SomaLogic, Inc. (NASDAQ:SLGC) Q3 2022 Earnings Conference Call November 14, 2022 8:30 AM ET
Company Participants
Marissa Bych – Investor Relations, Gilmartin Group LLC
Roy Smythe – Chief Executive Officer
Shaun Blakeman – Chief Financial Officer
Conference Call Participants
Kyle Mikson – Canaccord Genuity
Evan Stampler – Stifel
Dan Brennan – Cowen
Operator
Good morning, and welcome to SomaLogic’s Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s call. As a reminder, this call is being recorded for replay purposes.
I would now like to turn the call over to Marissa Bych with Gilmartin Group Investor Relations for introductory comments.
Marissa Bych
Thank you. Today, SomaLogic released financial results for the quarter ended September 30, 2022. A copy of the press release is available on the company’s website. Before we begin, I’d like to remind you that management will make forward-looking statements during this call within the meaning of federal securities laws, which are made pursuant to the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995.
Any statements contained in this call that relates to expectations or predictions of future events, results, or performance are forward-looking statements. All forward-looking statements, including without limitation, those relating to our market opportunity, gross margin, and future financial performance, protein content, and database growth, customer base, diagnostic pipeline, expectations for hiring, and growth in our organization are based upon our current estimates and various assumptions.
These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements.
Accordingly, you should not place undue reliance on these statements for a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our most recent Form 10-Q filed with the Securities and Exchange Commission and a section entitled Risk Factors in our most recent annual report on Form 10-K.
This conference call contains time-sensitive information and is actuate only as of the live broadcast today, November 14, 2022. SomaLogic disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise.
And with that, I will turn the call over to Roy Smythe, Chief Executive Officer.
Roy Smythe
Thank you, Marissa. Good morning and welcome to our 2022 third quarter update call. I’d like to start by thanking all the investors who support SomaLogic, because we continue to successfully translate 20 years of innovation into a more complete understanding of human biology, safer and more effective therapies, better patient care by leveraging the power of proteomics in ways that no other platform can.
The commercial staff and structural reorganization we have previously discussed for life sciences business, as well as continued commercial credit are already bearing fruit. We appointed a new leader for life science commercial efforts moved from a centralized to a business unit structure to align all aspects of our life science commercial efforts, including sales, marketing and product under one vertical and are putting much more emphasis on training for the large number of new sales staff hired over the past year.
I’m proud to share that we achieved $41.7 million in revenue for this quarter. Most important, we delivered on the imperative to stabilize the life science business and put that effort back on a growth track the $20.5 million of core revenue in addition to licensing royalties of $21.2 million.
Sean Blakeman, our Chief Financial Officer will discuss his comments, the components of our top-line revenue as well as our ongoing cash management initiatives. Our go forward plan is to thoughtfully focus the bulk of our efforts, internal investment on our life sciences commercial business and adjust expenditures on other parts of our business accordingly.
We are executing wellness suite, business unit structure and we plan to continue to do so. Regarding our core business the team has been acutely focused and is successful at achieving greater scale in customer diversity. Important event continue to smooth out quarterly variability and to drive sequential revenue growth. We are attracting new customers, retaining existing customers and turning smaller customers into larger ones. Pursuant we have added 54 new customers using our products and services over the past four months.
Our biopharma customer revenue growth over the past two quarters — I’m sorry over the past two years is another important fundamental building block to assure progressive long-term growth. Comparing current year-to-date and excluding long term recurring contracts, average quarterly revenue from biopharma customers has increased more than 200% since during the 2020 fiscal year, due both through the addition of new customers as well as the development of more project contracts with a large number of them. This trend of continued customer diversification gives us a great deal of confidence and our ability to continue to substantially compound with financial and human value over the next several years.
Regarding one-time royalty payment of our revenue for this quarter, I would like to remind everyone that developing a robust licensing component and associated revenue to our business has always been a part of our strategy. As we know our 1000s of proprietary reagents are potential application, and a wide variety of life science use cases.
We previously shared that we hired Ken Kaskoun as our new Senior Vice President of Licensing an Intellectual Property Strategy this past March from Qualcomm, where he held similar position. He and his team are now working on new licensing opportunities and we are confident many of these will pay off over time. The proteomics market is objectively growing. And solutions like ours are being used more frequently by biopharma academic research customers for biologics discovery to facilitate clinical trials and to improve patient care.
We are actively making it easier and more impactful for customers to work with us by growing our commercial team, expanding our current protein measurement identification product advantage and deploying, developing, and launching self-service solutions. Commercial team builder is a key area of focus, especially as we look to expand our international footprint in the EMEA and APAC in order to capitalize on the substantial and largely untapped revenue opportunities in these geographies. 60% of the top 50 biopharma companies in the world are located outside the United States, as well as a number of important academic centers with specific interest in proteomics.
While we are still definitely in growth mode, we have seen good progress with 10 talented new and experienced additions to our sales team in the third quarter, six of whom will be working at EMEA and APAC. Our unique ability to synthesize our reagents, rather than having to work in biologic systems to create them enables much faster development of new protein identification of measurement content than other approaches. Our development of proprietary aptamer reagents for our new TIN-K [ph] product will be completed over the next few months. And we anticipate launch of this new product in late 2023. When that will widen even more are already substantial current globally in platform content.
Shifting to our distributed solutions. We expect full access formats for our site-of-service 7K SomaScan array based kits into more SomaScan certified sites by the end of this year. We believe there’s substantial upside potential for our business as we make existing kit products more widely available, and develop and deploy additional distributed products. These solutions not only provide augment in top-line revenue, and meet more customer needs, but also reduce service business variability by limited and a lot by limiting reliance on customer project completion, sample batching, and delivery to us.
In addition to array kits, our work with Illumina to develop a co-branded and distributed NGS protein measurement, and identification kit product continues to go very well. We value our close relationship with Illumina as well as our unwavering commitment to create market and sell an NGS application of SomaScan that will change the commercial landscape for aptamer based assays and change the landscape of proteomics in general.
Consistent with limitless reporting, we anticipate these co-branded products to launch in 2024. But we and our partners at Illumina look forward to updating you with further details in coming quarters. In addition to these new products, sales of modular distributed sample prep solutions that we now have in development for both array and NGS SomaScan formats is targeted in the 2024 timeframe.
In addition to new array based and NGS product and solution development and commercialization, we are committed to the development of novel chip-based approaches, as evidenced by our recent acquisition of Palamedrix. The San Diego based global leader in DNA nanotechnology. We are incredibly excited about the intermediate longer-term opportunities for this work, and it has such a talent developing group now and the team to accelerate it. Beyond execute — the executing on core customer growth and diversification as well as the provision of new products and solutions, we’ve also been working tirelessly to alleviate pressures experienced over the summer. Notably supply chain dynamics, and customer spending behavior. Despite the continuous unpredictable nature of international trade, the impact of supply chain issues on our businesses are less pronounced at this time. We’ve been proactively dealing with this fluid environment by taking matters into our own hands, anticipating issues before they occur, and offering sample shipping supplies or other assistance where needed.
Like many others, we continue to see stress on biopharma budgets in this market. While we are very optimistic about our fourth quarter performance, due to continued customer growth, or conservative assessment, when shared by others as well is that we can generally see a more modest cadence and it’s typical for customers, we usually work to spend down remaining budgets, and therefore less sequential growth in the fourth quarter might seem a typical year. As we have discussed, we will adjust our spending eventualities needed. Regarding our efforts in proteomics diagnostics, we have previously shared that we have created 16 laboratory developed tests or LDTs on our platform.
The way we’ll be announcing soon results of a very positive trial for an example, these products, our secondary cardiovascular risk test, which is superior predicting the risk of heart attack, stroke or death in individuals affected by diabetes, and other cardiovascular risk factors. This clinical study was performed in conjunction with Pure Healthcare, this virtual trial platform has been leveraged by others to facilitate third-party coverage for new healthcare products.
We continue to pursue licensing and partnership opportunities for these novel assets. Quick note on two recent manuscripts published by teams at the NIH and FDA, two organizations were expected for unbiased scientific integrity record. NIH manuscripts published in Nature Scientific Reports represents the largest technical evaluation of our 7K SomaScan platform today, demonstrating its extensive coverage of the human proteome, remarkable sensitivity, and consistent low variability. The authors point out these characteristics are unique in comparison to other proteomics approaches.
The FDA manuscript publishing Clinical Pharmacology reports demonstrates the ability of SomaScan to characterize biosimilar drugs. And according to the FDA investigators, SomaScan represents a quote sensitive dynamic in highly reproducible method. We are encouraged and confident in our recent progress, and the improvements we have made an execution over a short period of time. We have reset and stabilized our core service business supported by a growing list above pharma and academic research customers. And we have a proven technology and platform with tremendous runway ahead. Against this backdrop and based on the current trends in our business, as well as one-time licensing royalties, we’re raising revenue guidance for the full-year 2022. Shaun will provide more detail on that guidance shortly.
In closing, it’s important to note that we continue to maintain an enviable balance sheet in all the optionality that comes with that resource. However, in this market environment, it’s absolutely prudent to preserve as much capital as possible, while still aggressively capitalizing and executing effectively on top line revenue opportunities.
Well, some of our recent uptick in spending has been necessary to put information technology structure in place to support life science commercial growth, as well as public company operating structures in place, we have previously announced our intent to make significant operational expense reductions moving forward.
By focusing on life sciences commercial needs and opportunities, and continuing to invest in them, we will do this while still growing the scale and success of that business. Shaun will discuss how we are executing and are on track for the initial stages of that plan. Before I turn it over to Shaun, I’d like to re-emphasize what we’re building in SomaLogic.
The insights garnered from the use of our platform and already improved the landscape for customers and their important work in discovery, clinical trials and patient care. It’s no longer debatable that proteomics is a rapidly expanding market, and that unique technology is the right one to capture a significant increasing share of its value. While we’re still building our commercial capabilities, we are confident that tremendous opportunity objectively in front of us will unlock growth, deepen relationships with existing and new customers and create significant financial returns with huge benefits. As I’ve shared, there’s a great deal more to come in the near-term and beyond.
I’d now like to turn it over to Shaun for a review of our financial results, Shaun?
Shaun Blakeman
Thanks, Roy. Revenue for the third quarter of 2022 was $41.7 million compared to $20 million in the same period of the prior year. We are pleased with the improvement in our assay services business and we are excited about the work our commercial team is doing. All of the ingredients to grow our platform are in fact, and in Q3, we saw the results of improved commercial execution. And below the amount of licensing revenue, we recognized this quarter was unexpected. To Roy’s point, this is just one example of licensing opportunities we hope to pursue in the future.
Given the amount of licensing revenue this quarter, I would like to provide additional clarity on our revenue breakdowns to help you understand our underlying business performance. Breaking down $41.7 million, we recognized $17.6 million from our core assay services business, 0.4% increase from our third quarter 2021 assay services revenue of $17.5 million and a 60.8% increase for the $10.9 million of assay services revenue we recognized last quarter. We also recognized $2.9 million in revenue for our other core businesses including kits, licensing and collaboration revenue.
And then we recognized between $1.2 million in one-time licensing revenue that Roy mentioned, the $21.2 million was comprised of an $8 million upfront payment, which we received from NEB as part of the terms of our revising agreement. And $13.2 million recognized under GAAP, a future guaranteed minimums of $5 million that we paid to SomaLogic over the next three years from 2023 to 2025 for a total of $15 million.
Due to that, we account for this arrangement as a financing type arrangement with $1.8 million allocated to interest income that will be recognized over the next three years. So this means that each year we will be receiving $5 million that will not be recognized in those future years other than the small interest component I just described. Gross margin for the third quarter of 2022 was 72% compared to 56.1% in the third quarter of the prior year.
Gross margins were primarily driven by the large amount of licensing royalty revenue of 100% margins. If you back that out, our margin tax royalties would be 39.7%, which is due to lower margin — sorry lower margin biobank samples. As I discussed, we will be running in Q2, we will continue to process those samples in Q4. I would reiterate that our current volumes are four SomaScan margins without biobank and large customer mix remained in the low to mid-50% range.
We think of last quarter with our Q2 earnings call that due to the impact of those margin samples, our second half margins would be overall fairly flat compared to the first half of 2022. Given the additional royalty revenue this quarter, we anticipate gross margin for the second half of the year to improve below 60% range. Total operating expenses for the third quarter of 2022 were $70.7 million, compared to $36.2 million in the third quarter of 2021. R&D expenses for the third quarter of 2022 were $19.4 million, compared to $15.6 million in the third quarter of 2021.
Sales, general and administrative expenses for the third quarter of 2022 were $51.2 million, compared to $20.6 million in the third quarter of 2021. G&A included one-time charges this quarter for stock based compensation and lease termination adding approximately $15 million. Adjusted EBITDA for the third quarter of 2022 was a loss of $31.9 million compared to the loss of $18 million in the third quarter of 2021. Please see our press release on file with the SEC as of this afternoon for a reconciliation between GAAP net loss and non-GAAP adjusted EBITDA.
We ended the quarter with $566.3 million of cash, cash equivalents and short-term investments. Our strong capital position is an important differentiator for our business in the current market environment and allows us increased flexibility to evaluate and act upon both organic and inorganic opportunities accretive to our current growth prospects.
And as part of our focus on reducing cash burn, we are successfully implementing our plan to reduce operational expenses by $75 million from last quarter’s operating expense consensus through 2023 which we announced last quarter. We have implemented over $10 million of savings this year, net of one-time items in Q3 and Q4 related to business optimization. And we are finalizing our plans with over 85% of the operating expense improvements through 2023 now identified. We are appropriately point resources towards our highest revenue generating activities, focused on life sciences and only supporting the commercial growth of that business.
As Roy mentioned in his comments, while we do not anticipate seeing larger year end volume and flux from our biopharma customers, we nevertheless expect and look forward to continue to build our commercial execution to end the year and going into 2023.
So turning to guidance, based on our year-to-date progress, and including this third quarters licensing revenue, the current trends in our current trends in our business, we now expect 2022 revenue at the end in the range of $93 million to $98 million.
At this point, I’d like to turn the call back to Roy.
Roy Smythe
Thank you, Shaun. Again, thanks to everyone for joining us for this third quarter 2022 report. As a result of continuing to put the fundamental building blocks in place, our business is gaining momentum. There is ongoing and more commercial infrastructure growth and differentiation that come as well as the development and diversification of launch of new products, leveraging our unique core technology within partners, collaborators and customers both want and need to deliver on our shared goals for the prevention of human suffering, and the prolongation of meaningful life. We look forward to sharing more with you in the coming months.
And with that, I’ll turn it back over to the operator for Q&A. Operator?
Question-and-Answer Session
Operator
Thank you. [Operator Instructions]. Please standby, while we compile the Q&A roster. And our first question will come from Brandon Couillard rom Jeffries, your line is open.
Unidentified Analyst
Thanks. This is Nadan [ph] for Brandon. Shaun, quick one for you on the prior 80 million to 90 million guide. Was there any of the various pieces of the New England biolabs royalty baked into that number?
Shaun Blakeman
We did anticipate we knew that we were in negotiations. So we did anticipate getting some elements of that certainly the exact amount was unknown at that time. And some of the recognition around the minimums was unexpected going into the quarter. So the answer is yes. But I would also point out that our core business is also performing as we had anticipated going into the second half. So we’re trying to put out a reasonable guide based on all that, as received things right now.
Unidentified Analyst
Okay, thanks. And then for the fourth quarter, you guys noted more modest catered to spend at customers. As we sit here, kind of halfway through the quarter now, is that actually what you’re seeing show up in order trends, or is it more kind of anecdotal? And so taking a more conservative approach into a maybe a more traditional year-end budget flush?
Roy Smythe
Yes, this is Roy. I think we’re on target compared to where we would hope to be for the fourth quarter. We’re just anticipating, again, based on signals that we’re hearing and others are hearing as well, that this rush in the fourth quarter and for — especially for biopharma customers to spend down their budgets in this market, maybe less pronounced. But we do feel good about the upcoming quarter.
Shaun Blakeman
I would also point out this as a matter of — you think about in guide? If you recall what I just said regarding the NEB licensing revenue, that’s not going to be recognized now in future quarters the same way. So as you typically might see $1 million or $2 million historically come in. We’re not going to see that next quarter for the reasons I explained.
Unidentified Analyst
Super. Thank you.
Operator
Thank you. One moment for our next question, please. And our next question will come from Kyle Mikson from Canaccord Genuity. Your line is open.
Kyle Mikson
Hey, thanks. Just to want to go back to the fourth quarter? I know, Roy, you talked about the some of the puts and takes this one to kind of dive into it a bit more. It’s pretty important. So this updated guidance, I think can apply like $15 million in services revenue to 15%, quarter-to-quarter decline. Maybe just talk about like what that assumes for the macro headwinds, like maybe specifically, maybe factor and then elaborate on these biopharma trends. I specifically wondering if that’s applicable to both small biotech’s and large pharma. And is there any catch up from prior quarters in the fourth quarter kind of guidance as well. I’m just trying to kind of figure out the conservatism baked in there? Thanks.
Shaun Blakeman
Okay, good. Hey, Kyle, this is Shaun. I’ll actually just clarify something, I think and then I’ll let Roy, talk about some of the trends in further detail. As if you think about the guy, and again as you just tell Brandon, that we’re not going to see that typical, maybe a $1.5 million to $2 million in EP revenue. So if you’ve actually backed that out, you’re seeing, the midpoint, our assay services remaining relatively flat, which is, again, as we described a reflection of our anticipation that, the biopharma volumes are going to be somewhat subdued compared to previous fourth quarters. And also just trying to account for, typical risks that might happen around the holidays and things like that with getting again to new samples, and but we don’t see really, or anticipate or calling out any kind of deterioration in that business quarter-to-quarter. Now you needed to add, Roy.
Roy Smythe
No, I don’t really need to add again, just that in this market, we’re not anticipating a huge spin down in previous fourth quarters, in the last month of the quarter, we’ve often seen large drop in projects, so that our biopharma customers can spin down their budgets, and we’re just not hearing that that’s going to be the philosophy this year. But again, we felt we feel really good about the guy as it says.
Kyle Mikson
Okay, guys. Thanks. But just like in biopharmaceutical is that going to be the small companies and the big companies. Just kind of wondering, the kind of dynamic there. And then also the catch up like, we’ve talked about this in the past? Is there any of that in the fourth quarter as well? Could that be upside maybe?
Roy Smythe
Sure. There’s a possibility to some of the business that got pushed in the second quarter, will we’ll be able to close that out in the fourth quarter. There is a knock on effects with our larger biopharma customers, in that, they usually are doing projects sequentially. So some of that takes longer to catch up in two quarters, because they have to finish a project that wasn’t finished in the second quarter and the third quarter, maybe look at that data, and then over a quarter or so and then up to the next project on our docket, so but there should be some of that coming into the fourth quarter is in regards to the difference between large biopharma and small biopharma. It’s fairly idiosyncratic. It really depends mainly on not only the market context, but how well those companies are faring in this market context. We’ve all heard that some are doing well, and some are having a massive layoff.
So but there’s no real pattern there. It really varies from customer-to-customer. And again, we’re not talking about something dramatic here. We’re just saying, as we mentioned that we do believe there’ll be a modest decrease in that rush to spend on budgets at the end of the year, just based in. And we’re not the only one seeing this or predicting this for the fourth quarter.
Kyle Mikson
Right. It’s been common currently, what we’re hearing from companies. So that was helpful, I appreciate that. And then Shaun, on gross margins, appreciate the commentary that, product mix service gross margin declined to like high 30s, compared to the normalize kind of low to mid 50s. I just wondering now, if you got to break down what you think services and product margins like have been or could been. Services looks like it’s been high 30s, products have been it’s like 29% to 61% looks like for the past three quarters. I mean, what do you think that gets to what kind of normalized just talked in the 50s? I’m just kind of curious when you break it up for services and kits, just curious about that? Thanks.
Shaun Blakeman
Well, I mean, I would not — what we’re seeing early on in the kits margin, I wouldn’t use that as a yardstick because there’s a lot of ins and outs in terms of equipment placement, et cetera, that and quite frankly, also in that, product category doesn’t — it’s not just kids, although certainly that’s the bulk of it this quarter. So, again, I would anticipate that to as we progressed and really we’ll expand our kit franchise, that that would be over 50% margin business.
Looking at the core assay services, again what we said, kind of baseline we started out if you really take out some of the noise that’s a mid 50s — sorry, mid to high 50s type business. Right now with volumes, it doesn’t the core assay services being a little below 20 that keeps it in the low to mid 50s. But if we continue to expand — as we continue to expand volume there, I expect again, normalize the margins just on our current cost structure would go back to the high 50s with volume leverage, but again, it’s really just the biobank samples that are really dragging that down this quarter.
Roy Smythe
Yes, this is Roy, I would add to that. As we’ve discussed in past quarters, these large population based studies are important for our business based on the potential creation of one or two measurement standards in the market. And we obviously want to be one of those or one or two, if not the one. So, these large population based studies are important. And one Shaun referred to that we’re running out the Human Technopole institute from Italy. And these power bank projects are usually public private partnerships, where governments apply some of their resources to running the power banks. And we have to apply some of our own resources as well, whereas top-line, revenue coming from most of these, it’s just that we have to accept lower margins in exchange for the ability to run these large population based power bank studies and participate in the development of measurement standard.
Kyle Mikson
Okay, that was great. One more for me, just like as we prepared for the cobranded kits rollout, just kind of wanted to get an update on the ingest market, how you are kind of viewing that or sort of interacting with that. How are you seeing that market today Roy to ensure that you and your partner hit the ground running for the launch in ’24? Saw you guys at SHG like, or you going to be attending ABB key things like that? Thanks.
Roy Smythe
Kyle, the partnership with Illumina has gone on exceedingly well. So far, the development of the of the kit product is on track. From a timeline perspective, the Illumina is already out talking to putative customers. And as they have discussed in the past, there’s a big opportunity to convert potentially large throughput genomic centers that they’re very familiar with and have great relationships with inter proteomics customers as well. We also felt like over the next year as we increase our kits business and the sort of knock on effect for the cobranded kits from Illumina as well.
Kyle Mikson
Okay. That was great. Looking forward to. Thanks, guys.
Operator
Thank you. [Operator Instructions]. Our next question will come from Evan Stampler from Stifel. Your line is open.
Evan Stampler
Hey guys, how’s it going? It’s Evan here on for Dan. If you want to go back to this question about the fourth quarter, and just kind of — doing quick math, it looks like as expectations came down by about $5 million. And I know you referenced kind of 1.5 million to 2 million of, I guess royalty revenue that you are not going to see in the quarter. So that kind of leaves another 3 million or so. And is that kind of way to think about it. And is that all because of lack of budget flush that maybe you are contemplating previously? Or there other things that we should be thinking about that, it cause you guys to bring down the number?
Shaun Blakeman
Hi, Evan. This is Shaun. Relative to fourth quarter consensus coming out via last quarter’s call. So yes, I would say it’s really more of a reflection of just right. I mean, I think that the consensus models logically assumes, they ramp up. And we really that we’ve always said, we really looked at this as a full-year type game. And typically, historically, we have seen Q4 exhibits, some seasonality around biopharma budgets that we — that we now talked about several times today, that this has been more subdued this year. And that’s, that’s all you’re seeing there.
If you look at the core services business, as you know, we show in our sorry, as we implied in our guide, at the midpoint it really not seen a degradation we expect it to be fairly consistent with what we’re doing this quarter. And we’re continuing to, build out that pipeline from our Q2 and then call back out of that and that’s really as simple as that there’s not really any anticipated degradation again, there like I said previously, it’s just we’re trying to put out a guide, we can rely on taking in all the factors into account. And we look forward to being able to continue to improve upon that in the future.
Roy Smythe
Yes, I would. This is Roy that — this quarter’s core business is a 45% sequential increase compared to the second quarter. And we certainly have no reason to believe that we’re going to have any diversification from our current execution progress in the fourth quarter, we feel pretty good about the fourth quarter.
Evan Stampler
Got you. And so I mean, I guess it’s maybe there’s no degradation, but it sounds like work year-on-year, I think it’s going to be about flat. And I guess you have a big investment in your commercial team. It’s grown a lot since last year. Is the commercial team just kind of getting up to speed, where are you in that process relative to expectations?
Roy Smythe
Well, first thing I would say is, yes with 74% of our sales staff has been hired in the last year, it takes about nine months to get people fully productive in a new territory. And we’re making good progress on bringing more people to that group and getting those people trained up and productive. Fourth quarter last year was an unusual quarter, we had a large drop in deal in the fourth quarter, in addition to the fourth quarter spend down, that you normally see. So I wouldn’t put much weight on this year’s fourth quarter performance compared to last year’s fourth quarter performance.
As we stated repeatedly, at this stage of our business and the fact that we’re mainly a service business, still, but we’re obviously moving away from that rapidly with a very strong plan for distributed products. There’s a fair bit of variability and unpredictability quarter-to-quarter and fourth quarter last year with a large drop in deal is an example of that. So I certainly wouldn’t say that comparing fourth quarter last year, fourth quarter this year implies anything of significance.
Evan Stampler
Thanks. And just one last question, if I can. Are there any additional like licensing deals that are maybe in the pipeline? Maybe you can talk specifics, but are these kinds of things that we should anticipate down the road? Thanks.
Roy Smythe
Yes, as I said, we believe this will be an important part of our business moving forward, this New England Biolabs is one legacy deal. We have not had the talent or the focus that we need to put on this, on the ground here until recently and we are in discussions with a number of other potential licensees may not be next quarter or the quarter after that, but depending on how things go, but we feel very confident that the use cases for some members of which we now have 1000s and 1000s that we’ve created and are capable of distributing to others.
The use cases for these and life sciences contracts are very similar to the use cases for antibodies. With some added use cases as well as the New England Bio, it exemplifies. So yes, we are in discussions with some other licensees. I do believe that over the next year that we will win some additional deals.
Operator
Mr. [indiscernible] please make sure your line is not on mute.
Unidentified Analyst
Sorry, that was all I had. Thank you.
Operator
Thank you One moment for our next question, please. And our next question will come from Dan Brennan from Cowen. Your line is open.
Dan Brennan
Great, thanks. Thanks guys for taking the question. Maybe just a few more on the fourth quarter and then we can go bigger picture, just Shaun I think you mentioned the guide reflects flat quarter-to-quarter on arrays. I mean, if you take the 93 to 98, it implies 14.2 to 19.2 for the fourth quarter, so that is 16.7 million at the mid and you just had 17.6 million arrays, I just wanted to square the circle on the comment that the guide implies flatter, as you just saying like within the range although the midpoints below maybe just give me some color on that first.
Shaun Blakeman
Yes, hi Dan. Well, let me be clear. I wasn’t trying to put out the exact number for Q4, because obviously, why we’re giving a range. But I just was trying to clarify exactly the question, put it at the low end now just trying to clarify that if you really look at the core assay service businesses, component of that, that is relatively flattish. It could be a little bit more or less than that, given the range. You’re right, but I’m not specifically implying a number with that comment, other than just that, if you go to the low end, I think trying to point more toward to the mid-range, and that being relatively flattish is all I meant by that.
Dan Brennan
Got it. And then did the guidance assuming product business in the fourth quarter, I would assume I mean you have been getting knowing roughly a quarter in the kit business while the full — in the full launches, yes, maybe you can clarify when the full launch is going to occur, I heard in the prepared remarks, but just give us some sense of what’s expected in the fourth quarter for that?
Shaun Blakeman
Well, we’re not specifically breaking out the product categories in the guide, but again the guide is all inclusive. So, that’s all of the core components, with the exception of again, that the typical licensing revenue, which is primarily that previously would have been recognized each quarter and historically has kind of been $1 million to $2 million in the last year, each quarter, that’s not going to be recognized due to the new arrangement.
Roy Smythe
Hi, Dan, this is Roy. We had a successful beta program for kits, we do plan to add some more certified science in the fourth quarter to that beta program. And for full access to really kick off right at the end of the year, we do have a number of sites in the pipeline for that full access as well.
Dan Brennan
Got it. Got it. Okay, so you had basically, Shaun and thanks for that, Roy. So basically, in the fourth quarter, you would have anticipated in the prior guide to have basically gotten a $1 million or $2 million from this royalty in the fourth quarter, and then you wind up getting a much, much bigger amount, obviously, with the deal. But part of the fourth quarter, the prior way we thought about the fourth quarter was that $1 million or $2 million is coming and now it’s not going to come? Is that fair?
Shaun Blakeman
Yes, I think certainly as of last quarter before we signed the agreement and went through all the proper accounting on it. Yes, I would have anticipated the quarterly revenues from that to be analogous to what we’ve seen previously. So that that is a change going forward for us, certainly from our previous expectations.
Roy Smythe
Hi, Dan this is Roy. Again we’re trying to be mindful of all of the contracts in the fourth quarter, the NEB revenues being obviously paid into this quarter instead of next quarter. The likelihood that some of our large biopharma customers are not going to rush, the spend down on their budgets in the fourth quarter. But I want to be clear that the sort of reset and stabilization of our core SomaScan business, we believe will continue into the fourth quarter.
Dan Brennan
Got it. And back at 3Q, when you were providing guidance, and I think the way you have articulated at the low-end was very conservative. So, basically what you were seeing from pharma back then, and you thought there was a conservative element to it, I guess things just have gotten worse on the overland markets, or is there just a much bigger degree of conservatism that you’re baking in, just trying to think through what transpired because I know with Q2, you guys had seen obviously this pause in pharma spending, and I thought that you guys would try to incorporate kind of that pause, persisting into the fourth quarter?
Roy Smythe
Yes, Dan, the second quarter slowdown in contracting was fairly idiosyncratic. We’re certainly not seeing a slowdown in contracting now, things are moving along. I think we like everybody else in at the beginning of the year hope to this market would already be much better, but it’s just not and so again we’re just trying to be, it’s not conservative, a pragmatic about the spending behavior in this market in the fourth quarter.
But we’re not, the supply chain issues that we saw earlier in the year have mostly abrogated in large part due to our proactive activities and contracts are moving along. That’s sort of the usual pace now. We’re just again trying to be pragmatic about the prolongation of this tough market and the impact that it could have on our platform and customers in the fourth quarter, it’s really nothing more than that.
Dan Brennan
What’s happening on the academic front, is spending pretty consistent there, or is there any choppiness just from kind of a global macro?
Roy Smythe
Spending has been pretty consistent on the academic side. And not surprising, right because most of the academic spending is driven by grants. And the impact of the economy on grant funding, usually is a couple of years in arrears. So based on what the federal government outlays for federal grant support programs, so we really haven’t seen much of a change there. And then a significant percentage of our growth over the last year or year and a half has been adding more academic sites in addition to our customers as well.
Dan Brennan
Got it. Okay. Trying to think if there was one more I could go to here. And in terms of the ongoing licensing strategy, so obviously, this royalty deal is certainly endurable, I know Roy, you want to exit ’22 with the view that you’ve got multiple drivers of your business? Obviously, this notable royalty deals a big one, what’s the pipeline look on that front in terms of additional licensing deals, were there before year-end or over the course of the next say like 12 months?
Roy Smythe
Yes, we don’t anticipate any large licensing deals before the end of the year, although, we certainly are going to turn them down. If we get one over the finish line before the end of this fiscal year, we just hired our Head of Licensing this past March. He’s really, I would say, just now coming fully up to speed, has a small team working with them, has a number of conversations ongoing. I want to see any large licensing deals before the end of this quarter. There could be some licensing deals signed in the next year, we have a lot of opportunities. Again, the use cases for SomaLogic reagents in the life sciences context are large. And the conversations we’re having now sort of span the spectrum of those use cases.
Dan Brennan
I mean, the last one, I know we’re not going to talk about ’23 today, but the consensus models have revenues up 35% year-on-year, obviously you’re talking about a still, pharma spending environment having some pauses in it right now, any lead indicators about that lifting. And as we exit ’22, without giving numbers, how you feel about the trajectory of the business going into ’23?
Roy Smythe
We feel good about exactly the business, obviously, we can only control what we can control. We feel good about expanding into EMEA data. I mentioned that we put six individuals into those regions just last quarter, probably more important to notice that we hired the market leaders for both of those regions, which should accelerate our success and creating a full contingent of folks on the ground there. We’re looking at some partnerships, ex-U.S. as well. And obviously, the large new customer growth that we’ve experienced over the last year will begin to bear fruit as those customers complete their first projects, and move on to second and third larger projects, and we get more projects under each of those umbrellas.
We certainly can’t control the market context in 2023. It’d be great if we could, we can only control what we can control, the things that we can control. Fixing up the growth of the commercial team, expanding our geographic reach, putting our distributed solutions more effectively and more heavily into the market are all things we anticipate happening in 2023, in addition to beginning to hopefully capitalize more on this significant customer growth we’ve had over the past 18 months.
Dan Brennan
Got it, okay. [Indiscernible]. Roy, thanks very much.
Roy Smythe
Thanks.
Operator
Thank you. And I am showing no further questions from our phone lines. I’d now like to turn the conference back over to Roy Smythe for any closing remarks.
Roy Smythe
Great, thank you operator.
Operator
Ladies and gentlemen, this does conclude today’s conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.
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