis that I spoke about. They'll typically buy one to a handful of systems to start. This is really to prove out the model, prove they can get it validated, and kind of just get the process started. That will typically be at one site. Sometimes we've seen more than one site, but one to a handful of systems at one site. They'll go through the validation process, prove out the, the model, if you will, and then, and then propagate and, and, and grow from there. There's no real one-size-fits-all to the land and expand. Mm-hmm. That's the landing, and then they expand across their networks, and we, of course, you know, help them do that. That's part of what our sales team and validation team does. And I can say it's incredibly encouraging. We're getting more time than any other time in our company's history. We're getting insight into customers' forward-looking, documented plans of how they're going to roll out the Growth Directs across their network. So that visibility is very exciting for us. So customers will move on from there, and then there's various ways they can implement across a site network or region. We have some customers who've implemented us across a single product category globally. So it really depends on what problem they're trying to solve, and of course, what we do is work with customers on the additional—so if they automated a single application, we work with them on other applications. If they automated a certain product, we work on other products. If they automated a given region, we work with, or sites, we work with them in other regions and other sites. The whole idea is to continue to prove the business case of the Growth Direct and continue to expand across their entire network. It's important to note, we've developed this system to capture the vast majority of daily routine use test volumes in any manufacturing environment. So we're not a niche-... We want as much as we can possibly get of the consumable volume, environmental monitoring, water bioburden, and we can talk about sterility later. So we're able to and we're a high volume, high capacity, high throughput system. This is all purpose-built for pharma. This is why our expand process is so important and why our value prop resonates so strongly with customers. There's also a lag between system placements and system validation. Mm-hmm. Understanding there's a lot of variability, like you talked about, between customers and customer sites. Right. What is the rough estimate for that lag? And what are some of the efforts underway to shorten that timeline between validation and placements, and how does that differ for a new customer versus an existing one? Right, I'll start with the last one first. That's probably the biggest variable: new versus existing. As I mentioned, a new customer is starting the journey, starting the automation and transformation journey, and we're going into an environment that hasn't really innovated, as I mentioned, in 100 years. I just keep that sort of front and center. So again, we go in. And listen, word of mouth helps as more and more customers around the world adopt and more and more of our sites are inspected, you know, from the regulators. This is certainly helping, you know, customers move things along a bit quicker. But in general, a new customer will want to go through, you know, our full validation process. Sometimes the length is driven by customer availability. We need to make sure we do most, much of the work. We'd still need customers to be involved in it, and they can get pulled away for, you know, it could be an audit, it could be a variety of things. But generally, it tends to go quite smoothly. Some customers will also expand the validation for good reasons. So some customers may say, "Hey, we want to roll this out globally, so let's test the organisms from multiple sites," which can tend to also... Use this first one as kind of like the proving platform and the platform to get as much data as we possibly can, so the subsequent validations go that much faster. So there are a variety of things that can tend to impact the initial validation. So we plan for, on average, about 6 months, and it can be as high as 9 months, depending on the customer's availability or, more specifically, how large scale they want to contemplate the, you know, kind of full validation. But we've done validations as quickly as three months, two to three months or less. Now, follow-on validations tend to go much faster. As I mentioned, customers can do a lot of the work up front, and then we don't need to do quite as much work on the subsequent installations, and those can be in, you know, the two to four-month range quite easily. Now, we've also have approached this as a process improvement under an umbrella program we call Project Rapid. And that's really geared towards looking at, independent of whether it's a first-time customer or a repeat customer, how do we lean out that process? How do we look for any kind of areas of opportunity to accelerate the process? And we've done that quite successfully. So we've implemented dedicated project managers, and this is basically a project. Doing an implementation and a validation is basically a project involving Rapid Micro Biosystems and either a customer site or multiple customer sites, and certainly multiple global stakeholders, typically. So managing all that is what we've gotten, you know, very good at. Also data. So we've got so much data on how customers validate the scientific elements of... A lot of the validation is proving the Growth Direct is as robust, if not more robust, in counting and detecting organisms as a legacy method. So bringing data to bear on a variety of organisms helps us to do work offline and bring it on-site to customers to accelerate their processes. And general, again, project coordination and capability has allowed us to, you know, accelerate that process, and we're continuing to do so. Great. So once the system is online, I would assume you have strong visibility into the consumable pull-through- Mm-hmm ... given that it's a highly regulated and controlled process. Right. So, tell me, at what capacity do customers typically run the system? Are most operating at, like, a 40% level or more like 70%? How much excess capacity is recommended to have on hand, just in case there is some event, unforeseen event? Like, as most of my answers, you go, no, there's no one-size-fits-all. Yeah. I can say generally, the majority of our customers are using our environmental monitoring application. Environmental monitoring is the high volume application that tests the air, the surfaces, the personnel, and the majority of those systems operate at or near 100% capacity. We have some customers with you know, several Growth Directs lined up at a 100%, doing nothing but EM. Nothing but. So think of it as environment, and again, the system was built as a high capacity, high throughput system, in part because environmental monitoring testing is so high volume, especially in the biologics and cell and gene therapy markets, where we have a very strong footprint. It's one of our key and core competitive advantages. The water and bioburden, think of these as more, there is capacity in those systems, so those operate at. That's probably closer to the 40%-50% on average. I'm, I'm, you know, estimating that on the, you know, the exact data. Just because the sheer volume, it's the same system, the sheer volume, doesn't, doesn't necessitate a similar capacity and throughput as, as environmental monitoring. And we'll talk about sterility later, perhaps, and sterility, we anticipate, will be even lower volume, but higher value. So that's, think of it as high volume, medium volume, and low volume, but our system can do all, all three core kind of elements. I think importantly, the pricing on the consumables kind of is inverse to those volumes. Yeah. So when we think about pull-through per system, it doesn't vary a lot between the applications. So high volume, a little bit of a lower ASP on EM. As you work your way up through water bioburden, and then up into sterility, you see that start to change. So volumes go down, but prices go up. Right. Okay. I wanted to dig into something you touched on. You've also seen strong adoption on Growth Direct in cell and gene therapy customers. So why is that? Why is that? Yeah. So, in cell therapy in particular, where I believe we still have the majority of the commercial CAR T therapies are using our system. And this goes back to the intro, where the fundamental microbial quality control process, developed 100 years ago, was developed when CAR T manufacturing wasn't even a thing yet. So you had this incongruent situation where the legacy model just doesn't fit the needs of modern manufacturing. And CAR T manufacturing, in particular, and cell and gene, more broadly, is characterized by incredibly high test volumes, given how the manufacturing modality is conducted, extremely fast requirements of vein- to- vein time. You know, it can be measured in weeks, and we're trying to get it down to days, and the criticality of accuracy, right? So you have this high volume, very fast turnaround, and you have to be right, if you—you know, 'cause each, each batch effectively is a prescription for, for a, you know, for, for a patient who's—this is typically, you know, one of the last lines of defense for that particular patient. So it's a perfect business case of, for automation. That's why we believe we've seen such good adoption, because it's, on average, it's hard for a, you know, harder for a human-based organization to keep up with the demands, and, and our system can, it can, it's been designed for, for that kind of operation, and, and similar operations that we see in, in biologics and other segments. But it especially resonates in some of these, you know, some of our cell and gene environments or many of the cell and gene environments. I wanted to touch on sterility. Mm-hmm. You announced last quarter sterility is currently in beta testing phasing with top 20 global customer and remain on track- Mm-hmm. -with your internal plans. How much of a driver will sterility be in driving more placements? And help us think about the demand. Yeah, so we think, so the sterility will be a... It's basically the Growth Direct system. There are some, I would say, relatively minor changes to handle the new sterility cassette. So, and also sterility is typically the testing is a mission-critical, end of line, last line defense kind of test, so it's typically done in a different part of the campus or manufacturing area than environmental monitoring, water, and bioburden. So we do envision a new, a dedicated, if you will, or a new system and a new implementation for our customers around sterility. So to that, you know, to your initial question, yeah, we do envision it driving, you know, incremental system placements and demand over time. We believe, and our research indicates, that there's a strong demand for a rapid sterility test on the market, especially one that benefits from the value proposition of the Growth Direct, with the way we handle data integrity, the full walk away. It's still growth-based, so we're not just growing the organism to discover it, which other technologies do. So our voice of customer research and our beta feedback, you know, certainly gives us encouragement that the demand is strong for a system like ours. Okay. And once it's more broadly available, how should we be thinking about lag between placements and validation? You said that it's last line of defense, so... And it's also a new application. Yes. Should we anticipate that it could actually take longer for that system to be validated? You should. Yeah, it'll be, you know, similar trajectory. We'll launch it, and it'll. You brought up a good point, it's last line of defense. It's critical. So, you know, we do envision it to take longer, and we'll help clarify that as we get closer to launch. But over time, though, critically, we expect that time to contract as more customers adopt it, and it benefits from Project Rapid, as I mentioned before. Okay. Mold Alarm is also now available. You indicated encouraging attachment rate- Mm-hmm. to new system sales and upgrades to existing Growth Direct. Tell us more about this offering and the feedback you've heard from customers so far. Yeah, so just by way of background, Mold Alarm is an outgrowth of our knowledge of vision technology, AI or deep learning technology, and our considerable knowledge of microbiology and how organisms, you know, grow and morph effectively. So this is a software upgrade, if you will, and we're able to give customers an accelerated, consistent with our value proposition of rapid results, an accelerated alarm, and notification that they have mold present in their facility. And customers clearly are, you know, concerned about contamination, and they, some of them can get especially concerned about mold contamination, because it can spread very, very quickly, and it can be difficult to remediate, depending on where it is. In a legacy method, it could take days, and our system can flag it as early as, you know, a day and sometimes even sooner. So it gives a really quick steer to, is your operation in control, from a microbial quick QC standpoint, or are you at risk of it getting out of control much, much faster? Again, consistent with our value proposition. This fits generally under the aegis of our product development strategy of, you know, capturing more customer workflow and provide more information and benefit and our ROI to our customers. So that's what it is. And customers are... Yeah, it's been encouraging. The attachment rates and, you know, as we've said in the previous earnings calls, we, you know, our focus this year has been generally to get it into the hands of customers, get them using it, you know, getting some feedback on it, and then, you know, looking to drive revenue in 2024 and beyond. I wanted to throw some questions over to you, Sean. Sure. Your 2023 guide calls for at least 15 systems for the full year, and you placed five in the first half. So could you speak to your confidence in second half system placement, given the choppy macro? Sure. And I think as a reminder, we also mentioned on the Q2 call that we had two systems from a multisystem deal we closed in late Q2 that were already placed with the customer in July. So we were effectively about halfway there through July. I think, you know, Rob touched on it a little bit earlier. I think as we look at our funnel and the interactions with customers, I think the velocity at which things are happening is speeding up. So I think that's exciting for us. You know, the visibility, as Rob mentioned, is increasing. So I think those things give us more confidence in kind of where things are heading. And, you know, traditionally, you know, you go back a few years before COVID, you know, we had a very good track record of driving system placement growth, and we think we're on the path to get back to that type of a trajectory. Yeah, I think the other thing that we typically have seen historically, and don't see any reason why it wouldn't be similar this year, is Q4 tends to be our seasonally biggest quarter. You know, people are looking to spend budget, you know, planning things to make sure execution happens before the end of the year and they move into the next year. So all of those things come together to give us confidence in the guidance we have out there. Okay, great. Gross margin improvement continues to be one of the top priorities for you. It is. Help us think about the key drivers to gross margin improvement and the progress that you made along that front. Sure. I think to start off, I think it's important to understand the context. So, you know, we are a company that is serving a very demanding global customer base. And, you know, at our current scale, we've built a lot of capability, which carries a lot of cost with it. So we have a pretty significant cost base in our gross margins for things like supply chain, for things like quality, different parts of our organization that we need to support those customers and deliver what they expect. But that's also a cost base that's going to grow far slower than our revenue grows. So there's a very significant margin or opportunity there from volume leverage. Having said that, there are a lot of other opportunities within the company that we're very focused on right now. One is cost reduction, so reducing the cost of our products. I'd say manufacturing efficiency. We have an automated line that we produce our consumables on. Moving all of our products onto that line, being more efficient in that line is going to help us drive margin improvement as well. Productivity in service. You know, we've added to our service teams over time, where we've got better spread over the world. We're improving our processes, reducing the time that it takes to do different things that our service teams do, our validation teams do. All of those things are actively being pursued right now. Significant focus within the business, and will all be drivers of margin improvement going forward. Got it. Could you remind us of your cash position, cash burn, and cash runway? Help us think about balancing capital allocation priorities with managing cash. Sure. So we finished Q2 with $113 million in cash and investments. We reiterated that we expect to finish the year at or a little bit below $100 million in cash, which should give us runway at least in 2026. And I'd emphasize the at least. I think there are decisions that we've made and can make that can extend that out longer than that, so that's kind of a minimum threshold we've set for ourselves. And I think you touched on them earlier, kind of what we've articulated in terms of investment priorities. And I think a lot of the investment there, we've made already, and we'll continue to support it and cultivate it. So I think, you know, would we make other investments over time? Sure, we are constantly talking about investments, but, you know, to make an investment, we're also going to want to see a return on it. So I think we're committed to being very disciplined in managing our cash carefully and only making investments where we see a clear return and then driving to realize that return. Great. And then just to wrap up, with 2023 focused squarely on executing on your action plan, where do you see Rapid exiting the year, and could you tell us your focus areas for 2024? Yeah. So, you know, as we discussed, we see an exit of the year consistent with our guidance, our reaffirmation of our guidance, and then when we're—and we're confident in that reaffirmation. And 2024, you should expect more of the same: strong commercial and operational execution with a focus on system placements, gross margin improvement, new product innovation, and prudent cash management and investment. Great. Well, thank you very much. Thank you. Thank you.