MaxCyte Inc (MXCT) 2023 Q2 法說會逐字稿

Thank you for standing by, and welcome to MaxCyte's Second Quarter 2023 Earnings Call. (Operator Instructions) I would now like to hand the call over to the Head of Investor Relations, Sean Menarguez. Please go ahead.

Thank you, Atif, and good afternoon, everyone. My name is Sean Menarguez, and I'm the Head of Investor Relations 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 J. Swirsky, Chief Financial Officer. Earlier today, MaxCyte released financial results for the second quarter ended June 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.

Thank you, Sean. Good afternoon, everyone, and thank you for joining MaxCyte's Second 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 DJ, our Chief Financial Officer. We will then open up the call for questions.

MaxCyte reported $9 million of revenue in the second quarter as we experienced softness in the cell therapy industry. The cell therapy industry has prioritized pipeline programs which has resulted in nominal growth in R&D spending. Less R&D spending in the industry, we believe, has resulted from a challenging and evolving macroeconomic environment. Despite this, we are confident in our updated annual outlook for 2023 and continue to be excited about the health of our long-term business. Our partnership pipeline is robust, highlighted by our 5 partnerships so far this year. Customer engagement remains high, and I remain extremely excited about the opportunities for MaxCyte's platform as the premier cell engineering, technology and support for the growing industry.

You'll note that our second quarter revenues, including our core business revenues, are down from the same quarter last year. As discussed on last quarter's call, 2023 has been a challenging year for the industry, which has been impacted by multiple macroeconomic factors, including the challenging capital markets environment. The biotech industry continues to prioritize pipeline assets for R&D investment, especially with small, development-stage cell therapy companies focused on programs in late-stage preclinical and early phase clinical trials. With this backdrop, we are seeing continued cautiousness in capital investments from our customers, resulting in extended purchasing cycles for instruments and processing assembly. Our negative growth rate in the first half of 2023 were exacerbated by difficult year-over-year comparisons, which DJ will discuss in a few minutes.

While some of our customers are narrowing their investments, we are encouraged by our clinical SPL partners' progress where we are generally enabling their lead or second assets. These assets remain our partners' active focus for their development investment and progression through the clinic. Outside of these evolving headwinds, the cell therapy industry continues to move briskly toward non-viral cell engineering approaches with an increased focus on more complex engineered cell therapies often including multiple engineering steps in molecules across an expanding variety of cells and disease types.

We believe these industry trends play to the strength of the MaxCyte platform, which has driven a continued high-level engagement from current and prospective customers. Our robust pipeline has led to 5 SPL partnerships being signed this year, which supports our view of the value derived from our platform. In July and August, we announced 3 new SPL partnerships, including Lyell Immunopharma, viTToria Biotherapeutics and Prime Medicine. Our partnerships with Lyell and viTToria diversify our portfolio into new therapeutic modalities, expanding our exposure to next-generation autologous CAR Ts from previously only allogeneic CAR Ts. In addition, Lyell expands our exposure to solid tumor indications, which opens up a significant commercial revenue opportunity for MaxCyte.

First-generation autologous CAR Ts, including (inaudible) consists of one engineering set (inaudible) transducing the CAR into T-cells with a viral vector. As the field evolves to expand the applications for cell therapy, developers are focusing on more complex approaches with additional edits and unique gene editing tools which has further accelerated the shift in non-viral cell engineering approaches. Furthermore, as highlighted in the Lyell and viTToria partnerships, the field continues to advance complex non-viral cell engineering techniques in both autologous and allogeneic settings. MaxCyte is well positioned to address these evolving market trends.

The breadth of our SPL partnership funnel is the result of broad engagement with academic clinical translational centers and commercial customers. We have developed new SPL partnerships in both customer segments with viTToria being the recent example of our work with the University of Pennsylvania's GMP translational center. viTToria is working towards commercializing their proprietary cell therapy 3.0 technology, which was developed out of the University of Pennsylvania. Our partnership with Prime Medicine supports their Prime Editing technology platform, which is a novel next-generation gene editing tool targeting repair of almost all types of genetic mutations across a broad range of tissues, organs and cell types. Prime Medicine is another example of the expanding applications in cell therapy, many of which the MaxCyte platform is at the forefront of enabling.

Given the evolving operating environment, our SPL partners are often narrowing their focus to their lead assets, which they continue to progress through the clinic. The progression through the clinic of such programs and their positive clinical data readouts are critical events in the current funding environment and have led to capital raises in recent months. We are also seeing our existing partners pursue new indications, including, for example, the expansion of CAR T applications to autoimmune diseases. As cell therapy indications expand into autoimmune or solid tumors, for example, they also require multiple doses. This is where the performance and scalability of the MaxCyte platform has a key competitive advantage. Based on our partners' decisions, we believe it is clear that the MaxCyte platform is the platform of choice for innovative cell therapy development.

We look forward to the first commercial approval of a product enabled by our platform, Vertex and CRISPR's exa-cel program. Earlier this year, the exa-cel program announced the completion of a rolling BLA submission to the FDA for sickle cell disease and transfusion-dependent beta thalassemia. More recently, at the European Hematology conference, Vertex presented updated data from exa-cel showing pivotal trial data for beta thalassemia and sickle cell disease that met primary and key secondary endpoints. The pivotal data was integral to the exa-cel receiving PDUFA dates for sickle cell and beta thalassemia of December 8, 2023 and March 30, 2024, respectively. This application approval would be the first non-viral engineered cell therapy product granted by the FDA and would further validate the utility of MaxCyte's platform as the premier enabler of non-viral engineered cell therapies.

Our unique partnerships provide MaxCyte with near, medium-term and long-term revenue potential where MaxCyte has the opportunity to share in the performance of partners' programs as those programs reach commercialization. To provide more context on the scale of our commercial opportunity, we highlighted this potential on new Slide 15 in our corporate presentation. As you may be aware, we are approaching the first wave of partnered commercial approvals, which includes the potential launch in 2024 of exa-cel in sickle cell disease and beta thalassemia, followed shortly thereafter by a second commercial wave of 7 potential therapies with expected launch potential between 2025 and 2027. The second wave of therapy spans across blood cancers, including lymphoma and leukemia, solid tumor and genetic diseases.

The third commercial wave potentially includes 8 partner therapies with a launch window between 2028 and 2030. The commercial revenue opportunity for MaxCyte from the success of only a portion of these partner programs is substantial, and our portfolio of commercial opportunities continues to grow in preclinical development as well with more than 20 preclinical programs currently being developed by our partners. Additionally, following the signing of 5 strategic partnerships to date this year, the total pre-commercial milestone revenue potential has increased by about 30% or $500 million to approximately $2 billion across 23 announced partnerships.

In 2023, we focused on effectively fortifying our position in the market with targeted investments to support our future growth driven by our customers and expanding SPL partner base. These investments include enhancing our process development capabilities and ongoing product and technology development to best serve the market. In addition, we continue to make investments in our applications lab, which will enhance our ability to support next-generation cell therapy innovators that are pursuing complex cell therapies. We believe these are the right investments to ensure the long-term success of MaxCyte and support the growth of the cell therapy sector.

Our ExPERT VLx large-scale transfection system launch continues to be focused on working with early access customers to define the value proposition for applications. The potential of the VLx is across several applications, such as transient protein manufacturing, and is currently focused on preclinical development and early-stage clinical trials. The key capabilities of the VLx instrument enable customers a shortened development time line and have broad compatibility, including workflow integration and flexibility. We look forward to further engagement with early access customers so we can provide the market with applications data in a large-scale transfection solution to address current bottlenecks in the bioprocessing market.

In summary, our team members are working through an evolving and challenging operating environment this year, which will impact the timing of our customers' development programs and capital investments. However, we are confident in our updated full year outlook and long-term strategic goals. The substantial promise of the cell therapy industry over the long term remains intact. And importantly, we maintain a high degree of confidence in the value that our technology provides to the industry. We are excited by the potential of the SPL partnerships we signed in 2023 and the robust pipeline of additional opportunities. We are honored to support our partners and believe we remain the partner of choice for non-viral cell engineering technology. With that, I will now turn the call over to DJ to discuss our financial results. DJ?

Thank you, Doug. Hello, everyone. Total revenue in the second quarter of 2023 was $9 million compared to $9.6 million in the second quarter of 2022, representing a 6% decline. In the second quarter, we reported core revenue of $8.3 million compared to $9.6 million in the comparable prior year quarter, representing a 14% decline. This includes revenue from cell therapy customers of $6.6 million and revenue from drug discovery customers of $1.7 million, which both declined 14% year-over-year. The decline in revenues was the result of the challenging operating environment oftentimes leading to prioritization of pipeline assets for R&D, causing elongated purchasing cycles from customers in instruments and PAs. Recall that in the first half of last year, the core business at MaxCyte benefited from some pent-up purchasing demand as customers return to lab work following COVID policy changes, in addition to strong revenue growth from a later-stage SPL partner approaching commercialization.

We recognized $0.8 million of SPL program-related revenue in the second quarter of 2023 as our partners continued their progress through the clinic compared to no material SPL program-related revenue in the second quarter of 2022. To provide more color on the core business, instrument and PA sales were down 24% for the first half of 2023 compared to the comparable prior year period. As previously discussed, within the challenging funding environment, we are seeing increased cautiousness in capital investments from our customers, resulting in extended purchasing cycles for instruments and PAs. The lower PA utilization seen in the first half of 2023 was primarily impacted by deprioritized research and development programs at earlier-stage customers and lower PA demand from a later-stage program that has progressed to the regulatory filing stage.

Excluding this particular partner, the PA utilization of our platform by clinical SPL partners remains a bright spot and grew year-over-year. Revenues from leased instruments also remained stable with a growth of 2% for the first half of 2023 compared to the prior year period driven primarily by our SPL partners.

Moving down the P&L. Gross margin was 85% in the second quarter of 2023 compared to 88% in the second quarter of the prior year. Margins were negatively influenced by the ramp-up of in-house manufacturing and related production costs. Total operating expenses for the second quarter of 2023 were $20.7 million compared to $17.2 million in the second quarter of 2022. The overall increase in operating expenses was primarily driven by increases in R&D, sales and marketing, headcount and to a lesser extent, legal and strategic consulting expenses. The company continues to invest in commercial sales and marketing operations, innovative product development, field application scientists, automated manufacturing capabilities as well as business and corporate development to drive long-term growth. We finished the second quarter with combined total cash, cash equivalents and short-term investments of $216 million and of course, no debt.

Moving to our full year 2023 guidance. We are updating our outlook and now expect core revenue for 2023 to be comparable to 2022. 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 macro environment and the timing of purchasing patterns from our customers and partners. As we have discussed previously, the timing of partnership revenue is predicated on our customers' clinical and regulatory progress and therefore is fundamentally more difficult to predict than core revenues. And finally, I want to note our strong financial position as we still expect to end this year with approximately $200 million in cash, cash equivalents and short-term investments and no debt. Our cash position is a strategic asset for the company as we are funded well into future profitability, allowing us to focus on realizing the long-term potential of our business model.

Let me close by saying that overall, we are confident in our updated 2023 revenue outlook, and we believe that our modest cash burn and debt-free balance sheet will support our future plans for profitable growth. Now I'll turn the call back over to Doug.

Thank you, DJ. In summary, we are excited about our partnership progress during the first half and are increasingly optimistic about the long-term outlook for MaxCyte and the depth of our partnership pipeline. We are committed to strengthening our opportunity to lead the industry as the premier cell engineering platform technology, supporting the development of advanced cell-based therapeutics for patients who may not otherwise have treatment options. As always, we thank our MaxCyte team as well as our Board, suppliers, investors, partners, patients and the amazing industry that we have the honor of serving. With that, I will turn the call back over to the operator for the Q&A. Operator?

(Operator Instructions) Our first question comes from the line of Julie Simmonds of Panmure Gordon.

A couple of questions, please. Firstly, just about the sort of slightly lighter cell therapy revenues coming through. I was just wondering how much of that is to do with customers delaying because of sort of financial reasons. Or do you think there's anything to do with the delays coming through for potentially looking at alternative methods of non-viral manufacturing that they could be looking at? Is there any competitive angle to it? Is that causing any sort of pricing issues that could also be causing the slowdown?

Julie, it's Doug. No, we're not seeing any major competitive issues. There's always some people coming in and out. We have Thermo Fisher in doing their Xenon. We've had, I'm sorry, Lonza with their products. So it comes in and out. I think when we look at all the data, we look at all the sales reports, it's really based on the belt tightening of kind of the early-stage companies, product developers. That's where we're seeing the shortfall. We're still seeing significant strength in the SPL part of our business, but it's these companies that really aren't very well funded. They're typically either just recently received Series A or Series B funding. And as you can imagine, it's pretty tough out there, and they're all tightening their belts.

Cool. I'm glad there's nothing coming through that's sort of interfering with your lead to the market. And just wondering in terms of timing versus Q3, Q4, probably one for DJ, this one. Normally, there's been a sort of big -- a boost as far as Q4 is concerned because as companies get toward the end of the year, they're making decisions on these things. Are you looking for a similar sort of profile this year? Or do you think it's going to be more measured throughout given the first half of last year was so strong?

Thank you, Julie. We're expecting certainly a heavier Q4 and that's based really on looking at the book of business and specific opportunities when we think that the purchases are going to occur. So we do not provide quarterly guidance, as you know. But I would definitely be thinking to weigh slightly heavier in Q4 versus Q3 based on what we see specifically as well as history here.

Our next question comes from the line of Dan Arias of Stifel.

Doug, one of the details or nuances that seemingly emerged as a part of this belt tightening that you're referring to has just been this observation that some companies are pulling back indefinitely and some are just sort of delaying purchases or extending purchase time lines. Can you just talk about what you're seeing from your seat when it comes to the product prioritization that you're talking about? And then the follow-up question for DJ would be sort of along the lines of the last one, which is looking at the back half of the year, can you just talk about that confidence that you expressed on the revised outlook, flat for the year but you're down mid-teens so far? So maybe a comment on the extent that the order book is informing the back half year and the visibility that you might have to stepping up to a higher growth number.

Thanks, Dan. So a couple of things. One is when we -- we're talking, obviously, the softness really is in those companies that are not our partners at this point. They're typically, as you know, really kind of early-stage preclinical partners. We're seeing them pulling back pretty substantially across the board and rationalizing their product portfolio. We've had some of these companies raising Series A and Series B. You've seen their pipeline charts. They have been dramatically cut over the last, I want to say, 6 to 12 months. Unfortunately, we're seeing layoffs in the field, and we're seeing restructuring. We're seeing folks basically abandon certain programs even if they're in late-stage preclinical.

We're also seeing most recently announcements by companies that they're taking their assets that look like they're going to have to invest quite considerably to move through to pivotal, and they're talking about trying to partner those off to either big companies or other ways of gaining revenue -- gaining capital for those. So it's across the board. I don't think we're seeing anything in particular. I think you've covered the waterfront pretty well. It's all those different things.

In terms of looking at the back half of the year here in revenue, I think we have good line of sight into how our revenue model gets put together. I think we've already factored in all these headwinds that Doug just mentioned. We've looked at particular pieces of the business and opportunities, and we've reflected that in terms of moving those out of our projections for 2024. So I understand that the first half was down, and we need a very reasonable second half to get back to level for -- in terms of a year-over-year comparison. But we're reasonably confident in our forecast here with an emphasis on Q4. I think -- working hard to make sure we have a reasonable Q3. But I think looking at the back end of the year, I think Q4 is where we're going to make the most of the deficit up in terms of reaching a comparable level of core revenue for the year versus 2022.

And Dan, let me add to what DJ is saying. I think we're also seeing on the commercial side a significant increase in the amount of activity going on in the marketplace in the first half of this year, which we really hadn't seen until recently. People back in business. They want to go to meetings. They're attending meetings. We're getting really good attendance in trade shows, booth traffic and a lot of leads coming in. I think also we've made, as you know, some investments in sales and marketing over the last, let's say, 6 to 12 months. New salespeople coming in on the organization, finding their way and building their book of business. So I want to add that to the confidence that DJ said as well, the activity we're seeing in the commercial marketplace.

Our next question comes from the line of Jacob Johnson of Stephens.

Maybe a question on the recent SPL additions. Looking at some of these companies, they have some decent cash balances, seem to have stronger balance sheets. I'm just curious, is this something you're being more selective about on your end? Or do these just happen to be the opportunities that are coming your way right now?

Yes. I think what we're finding is that we're spending a lot more time with folks who have more advanced programs. Obviously, as our Head of Commercial Operations says, we do a wallet check before we get too far down the path with some of these negotiations. So I think it's a combination, but I also want to just recognize that some of these deals we did this year are really kind of pushing the envelope in terms of the whole field of engineered cell therapies. And obviously, the last one, Prime, is an example of us being at the forefront of this whole area. So maybe that comes with more capital for these companies as they're moving into new more novel ways of treating and potentially curing some of these diseases.

Okay. And maybe one for you, DJ, just on kind of OpEx and managing expenses in this environment. Obviously, kind of a lighter revenue outlook than the start of the year. Are you all trying to manage OpEx a little bit more in this environment like your customers are?

100%. We have -- although we're moderating our revenue guidance, we're still maintaining a goal here of ending the year with $200 million in cash and equivalents and short-term investments. So we are mindful of operating expenses. They did grow year-over-year for the second quarter, but I think (inaudible) that growth is slowing. And we're going to continue to work hard to make sure that we treat the cash that we have as a strategic asset, and we're going to protect that by being mindful of our spending. At the same time, we still really believe in the long-term viability of this industry that we're supporting and our business model. And so perhaps we'll be mindful on the G&A side. But in terms of investing in R&D and in sales and marketing, I think those are items that we need to continue to invest in because, again, we want to fully take advantage of the opportunity in front of us.

Our next question comes from the line of Matt Larew of William Blair.

This is actually Madeline Mollman on for Matt. I just wanted to ask about gross margin. I know it slips down a little bit this year, year-over-year, and you said some of that was from increased costs from moving into the new facility and things like that. I'm just wondering how much of the gross margin is tied to the lower revenue volumes versus how much is tied to ramping up in the new facility and additional costs.

The absolute bulk of that relates to a decline in PA margins related to ramping up manufacturing in the facility.

Great. And then how do you anticipate that to the cadence of gross margin over the back half of the year?

I think gross margin is going to be heavily dependent, obviously, on product mix. We also are anxiously awaiting some additional milestone revenue, which comes at no additional cost to us. So I think the overall gross margin is going to be heavily influenced by the achievement of those milestones. In terms of operating margins on the PAs, we'd expect those to get higher over time as we sort of work through getting the facility up and running, which -- investing in automation and things like that.

Our next question comes from the line of Mark Massaro of BTIG.

This is Vidyun on for Mark. So on SPLs, you already beat the high end of your outlook of signing 3 to 4 per year there. So I guess, looking beyond the core revenue guide, is there any impact to your SPL visibility or funnel? I think you've talked about the dynamic in the past that SPLs are generally lead therapeutic candidates. So I was also wondering if you could maybe comment on how many programs under the SPLs are active in the clinic, factoring in the new additions during the quarter.

Could you repeat part of the question? I didn't -- so on the SPL revenues, you're asking which -- of the SPLs we signed, which of those relationships are around lead asset. Is that the question, the lead asset?

Yes, just more broadly, I was just asking if there's any impact. Obviously, the guide down was on core revenue. But you're still feeling good about SPLs and the cadence of signing 3 to 4 per year in the coming years.

Yes, absolutely. And we also -- let's see. We talked about -- [well, no], we'll talk about that later, I guess. So yes, no, I think the majority of these programs are their lead asset that they're working with, and these are top companies. So we're quite excited about the prospect and the prospects for this year and next year.

Okay. And then I guess -- I know it's difficult to kind of quantify the contribution from your first partnered approval, but obviously, a key topic, a key upcoming event here. But as we get close to the year-end, if we were to maybe model a mid-single-digit milestone payment and thinking about a low- to mid-single-digit royalty rate in out years, would we be in the right ballpark there?

So we've always said low- to mid-single digits would be the percentage of the top line of the partner. So when you model that, I think that would be the more appropriate number, low to mid, for the total. And that would include royalties, instrument leases and single-use disposable revenue.

(Operator Instructions) Our next question comes from the line of Steven Mah of TD Cowen.

A lot of ground covered already, so just some follow-up questions. So a follow-up question on the guide. Given that the SPL revenue was maintained at $6 million, what gives you guys some confidence on that given the macro softness and longer sales cycles that you guys have mentioned?

Is the question how confident we are in the $6 million guide that we're maintaining for the milestone?

Yes, that's right.

I mean we're very confident in that number. We've modeled out and risk-adjusted that and come up with a few scenarios. We feel pretty good about that. But you can imagine that there is a particular approval that we have our eyes on and that, that would heavily influence the achievement of that or not.

And I think also we can add to that, these companies we're working with, the SPL partners, generally, they're pretty well financed. And again, we're working with their first or second asset, which is where they're prioritizing their investment right now. So we're not seeing them backing off on those.

Okay. Great. And then a follow-up question on the gross margins on the PAs that were impacted based on the in-house manufacturing. I'm assuming that's due to scale that you're just amortizing the fixed cost over a smaller number of products. If that's the case, when should we start to see the gross margin impact on that in-house manufacturing normalizing?

Again, I don't think we have a timetable. I think it is influenced by volume, and I think we'd expect that number to trail on up. (inaudible) we can't give you specifics on [when we could sort of cross back] into historical margins. I think bringing the manufacturing in-house of some of these PAs did it for a lot of reasons, some of which is related to cost, but a lot of it is related to other items, such as we're controlling our own destiny and being able to support our partners, in particular.

And at this time, I'd like to turn the call back over to Doug Doerfler for closing remarks. Sir?

Okay. Well, thank you, all, for participating. And thank you, operator, and thanks, everyone, for joining our earnings call today. And we look forward to providing an update on the third quarter later this year. Thank you very much.

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