MaxCyte - Q3 2023

Transcript

Operator (participant)

Good day, and thank you for standing by, and welcome to the MaxCyte third quarter earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to introduce your host for today's call, Sean Menarguez, Senior Director of Innovation and Business Development. Please go ahead.

Sean Menarguez (Senior Director of Investor Relations)

Well, thank you, Justin, and good afternoon, everyone. My name is Sean Menarguez. I'm the Director of Innovation and Business Development here at MaxCyte. Thank you all for participating in today's conference call. On the call from MaxCyte, we have Doug Doerfler, President and Chief Executive Officer, and Douglas Swirsky, Chief Financial Officer. Earlier today, MaxCyte released financial results for the third quarter ended September 30, 2023. A copy of the press release is available on the company's website. Before we begin, I need to read the following statement. Statements or comments made during this call may be forward-looking statements within the meaning of federal securities laws. Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements.

Actual results may differ materially from those expressed or implied in any forward-looking statements due to a variety of factors, which are discussed in detail in our SEC filings. The company has no obligation to publicly update any forward-looking statements, whether because of new information, future events, or otherwise. And with that, I'll turn the call over to Doug.

Doug Doerfler (President and CEO)

Thank you, Sean. Good afternoon, everyone, and thank you for joining MaxCyte's third quarter 2023 earnings call. I will begin with a discussion of our business and operational highlights during the quarter, followed by a detailed financial review from Doug Swirsky, DJ, our Chief Financial Officer. We will then open the call for questions. MaxCyte reported $8 million in total revenue in the third quarter at the high end of our pre-announced revenue range. Core revenue was $6.6 million, also at the high end of our pre-announced range. Over the last month, the business has performed in line with the expectations we laid out on our call on October fourth, and today we are reiterating our revenue guidance for the full year of 2023. The operating environment for our customers has largely remained unchanged from when we spoke in October.

Our primary focus remains on driving commercial execution to improve performance across our business, and the commercial organization at MaxCyte is actively working to increase and expand sales opportunities for the balance of 2023 and into 2024. I will briefly revisit some of the challenges we are facing that drove the pre-announced reduction in our revenue guidance, which we pointed to on our call on October 4. The primary driver of core business performance was softness in processing assemblies or PA sales. We continue to believe can be attributed to these three factors: Early-stage customers in cell therapy and drug discovery, conserving spend, and reevaluating their pipeline portfolio and R&D initiatives. Customers built up inventory in 2022, and due to the prioritization of programs and reduction in spend, the existing inventory has covered more of their PA needs.

Third, clinical SPL partners delaying clinical timelines due to challenges in obtaining additional financing for their clinical operations. Another factor in the weakness of our core business performance was early-stage customers becoming incrementally more conservative on capital expenditures as the year has progressed, which has impacted our instrument placements. Though we have seen the macroeconomic operating environment play out unfavorably this year, we continue to see cell therapy industry trends that favor MaxCyte's platform. The industry continues to move toward non-viral cell engineering, approaches that include multiple pathway engineering steps across many diseases. Specifically, our partners continue to expand their cell therapy indications into new unmet needs, including autoimmune disease, providing us with the opportunity to support our partners as they scale up and scale out their manufacturing process.

Furthermore, developers are increasing the complexity of their cell therapy product with multiple edits on the cell, which positions MaxCyte well, given the platform's high cell engineering performance across a wide variety of gene edits and gene-edited modalities. Developers are also looking into multiple doses and/or increased dosing regimens for complex indications, which further supports the market need for engineered large cell volumes. Our customers and partners can leverage our scientific, technical, and regulatory support and capabilities to optimize the clinical manufacturing process for the growing set of cell therapy applications. Just this year, we signed five SPL partnerships, which highlights the value that our platform brings to our customers. We continue to see a healthy pipeline of potential partners.

All in all, we are encouraged by the non-viral engineered cell therapy trends, in addition to the potential for our partners to make an impact as they progress their programs through the clinic and reach commercialization. We remain highly engaged with our customers, both current and prospective, and are excited by the opportunity to expand our SPL partnership portfolio and grow our revenue. In the third quarter, we reported SPL program-related revenues of $1.4 million and remain confident that we will at least meet our guidance of approximately $6 million this year. We believe this high-value revenue line will continue to be meaningful in the coming years as several waves of different therapies we support potentially come to market. We are excited by partners' progress and look forward to the potential impact of therapies that utilize MaxCyte's platform.

Looking ahead, there is substantial clinical milestone and commercial revenue opportunity for MaxCyte as our partners move toward late-stage clinical development and commercialization. In what would be the first commercially approved product enabled by our platform, CRISPR Vertex exa-cel is nearing the PDUFA date of December 8, 2023, and March 30, 2024, for sickle cell and beta thalassemia, respectively. Just last week, on October 31, the FDA held an AdCom meeting to discuss the treatment, which highlights the therapeutic benefit of exa-cel and the important medical advance for the field and for patients. As a reminder, we believe that all necessary investments in manufacturing and regulatory quality have been made on our end to support exa-cel's commercial launch.

We look forward to the potential FDA approval of the first non-viral engineered cell therapy product, validating, validating MaxCyte's platform, and which would also result in a significant milestone payment to us under our partnership with Vertex. We continue to be excited about the prospects of the VLx platform and our expansion into the bioprocessing market. To provide some context, we are looking to help our customers improve workflow efficiency and accelerate time for the preclinical and early-stage manufacture of monoclonal antibodies, recombinant proteins, and vaccines. The VLx has a unique capability to enable rapid production of transiently expressed proteins at larger scale for preclinical and early clinical use in a much more efficient time horizon than the standard practice.

As a result, customers will be able to evaluate more preclinical leads at an appropriate scale and derive conclusions from late-stage preclinical research activities sooner than they normally would, enabling them to proceed with development in a much faster timeframe. The efficiency that VLx brings to the process can potentially accelerate important decisions on late-stage preclinical development to enable developers to prioritize their clinical investments to the most promising assets. We believe that the current market opportunity for the VLx is across approximately 3,000 preclinical assets in monoclonal antibody, recombinant protein, and vaccine development, and we are optimistic about our opportunity in the coming years. To lead this effort, we recently appointed Ali Soleimanizad as Executive Vice President of Bioprocessing.

Ali has been an important addition to the leadership team at MaxCyte, with almost 20 years of experience in biomanufacturing, bioprocessing, and bioanalysis, including serving as Executive Vice President for Separations and Purification at Tosoh Bioscience prior to joining MaxCyte. We firmly believe that he will guide the future of MaxCyte's bioprocessing business, beginning with the growth of the VLx platform. For the remainder of 2023 and into 2024, we are focused on supporting our customers and partners through targeted investments. We have already made substantial progress in enhancing our infrastructure and scientific and manufacturing capabilities to support customers pursuing complex cell therapies in the clinic, as well as when they reach commercialization. Over time, we believe the investments we are making today will derive substantial incremental value as we support multiple partners at various stages of development and commercial activity.

In closing, we continue to navigate the current operating environment with tact and flexibility. MaxCyte remains committed to supporting our current SPL partners in their program development and further expanding our portfolio of partnerships. With that, I will now turn the call over to DJ to discuss our financial results. DJ?

Douglas Swirsky (CFO)

Thanks, Doug. Hello, everyone. Total revenue in the third quarter of 2023 was $8 million, compared to $10.6 million in the third quarter of 2022, representing a 25% decline. In the third quarter, we reported core revenue of $6.6 million, compared to $9.9 million in the comparable prior year quarter, representing a 33% decline. This includes revenue from cell therapy customers of $4.7 million and revenue from drug discovery customers of $1.9 million, which declined 40% and 5% year-over-year, respectively. The decline in revenues was primarily the result of softer PA sales as well as weaker instrument sales, primarily in cell therapy, due to the challenging funding environment.

Revenue from instrument and PA sales were down 44% in the third quarter compared to the previous year, and revenue from leased instruments declined 11%, driven by the challenging operating environment that our customers continue to face. We recognized $1.4 million of SPL program-related revenue in the third quarter of 2023, as expected, due to our partners' continued progress through the clinic, compared to $0.8 million of SPL program-related revenue in the third quarter of 2022. Moving down the P&L, gross margin was 90% in the third quarter of 2023, compared to 87% in the third quarter of the prior year, driven by our mix between core and SPL program-related revenue.

Total operating expenses for the third quarter of 2023 were $21.2 million, compared to $17 million in the third quarter of 2022. The overall increase in operating expenses was primarily driven by R&D, sales and marketing, and manufacturing expenses. The company continues to strategically invest in commercial sales and marketing operations, innovative product development and field application scientists, automated manufacturing capabilities, as well as business and corporate development to drive long-term growth. We finished the third quarter with combined total cash, cash equivalents, and investments of $208.7 million, and of course, no debt. Moving to our full-year 2023 guidance, we updated our outlook on our third quarter preliminary results conference call on October fourth, and we are reiterating that outlook today as we expect total revenue for 2023 to be approximately $34 million-$36 million.

Core revenue is expected to be approximately $28 million-$30 million for the year, and SPL program-related revenue expectations remain unchanged from our previous guidance at approximately $6 million for the year. Our updated guidance incorporates cautiousness around the challenging funding environment and customer purchasing patterns for the remainder of 2023. As we have discussed previously, the timing of partnership revenue is dependent upon our customers' clinical and regulatory progress, and it's fundamentally more difficult to predict than our core revenues, which clearly has also been difficult to forecast this year due to the challenging operating environment discussed earlier. Finally, MaxCyte remains in a strong financial position and continues to expect to end 2023 with approximately $200 million in cash, cash equivalents, and investments, and no debt on our balance sheet.

Our expected cash burn for 2023 is approximately $27 million, in line with our 2022 cash burn of approximately $28 million. We have prudently managed our expenses and burn in 2023 and executed disciplined cost management in order to position the company to achieve our long-term goals. I would like to close by reiterating that we remain confident in our 2023 revenue outlook, and we believe that our modest cash burn and balance sheet will support our future plans for long-term growth. Now I'll turn the call back over to Doug.

Doug Doerfler (President and CEO)

Well, thank you, DJ. Overall, despite the challenging operating environment this year, we firmly believe in the long-term outlook for MaxCyte. We're excited about the potential of our partnerships as they, as they progress their assets through the clinic, and we remain committed to expanding our partnership portfolio to support the development of advanced cell-based therapeutics in the growing cell and gene therapy industry. As always, we thank our MaxCyte team as well as our board, suppliers, investors, partners, patients, and the great industry that we have the honor of serving. With that, I will turn the call back over to Justin for the Q&A. Justin?

Operator (participant)

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. One moment, please. And one moment, please. And our first question comes from Dan Arias. Your line is now open.

Dan Arias (Managing Director of Life Sciences & Diagnostics)

How are you doing, guys? Thanks for the questions here. Doug, maybe just a couple on the instrumentation side, specifically on cell therapy. Do you expect the lease versus sold dynamic to change at all in light of the things that are going on in the industry, as leases become a bigger part of that mix? And then on the VLx system, appreciate your comments there. Anything quantitative that you might be able to add on the launch? And then along those lines, I mean, when we think about usage there, I'm curious whether you think some of this program prioritization that's taking place across the industry could impact the adoption curve, just in the sense that, you know, to your point, it's a good tool for evaluating preclinical assets.

Some of those are being backburnered right now, so maybe a less of a need for that kind of horsepower. Do you see that as, as a likely outcome or, or not really? Thanks.

Doug Doerfler (President and CEO)

Yeah, there's a lot of questions there, Dan.

Dan Arias (Managing Director of Life Sciences & Diagnostics)

Yeah, there are. Sorry about that.

Doug Doerfler (President and CEO)

Let me talk about, and let me take two cuts at this and see if I answer all your questions. On the kind of business model instrument side, I mean, I made a comment about being tactful with our partners, and I think it's really important that we understand the situation they're in. We look at our business model and, you know, we're gonna make changes as we feel are appropriate for helping our partners. And, you know, we're seeing the rationalization of these pipelines, and I do foresee us. We may very well make some changes to our approach for the business model.

Although I don't think they're gonna be major approaches, they'll be around the edges. And again, you know, thinking through some of the new use cases for our technology, you know, moving into autoimmune disease where you have, you know, large patient populations. So I think you're seeing the cell therapy industry, you know, moving from autologous blood, you know, blood-centered therapies to moving into solid tumors and now autoimmune, which is gonna open up to serve populations. So we're excited about that. And that, of course, is gonna have an impact on our business model.

On the VLx, quantitatively, we put a slide in the deck that laid out the difference between what we believe our system and being able to produce a protein in a couple of months versus the traditional way, which could be, you know, six months plus. I think that when there's more rationalization, I think there's gonna be a lot more attention placed on speed to market, speed to decisions, and I think that's and that's exactly what we're focusing our attention on. It's whatever we can do to reduce the, you know, the early-stage preclinical development timeline for these partners, and they could be, you know, big pharma, they could be, you know, a relatively early-stage ADC company.

They're all looking to do the same thing, and that's to get, get better products into the market faster. And if we can, you know, cut six, four, six months, a year off of that time frame, we think that's, that's pretty valuable. So we're excited. We think the VLx is coming out at the right time, to, you know, to address some of the problems I think that are, we're seeing in the industry at large.

Dan Arias (Managing Director of Life Sciences & Diagnostics)

Okay, appreciate you sticking through those there. Maybe just one quick follow-up to your point. We are closing in on this exa-cel decision here. Obviously, we'll see how that ends up, but if we were to assume approval, I'm just curious about your expectation for a ramp in instrument utilization and consumables consumption as scale presumably takes place there, scale-up presumably takes place there.

Doug Doerfler (President and CEO)

Well, we obviously can't give you any guidance in terms of what 2024 looks like, and this will be a 2024 event. That said, you know, we have been investing in ensuring that we've got, you know, instrumentation support from Vertex's side and CRISPR's side in terms of manufacturing, and we're ready to scale up. I think we just saw an announcement they made, I guess, yesterday, a press release about getting a breakthrough therapeutic designation in Saudi Arabia. So it'll be interesting to see how this business develops and expands, but be assured that we're prepared, you know, fully to support them and execute against whatever plan they believe is makes the most sense for them commercially.

Dan Arias (Managing Director of Life Sciences & Diagnostics)

Okay. Thank you, Doug.

Doug Doerfler (President and CEO)

Thank you.

Operator (participant)

Thank you. One moment, please. Our next question comes from Jacob Johnson with Stephens Inc.

Hannah Hefley (Senior Research Associate)

Hey, good afternoon. This is actually Hannah on for Jacob. You've talked about expanding your geographic reach. Is this still a priority in this environment?

Doug Doerfler (President and CEO)

That's a good question. You know, I think the world's changing, of course. You know, we're, I think we're all focused on how we can navigate the China situation. I think we are, you know, frankly, I think this is more of an organic expansion. You know, the science around cell therapy is expanding well beyond U.S. and Europe, and, you know, moving into Eastern Europe, it's moving into South America, moving certainly into APAC. And so we're following where that, where those hubs of activity are. For us to enter into that, a new geography, it could be as simple as us bringing a field application scientist and a salesperson into that account.

It could be, you know, as extensive as bringing in a new distributor or, you know, building out more on, on land field applications people. So I think our interest is always to follow the science, always follow where the commercial cell therapy field is heading, and then we'll make the decision what makes the most sense from an investment perspective for us.

Hannah Hefley (Senior Research Associate)

Thanks. And then you're tracking ahead of your usual three to four SPL additions per year with five this year. How many are you expecting to add total in 2023? And do you expect the annual rate of additions to continue to outpace three to four in the future?

Doug Doerfler (President and CEO)

We'll talk about 2024 when we give guidance, so I wanna resist talking about that. You know, I think we're pretty comfortable with the five we did this year. We really, I don't think we are in a position to talk about anything additional in 2023.

Hannah Hefley (Senior Research Associate)

Great, thanks. I'll leave it there.

Doug Doerfler (President and CEO)

Thank you.

Operator (participant)

Thank you. One moment, please. Our next question comes from the line of Matt Larew with William Blair.

Matt Larew (Healthcare Research Analyst)

Good afternoon. You know, there was earlier this year, sort of a, what seemed like a round one of, risks, restructurings, pipeline prioritizations, and then it seems that over the last couple of months, we've maybe had a round two, and a number of your SPL partners have, you know, been impacted by that in terms of risk restructurings. I just would be curious for your perspective on, you know, how much potential more there is to go, just in your, in your your interactions with SPL partners or, you know, core revenue, core customers, you know, how much they've really cut down programs to true high-priority assets, how much they've brought down their teams, from a size perspective, just as maybe as a different way to gauge what inning of sort of the drawdown in the industry we're at.

Doug Doerfler (President and CEO)

What is the question, though? I agree with you that we're in a situation right now where we've got companies that are and partners who are scaling back. We've seen a couple of them, just most recently, Lyell, for instance, and Sana did another one. So we're keeping pace with those customers. We're staying close to those. What we're seeing is that when they're the focus and the rationalization is being drawn toward our products that we're currently involved with them. So that's a good sign. I think overall, you know, it's a strong point for MaxCyte that we're working on those lead assets.

I think it's very difficult for us to try to predict where the next situation is. I mean, companies won't share that with us, obviously. They're gonna announce it when they announce it, and we're gonna, you know, react and hopefully manage with, well, with them as they make those decisions. I'm not sure I answered your question, though. Is there something more specific that you were looking for? Just wanna be responsive to you, Matt.

Matt Larew (Healthcare Research Analyst)

... No, I guess it was maybe unintentionally vague, but I think you addressed qualitatively what I was kind of hoping to get at. So, you know, the second one would be, you referenced, you know, I think Dan's question around sales versus lease of instruments, that you're willing to make changes as appropriate to help partners. So that may be an internal change in response to the macro environment. But have you noticed or aware of any sort of external changes, be it, you know, competitive behavior around giving away instruments or cutting prices? Have you noticed any, you know, price pressure or additional competition kind of in the changing macro environment?

Doug Doerfler (President and CEO)

I think our value proposition still holds true. I mean, it's all about reducing risk and accelerating development, and those are two things that all these companies obviously want to do. You know, one indication is our gross margins, 90% gross margins in the quarter, and I think that's an attribute to our ability to maintain pricing in the marketplace. So just give you those kind of data points right now, we're feeling pretty comfortable with where we are in terms of competition. We're not really seeing anything in, you know, kind of in our area. We have mentioned Xenon in the past. We've seen, you know, lines that come in and out.

A lot of companies that are trying to get into the space, kind of newer, newer companies that are, you know, trying, trying to figure out how they can, they can take us on. I think that's just a healthy environment. It points to the—I think it points to the importance of non-viral cell engineering in the future. And I would predict that after exa-cel gets approved, there'll even be more people interested in trying to figure out how big that market is and how they can participate. That said, we're in a great position with our partners and our technology, and we're continuing to be the go-to, you know, premier company in this space.

Matt Larew (Healthcare Research Analyst)

Okay. The last one is to follow up on VLx. You know, earlier this year on the fourth quarter call, you know, mentioned that it was revenue generating in 2022, that would grow in 2023. We're now a little over a year into the launch, so you know, I think it's just sort of an early access-focused launch. But is there anything you can share with us about how much VLx is contributing to the financial model at this point, or is that something that you may be able to start sharing next year?

Doug Doerfler (President and CEO)

I think we'll be much more comfortable sharing it next year. You know, Ali's on board, he's doing a great job, really, increasing the visibility of the offering to, you know, high-profile clients. And, you know, really just talking about how disruptive this technology is and how important it's gonna be for early-stage development of these programs. So I think we'll be able to provide a much more fulsome view of the strategy and provide some expectations when we do so in 2024.

Matt Larew (Healthcare Research Analyst)

Great. Thank you.

Operator (participant)

Thank you. One moment, please. Our next question comes from Steven Mah with TD Cowen.

Steven Mah (Managing Director and Senior Equity Research Analyst)

Great, thanks for the questions. Maybe a follow-up to Hannah's questions on SPL adds. Maybe I'll ask it a different way. This is more with regards to, you know, the funnel of your SPL leads. You know, has the potential success of exa-cel led to more business development inbounds or tractions with potential partners?

Doug Doerfler (President and CEO)

I think the pipeline itself is continues to be really, really strong and great. You know, we're having excellent discussions with folks. You know, some of them fall into the same camp that we've been talking about, where they have, you know, their early-stage development companies, and they really don't have the financial support to move into the clinic. And so that's that can pause our SPLs. Although, I think it's fair to say that we've got other companies that we're working with that may not have that same situation, and they're moving forward. I think what I my sense is that when exa-cel gets approved, I mean, I think you heard it in the, we heard it, we did.

We heard it in the ad hoc meeting, that there was very little concern about the manufacturing of that product. The safety profile looked great, and the clinical evidence was extraordinarily strong. So, our sense is that once that product gets approved, I think that's gonna check a big box in the industry. And they're gonna be looking upon us as the company that's gonna able to help accelerate and move those non-viral cell therapy assets into the clinic and through the clinic. And again, as we've mentioned, we continue to see an expansion of cell therapies into new indication areas like autoimmune, for instance. We're seeing a lot of that in the last few months.

We're also, and that will require, no doubt, you know, higher volume of cells to be delivered to patients on a longer period, more of a chronic therapy. And I think that fits well with the scale and the efficiency of our system.

Steven Mah (Managing Director and Senior Equity Research Analyst)

Great, thanks for that color. And, you know, one more question. You know, when you brought the guide down in October, you mentioned, you know, inventory, destocking of process assemblies. You know, some of the Bio-P production companies recently said on earnings that, you know, they're seeing a bottom with regards to destocking headwinds. Could you comment on what you're seeing out there, and if you have any customer visibility that suggests maybe there could be an uptick, as activity picks up, as, you know, this excess inventory gets used? Thank you.

Douglas Swirsky (CFO)

Thanks for the question. This is DJ. So, you know, part of the challenge in answering that is, you know, we've got seven weeks left in the year, and we don't want to start providing guidance for 2024, talking about, you know, how we see that year starting off. But what we can say is that, you know, we've taken a very conservative view on PA sales, just because, you know, we wanted to make sure that we would be, you know, comfortably providing this revised guidance and meet it and possibly exceed it. So we're very close to our customers. We've got a good sense that we've got a good number here for you, and a big part of that is PAs.

Matt Larew (Healthcare Research Analyst)

So if you look at the breakdown of why we're confident with the revised guidance, you know, we've got very good visibility into the lease revenue. We've got seven weeks left in the year to execute against, you know, a good number of opportunities, of which only a fraction would need to close in order for us to be comfortable with our number. And, of course, on the PA side, as we mentioned on the October call, we've really brought that down. We haven't factored into any recovery. We haven't factored in any of the seasonality that we've seen where, you know, you do get some larger PA purchases later in the year. We're just basically going off the daily run rate that we saw in Q3, which was depressed, and that gives us some comfort.

But, you know, to fully answer your question, I think we'd sort of need to delve into what happens seven weeks from now and into 2024, and we're just not in a position to provide, you know, too much information there.

Steven Mah (Managing Director and Senior Equity Research Analyst)

Okay, fair enough. Thanks for the questions.

Operator (participant)

Thank you. I'm showing no further questions. I'll now hand the call back over to Doug Doerfler for any closing remarks.

Doug Doerfler (President and CEO)

Thank you, Justin, and thanks, everyone, for joining us today and your questions. We look forward to providing an update on the fourth quarter call. So thank you all very much. Have a great Thanksgiving. Thank you.

Operator (participant)

Ladies and gentlemen, thank you for participating. This concludes today's program. You may now disconnect.