QSI - Revolutionizing Protein Sequencing: Quantum-Si's Single-Molecule Technology

Summary

• Quantum-Si's technology has potential in drug discovery and biomarker test development.
• The company's Platinum sequencing platform is set to launch.
• Platinum sequencing platform expected to drive revenue growth.

In a previous article , I exposed that Quantum-Si ( QSI ) has developed a single-molecule protein sequencing. Quantum-Si has made some big waves in the world of proteomics with its innovative single-molecule protein sequencing technology. Their chips and software allow for comprehensive protein analysis, which could have major implications for research and diagnostics. The secret to their success is a specialized semiconductor chip that can accurately identify biological materials at a single-molecule level, as well as perform multiple parallel sequencing and long-read DNA sequencing. The company recently went public through a SPAC - the deal valued Quantum-Si at $1.4 billion and brought in $500 million in new capital. Management is projecting sales of $186 million in 2025, which could be just the beginning for this exciting biotech firm.

QSI Technology

Protein sequencing is a way to figure out what proteins are made of and how they work. This is useful for understanding how proteins help our bodies and for finding new medicines and tests. Protein sequencing is like DNA sequencing, but proteins are more complicated and harder to study. There are several different ways to do protein sequencing, like using machines or special chemicals. Scientists might use more than one method to learn more about a protein. Protein sequencing helps us learn more about proteins and how they affect our health. It can also help us find new ways to treat diseases and do tests.

Quantum-Si is revolutionizing the way we study proteins with their benchtop system that allows for easy analysis in a standard laboratory setting. Not only can their software sequence amino acids, but it can also identify post-translational modifications and proteoforms. This could greatly improve our understanding of protein function, regulatory mechanisms, and other complex protein interactions, and could even have applications in drug discovery and the development of new biomarker tests.

The company is currently putting the finishing touches on their customer-facing analysis software and preparing to launch their Platinum instrument in Q1 2023. They are also constantly improving their technology by incorporating new binders that provide even more proteome coverage. The team behind this technology includes experts in molecular biology, computational biology, chemical biology, and protein engineering.

In the coming quarters, Quantum-Si plans to test the market in key application areas such as biologics discovery and protein validation through protein sequencing. They will prioritize customers for these applications as they begin taking orders for their Platinum instrument, with the carbon sample prep instrument set to go through beta testing in early 2023. The company is also expanding their customer success team and plans to gradually build up their commercial team as they gain momentum for their platform.

QSI year in review

Quantum-Si has recently unveiled its Platinum sequencing platform, which is the first of its kind and is expected to have a significant impact on proteomics research. The platform provides broad-scale access to proteomic data and is available for ordering, with shipments set to begin in the first quarter of 2023. It has a small footprint and will be offered at a relatively low price point of $70,000, making it a revenue growth driver for the company.

In addition, Quantum-Si has revamped its executive team and appointed Jeff Hawkins as its new CEO. Hawkins has a strong track record as a business leader in the life sciences industry, including success in identifying key market segments and scaling next-generation DNA sequencing at Illumina. The board believes that he has the necessary skills and experience to lead Quantum-Si as it launches the Platinum platform and works to grow its revenue streams.

A few months ago, the company predicted that its sales would reach around $186 by 2025. Now, it's important to remember that these kinds of predictions are only useful when they come true. However, there's a good reason to believe in the management team. Some of the members have a lot of experience in getting new products to market, like Ion Torrent's first semiconductor chip for DNA sequencing.

If we compare this forecast to the track record of other companies in the industry, and a TAM of $44 billion for proteonomics, it doesn't seem unreasonable.

QSI Valuation

It's important to consider that the company is on track to meet its goal. They're currently in the process of ramping up their product launch, and we can expect to see their revenues really take off once their systems are installed at customer sites and they start generating recurrent revenues. This puts us at a tipping point for the company's growth.

In my previous article, I outlined two potential scenarios for a company's future performance. One scenario, the bullish one, predicted that the company would bring in $186 million in revenue by 2025. The bearish scenario was less optimistic, forecasting only $49 million in sales. My optimistic estimate put the company's valuation at around $38 per share, while my pessimistic estimate put the price target at $5.

Note that macroeconomic conditions can greatly impact a company's stock price. In this case, the downward trend in the company's stock price was not due to any missteps by management. The main cause was a price reset brought by what seems like a new interest rate regime.

Going forward, I will be using a lower bull scenario to account for potential changes in the macroeconomic landscape. As a result, my estimates will be based on lower multiples. This doesn't mean that I think my previous, more bullish scenario is impossible, but rather that I want to be more cautious in my forecast.

Without further ado, here are the revised scenarios. In the optimistic scenario, I'm still predicting that the company will bring in $186 million in sales by 2025, with the diluted share count growing to 185 million by then. Applying a ten times multiple to revenue, the price would come out to around $10, which would represent a 75% annual return. In the less optimistic scenario, I think the company could achieve $20 million in sales. In this case, the market would likely assign a six times multiple to the company's revenue, resulting in a valuation of $6.

The probability of the bull scenario occurring, according to this model, is 13%. Personally, I believe there's a higher chance of it happening - perhaps as high as 1 in 4. If that were to be the case, the price would be $3 and the annual return would be 17%. I believe this to be an attractive entry point to start a position, or even to dollar cost average.

Quantum-Si investment risks

This company is currently at a crucial juncture in its development. While it has yet to generate substantial revenue from its operations, it is now beginning to ramp up its efforts. This exposes the company to a range of risks. For example, it may struggle to convince customers to try its offering, which could undermine investor confidence after years of development. Additionally, it may face competition from other companies or newer technologies that could render its approach obsolete.

Even if the company is able to navigate these challenges, it may not be able to do so without depleting its cash reserves. The company currently holds around $400 million in cash, and I estimate that it will burn through around $100 million in FY 2022. There is a possibility that the cash burn could be higher next year due to unforeseen problems during the product ramp-up.

It is important to keep these factors in mind as, while the potential for this company is significant, it is crucial that interested investors carefully consider the level of risk in their portfolios.

For further details see: