MaxCyte - Q4 2022

Transcript

Operator (participant)

Good day, thank you for standing by, and welcome to MaxCyte's fourth quarter earnings conference call. At this time, all participants are on a listen only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during this session, you'll need to press star one one on your telephone. You will hear an automated message advising your hand has been raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sean Menarguez of Investor Relations. You may begin.

Sean Menarguez (Head of Investor Relations)

Thank you, Justin. Good afternoon, everyone. My name is Sean Menarguez, and I'm the Head of Investor Relations 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 Ron Holtz, Interim Chief Financial Officer. Earlier today, MaxCyte released financial results for the fourth quarter and full year ended December 31, 2022. 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 prediction 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 undertakes no obligation to publicly update any forward-looking statements, whether because of new information, future events, or otherwise. With that, I'll turn the call over to Doug.

Doug Doerfler (President and CEO)

Thank you, Sean, good afternoon and good evening, everyone, and thank you for joining MaxCyte's fourth quarter and full year 2022 earnings call. I'll begin with a discussion of our business and operational highlights during the quarter, followed by a detailed financial review from Ron. We will open the call for questions. 2022 was an exciting year for MaxCyte, our team performed excellently in our first full year as a Nasdaq-listed company. Ron will provide more details later in the call regarding our financial results, including strong full-year revenue, total revenue of $44.3 million, representing a year-over-year growth of 31% in 2022. Core business revenue grew 26% in 2022 year-over-year, driven by 33% growth in revenue from cell therapy customers and 8% growth in revenue from drug discovery customers.

For the fourth quarter, core revenues increased 4% compared to the fourth quarter of 2021, with revenue from cell therapy and drug discovery customers growing at 4%-5% year-over-year. Fourth quarter growth was primarily driven by continued strength in instrument sales and was offset by PA sales below expectations as compared to the prior year. As our partners progress through the clinic and approach commercialization, we are experiencing some lumpiness in PA purchasing patterns. We saw strong growth in PA sales in 2022 over 2021, supporting our confidence in the trajectory of the business overall. We generated $1.9 million of milestone revenue during the fourth quarter and $4.6 million of milestone revenue for the full year in 2022, exceeding our full year milestone revenue guidance of approximately $4 million.

Our partners' programs continue to make exciting progress with several entering and/or progressing through the clinic, and we continue to see a path toward a first commercially approved partner product with the exa-cel program, which is currently seeking regulatory marketing approval. Overall, our global customer base is expanding across all stages of development and across a growing variety of diseases. I do want to point out that the cell therapy sector is experiencing delays in clinical programs.

However, this is to be expected in the development of new therapeutic modalities endeavoring to alleviate the burden of disease for many patients that have little or no alternatives. We believe 2023 may be a challenging year for the industry as companies rationalize their internal pipeline due to funding constraints, but we continue to see developers focusing on and investing in their lead assets program and development.

As discussed last year, we are typically working with our partners' lead and/or second clinical program asset, which positions us well. We're continuing to see new company formation and financing in more complex engineered cells across the variety of novel cell types, which positions us well to enable the next generation of engineered cell therapies. We see heightened focus on clinical data regarding novel approaches, especially in comparison to crowded disease areas and crowded targets.

This will result in more rationalization as developers work to bring novel therapeutic modalities in and through the clinic. MaxCyte is well positioned, supporting numerous clinical programs across a variety of disease areas, target cell types, and therapeutic modalities. Rationalization of clinical assets is also good as the sector focuses investment on the most promising clinical programs and advanced therapeutic modalities forward to patients with unmet medical needs.

We're particularly encouraged by our traction with early development stage cell therapy customers, including leading academic clinical translation med centers. We now have greater than 600 instruments sold or leased with customers around the globe, as compared to just over 500 instruments at the end of 2021. Our partnership pipeline remains robust as we begin 2023. Both current partners and potential partners are conducting development work at the late stage preclinical and clinical stage across a wide array of cell types, approaches, and new indications. The prospects for our existing partners are greater today than they were a year ago, and our pipeline of new partners continues to expand not only in number, but across the breadth of therapeutic modalities and indications, including rare diseases, autoimmune, neurodegenerative disease, and solid tumors.

Note that due to confidentiality of our partnership agreements, we are not able to answer any specific questions related to individual partners, their clinical progress, or their respective development programs. In 2022, we signed three partnerships and have added 1 thus far in 2023. We also established a partnership with Vertex following the transfer of the exa-cel program from CRISPR, which is currently seeking regulatory marketing approval in United States and Europe for sickle cell disease and beta thalassemia.

In addition, we retained our partnership with CRISPR Therapeutics supporting CRISPR-Cas9-based therapies in immuno-oncology. The total number of partnerships as of today stands at 19, and we expect to add partnerships at our historic rate in 2023. As of December 31st, 2022, our 18 partnerships allow for more than 125 programs, think of drugs, of which 16 were active programs in the clinic.

This compares to 15 partnerships covering 95 programs, of which 15 were active in the clinic as of year-end 2022. The total pre-commercial partnership revenue potential for our SPL programs is now greater than $1.55 billion, up from one and a quarter billion dollars at the end of 2021, an increase of over $300 million in potential pre-commercial milestones payments. At the end of the fourth quarter, we signed a partnership with Curamys, a South Korean biotech company that develops cell and gene therapy using their proprietary cell fusion technology to treat rare intractable diseases, including Duchenne muscular dystrophy and ALS. This is our second partnership signed in the Asia Pacific region. We are encouraged by the geographic expansion of our partnership profile.

Additionally, early this year in 2023, we signed a partnership with Catamaran Bio, a Boston-based biotechnology company developing novel off-the-shelf CAR NK cell therapies to treat a variety of solid tumors, including renal cell carcinoma, breast cancer, and gastric cancer. We are also encouraged to see the FDA recognizing recent progress in our most important end market, cell therapy, following five cell and gene therapy approvals in 2022 compared to an average of less than two per year in the prior five years, and 100 new FDA positions funded in the 2022 PDUFA legislation to focus on cell and gene therapy beginning in 2023.

If approved, exa-cel will be the first non-viral engineered cell therapy product commercialized, and we believe it will establish non-viral engineered cells as a new therapeutic modality, solidifying MaxCyte's position as the premier enabler of non-viral cell therapies from concept to patients. In 2022, we made important investments across multiple areas to support growing global end markets and in preparation for our partners' progression through the clinic toward commercial launch.

These included investments in our internal and field science, regulatory, quality assurance, applications, process development, engineering, and supply teams, as well as expansion of our sales, alliance support, and marketing teams. We intend to continue to invest in people and capabilities to support the progress of our customers and the capabilities of our commercial organization. We also expanded our in-house manufacturing capabilities with the opening of our new headquarters in Rockville, Maryland in 2022.

Our expanded manufacturing capacity positions us to support current and future partners as our partner programs grow and scale into later stage programs and potential commercialization. We launched our ExPERT VLx large-scale transfection system during September of 2022 and are currently focused on early access customers, many of whom are existing users of our current smaller scale platforms, including the STx. The launch of the VLx instrument expands the MaxCyte ExPERT platform to a broader range of applications of large-scale bioprocessing, offering greater scale for development and manufacturing. Its use case spans across several applications such as transient protein production and is focused on preclinical development and early-stage clinical trials. The key capabilities of the VLx instrument enable customers to shorten development timelines, have broad capability and workflow integration and flexibility.

In 2023, we are continuing to make investments to support MaxCyte's future success and financial growth as well as customers' and partners' success. These investments include growing our commercial teams, expanding our manufacturing capability, including automation, enhancing our process development capabilities, and investing in ongoing internal product development. In addition, we continue to make investments in our applications team to enable the rapidly growing market of next-generation cell therapies. We believe our targeted investments in 2022 and business momentum across our customer base positions us well for continued success in 2023 and over the long term. We finished the year well-funded and continue to have a strong balance sheet of $227 million to support our expected growth. Finally, we're pleased to announce the appointment of Patrick Balthrop to our board of directors in December.

Patrick's deep experience in life sciences will be an invaluable asset for the MaxCyte team as we continue to advance the next generation of cell therapy discovery, development, and commercialization. In summary, we are very pleased with our full year 2022 results. We believe we began 2023 well-positioned to execute on our financial and strategic objectives over the long term. I'd like to close by thanking the dedicated team at MaxCyte for their commitment and hard work, which enables our success in driving the next generation of cell-based therapies. I will now turn the call over to Ron to discuss our financial results. Ron?

Ron Holtz (Interim CFO)

Thank you, Doug. I want to start by addressing a question that I expect may be top of mind due to recent events. MaxCyte did have a small foreign currency transactions account at Silicon Valley Bank. That account held an immaterial amount of capital, and the events of the past few days represent no material risk to the company or its assets. Turning to our financial results, full year total revenue was $44.3 million, representing growth of 31% over 2021. Total revenue in the fourth quarter of 2022 was $12.4 million, compared to $10.2 million in the fourth quarter of 2021, for a 22% growth. In the fourth quarter, we reported core revenue of $10.6 million compared to $10.1 million in the fourth quarter of 2021, or 4% growth.

This includes revenue from cell therapy customers of seven and a half million, growing 4% year-over-year, and revenue from drug discovery of $3 million, up 5% year-over-year. Core revenue growth for the fourth quarter was driven by continued strength in instrument sales, although somewhat offset by timing of PA sales as compared to the prior year quarter. As Doug explained, we saw some lumpiness in PA sales late in the year. However, overall, in 2022, PA sales was a key revenue growth driver that supports our confidence in the trajectory of the business overall. For the full year 2022, we reported core revenue of $39.6 million, compared to $31.4 million in 2021, or 26% growth.

This includes revenue from cell therapy customers growing 33% year-over-year, and drug discovery revenue growing 8%. We recognized $1.9 million of SPL program-related revenue on strong partner clinical progress in the fourth quarter of 2022, as compared to immaterial milestone revenue in the fourth quarter of 2021. For the full year, we recognized $4.6 million in milestone revenues as compared to $2.5 million in the prior year, exceeding our forecasted milestone guidance of approximately $4 million. Moving down the P&L, gross margin was 88% in both the fourth quarter of 2022 and 2021. Total operating expenses for the fourth quarter of 2022 were $17.6 million, compared to $13.9 million in the fourth quarter of 2021.

The increased operating expenses was in line with our long-term growth strategy as we invested in the staffing of our field sales, field application scientists, engineering and manufacturing, and lab teams. We believe the investments made in 2022 position us well to support our customers and partners as they progress into and through clinic and into commercial stages. Heading into 2023, we have a healthy balance sheet with combined cash equivalents, and short-term investments of $227 million as of December 31st, 2022, and of course, no debt. Moving on to our outlook for 2023, we expect full year total revenue growth of between 21% and 26% over 2022, excuse me, including core business growth of between 20% and 25% and SPL program-related revenue of approximately $6 million.

As Doug discussed, we believe we are well-positioned for continued strong growth in 2023, our guidance incorporates some conservatism for the broader macroeconomic environment and other factors which make 2023 somewhat more challenging to forecast than past years. As we have discussed previously, the timing of partnership revenue is predicated on our customers' clinical and regulatory progress, therefore it's fundamentally more difficult to predict than core revenues. As noted, our initial expectations for milestone revenue in 2023 is approximately $6 million. I wanna point out that that is a risk-adjusted forecast that's achievable under a variety of potential outcomes across our 19 announced partnerships and their planned clinical progress. I'd like to add a brief comment on the expected seasonality for 2023.

Recall that in 2022, that year was a bit of an anomaly with near 50/50 split of first half versus second half revenue, driven by the dynamics of purchase patterns as partners approached later stage development and commercialization. We expect to return to more normal historical seasonality with roughly a 40%, 60% first half, second half revenue split. Revenues from TAs, instruments, and milestones grow strongly as later-stage partners approach and enter commercialization, it can be lumpy, impacting quarterly outcomes and annual seasonality as we're seeing those effects in 2022 and 2023. In that context, it's important to highlight the magnitude of what one later-stage partner can deliver as we see the first of 19 partners approaching commercialization.

Worth noting that we are very confident that our total SPL partnerships will continue to grow through 2023. Finally, I want to note our strong financial position as we expect to end this year with approximately $200 million in cash equivalents, and short-term investments and no debt. Overall, we are pleased with our full two year 2022 performance. We're confident in our 2023 outlook, and we believe that our modest cash burn and debt-free balance sheet will support our future plans for profitable growth. I'll turn it back to you, Doug.

Doug Doerfler (President and CEO)

Thanks, Ron. In summary, we're encouraged by our full-year achievements and remain optimistic about our growth opportunities in 2023 and beyond. We're excited about the opportunity to lead the industry forward as the premier cell engineering platform technology, supporting the development of advanced cell-based therapeutics for patients who may not otherwise have treatment options. We are fully aware of the challenges in our industry and are working hard to support and enable the industry's success. As always, we thank our MaxCyte team as well as our board, suppliers, investors, partners, and the amazing industry that we have the honor of serving to enable the development and commercialization of therapies for patients and their families. With that, I will turn the call back over to the operator for our Q&A. Operator?

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. We ask that you limit yourself to one question. Again, we ask that you limit yourself to one question. One moment for our first question. Our first question comes from Julie Simmonds from Panmure Gordon. Your line is now open.

Julie Simmonds (Equity Analyst, Healthcare)

Thank you. Congratulations on a good set of results, guys. In terms of just one question, I suppose the sort of one particularly on my mind at this point is obviously looking for potentially your first commercial product potentially by the end of this year. Does that mean that this year has more sort of regulatory risk to it from your perspective, having moved into the new site? Are you comfortable that you are up to speed with what is required there, sort of because I'm assuming that that's part of your process, as part of the process as a whole?

Doug Doerfler (President and CEO)

Thanks for the question, Julie. We are. I mean, this is something that we've been hopeful and now anticipating for the last several years. It's one of the reasons why we've been making the investments in quality systems. Our new regulatory vice president is on board. We work very closely with all of our partners to ensure that we're in line with their expectations and the agency's expectations in terms of how we operate and control our manufacturing and supply chains to our customers. We're, we're very confident that we're gonna be able to continue to support them through this final, at least, one product's final regulatory path and into commercialization. We're, we're very comfortable with our, with our investments and our position.

Julie Simmonds (Equity Analyst, Healthcare)

Thank you.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from Dan Arias from Stifel. Your line is now open.

Dan Arias (Managing Director)

Good afternoon, guys. Thanks for the questions. Doug, I appreciate the comment on the outlook. It seems like you feel pretty good about the business. I am sensing some increased cautiousness just on the dynamics that you're seeing in the market. Can you just talk a bit about, you know, the view out the window and the extent to which some of the things that you mentioned are related to your customers specifically or more just across the industry or the landscape? Thanks.

Doug Doerfler (President and CEO)

Yeah. This is general thought. I mean, it's, you know, obviously, we had a bit of a hiccup more than a hiccup last week. You know, I think that's gonna encourage everyone to take a harder look at expenses next year, you know, focus on the assets that are bringing value to the company, our partners. As we've said many times that we typically are working with their lead or second asset. I think in large parts that's gonna not have a negative impact on us. You know, we also know that there's some rationalization going on. We saw that with some of the sickle cell programs in the last couple weeks. I think you're gonna also...

My view is you're gonna probably start seeing that with some of the other allogeneic programs as some of these, lead assets that we're developing and others are developing, our partners are developing, you know, start to show some pretty remarkable clinical data. My sense, our sense is that rationalization is gonna happen, and you're gonna end up having some culling of programs. My sense, again, personally, I think that's, you know, part of what we're involved with this early stage. You know, let's not forget we're still involved with a number of very early-stage therapeutic, development assets, and there's gonna have to be some rationalization. It's more of an overall view.

We're being cautious, but I also think that we have been able to build in with our investment recently our ability to cover more of the global market and to be a more effective partner and a more effective supplier.

Dan Arias (Managing Director)

Okay. Thanks very much.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from Matt Larew from William Blair. Your line is now open.

Matt Larew (Research Analyst, Healthcare)

Hey, good afternoon, and thanks for taking my question. sort of a two-parter on your partnership programs. Outside numbers continue to progress now up to over 125 programs. The number in the clinic went from 15 to 16, just by nature of the growth in the size of programs, I guess I would have thought that might have moved up a bit more with--I also assume that wouldn't be an area where you'd see pipeline rationalization in terms of assets getting closer to the clinic. Was that just a function of timing? Then maybe the second part would be within that 125 programs signed into your 8-18 SPLs at the end of the year, are all of those actively progressing?

Has that always been the case, or are there programs that are part of these partnerships that perhaps fit into this bucket of being paused or rationalized?

Doug Doerfler (President and CEO)

To answer the first part of your question, there's been some in and out of the programs with our partners. you know, we don't get involved in that decision. Most of them are based on strategy or data, but there has been some, you know, programs dropping out and programs coming in. The net effect has been an increase in the number of programs in the clinic, and I think we said 16 right now. And those 16 would be, you know, directly affecting our ability to develop milestone payments and eventually commercial revenues for the company. It's good that it's going in that direction.

Of the 125 we typically a deal, let's say a deal, let's just assume for a minute it's 10 programs per deal. Many of those 10 are actually named programs within a field of use. They could be a named target in a targeted indication, and some of the other programs would be unnamed, but what they would be with in a general field of use. Some of them are being worked on pre-clinically in early stage clinic, but a number of those are, you know, I mentioned 125, we've got 15 in the clinic. 15 are in the clinic moving along and there's more than a handful pre-clinically. There's some that are, you know, they have options on.

Does that answer your question, Matt?

Matt Larew (Research Analyst, Healthcare)

Yeah. I think so. I was taking furious notes. I'll have to go back and read them again, but I think that helps. Thank you.

Doug Doerfler (President and CEO)

Okay. That's fair.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from Jacob Johnson from Stephens. Your line is now open.

Jacob Johnson (Managing Director)

Hey. Hey, thanks. Good evening. Maybe, Doug, just circling back on the comments around process assemblies. It sounds like this was largely in cell therapy, you know, is this related to rationalization of programs, or just lumpiness? Then maybe if you could just comment on kind of what's assumed in the guide for FY 2023 as it relates to the consumable side of things. Thanks.

Doug Doerfler (President and CEO)

Jacob, let me, thanks for the question. Let me turn it over to Ron.

Ron Holtz (Interim CFO)

Yeah. The pull-through generally has been quite consistent across many years. The key thing that's happening last year is as a late-stage partner moves in towards preparations for commercialization and into commercialization, as you would expect, their purchasing gets larger, and that's part of the long-term growth of a customer moving from clinical stage into commercial stage. The big picture is strong growth. Closer in, if you're looking on a quarterly basis, that's quite lumpy. We saw strong PAs early in the year, and that's part of why we ended up with a 50/50 split and lighter PA sales, particularly in the fourth quarter. Most of that is associated with a large customer, which is sort of the poster child for what can happen when you have those later stage companies approaching commercialization.

Jacob Johnson (Managing Director)

Okay. Got it. Thanks for that, Ron.

Ron Holtz (Interim CFO)

Sure.

Operator (participant)

Thank you.

Doug Doerfler (President and CEO)

Thanks, Jacob.

Operator (participant)

One moment for our next question. Our next question comes from, Mark Massaro from BTIG. Your line is now open.

Speaker 8

Hey, guys. This is Vivian on for Mark. Thanks for taking the question. Just a quick clarifying one on the 2023 guide, just to confirm, are you excluding any material economics from SPL partnerships with respect to regulatory approvals such as the FDA or other agencies?

Ron Holtz (Interim CFO)

Yeah. That's a very good question. If you look at the $6 million guide for SPL program-related revenues, we come to that number by doing a broad and a scenario analysis, risk-adjusted numbers, looking at all the potential milestones that may occur in 2023 based on what our partners are saying about their progress for all the programs that they have in the clinic. We do that analysis, and we come looking for a number that we can feel confident that the company can achieve. It does include some approval milestone revenues, but it's there's multiple scenarios that would allow us to get to that number.

If you look back at where we started in January 2021 and when we guided to $4 million, I would have told you I was very confident that we would hit that number. If you asked me how we would get there, I really, it wasn't something that was predictable because there were many ways to achieve it. I think we're in the same position here. We have a $6 million guide. There are multiple ways for us to get there. We expect that some approval milestone revenue is a part of our achieving that $6 million number. The challenge here is you have a small number of large dollar events and coming up with a straightforward way to communicate what our expectations of that is, involves that scenario analysis.

Speaker 8

Awesome. Thanks for taking the question.

Operator (participant)

Thank you. Again, if you have a question, that is star one one. Again, if you have a question, that is star one. We just ask that you limit yourself to one question. one moment for our next question. Our next question comes from Max Masucci from Cowen. Your line is now open.

Speaker 9

Hi, this is Stephanie on for Max. Thanks for taking my questions and congrats on a great year. It'd be great to get some color around your VLx early access contracts and the structure of those agreements. Did you realize material revenues from those early access contracts in Q4, and what are you assuming for VLx revenues in your guide?

Ron Holtz (Interim CFO)

Yeah. So, we're early with VLX with the launch just in November. There was VLX revenue in 2022, and we expect to grow that this year. We're pleased with how the pipeline has developed in the short time that's been in place. Developing the business model is something that we're very focused on. We're taking a similar approach that we took with the SPL revenue. When we did our first SPL, we sat down and came together with a clear understanding of what we believe the value was. We shared that with customers, and then we modified that approach as we learned more about what customers needed in a structure that would suit them, that still delivered that value to us.

We have an approach in the market now, and we're going through that process of massaging that, if you will, as we learn more from customers about what suits them for this particular offering.

Speaker 9

Got it. That's helpful. Thanks for taking my question.

Ron Holtz (Interim CFO)

Sure. Thanks, Stephanie.

Operator (participant)

Thank you. I am showing no further questions. I would now like to turn the call back over to Doug Doerfler for closing remarks.

Doug Doerfler (President and CEO)

Well, thank you, operator. Thanks everyone for joining us today for our earnings call. We look forward to providing an update on the first quarter later this spring. Thank you very much. Look forward to subsequent discussions.

Operator (participant)

This concludes today's conference call. Thank you for participating. You may now disconnect.