MaxCyte Inc (MXCT) 2024 Q3 法說會逐字稿

Third quarter earnings conference call. At this time. All participants are in listen-only mode. After the speaker presentation, there will be a question and answer session to ask the question during the session. You would need to press star 11 on your telephone.

You would then hear an automated message advising your hand is raised to withdraw your question. Please press star 11 again.

I would now like to hand the conference over to Scott Feinberg of Investor Relations. You may begin.

Good afternoon, everyone. My name is Scott Feinberg, and I am responsible for investor relations here at MaxCyte.

Thank you for participating in today's conference call. Joining me on the call from MaxCyte. We have Maher Masoud, President and Chief Executive Officer and Doug Swirsky, Chief Financial Officer.

Earlier today MaxCyte released financial results for the third quarter ended September 30th 2024.

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 maybe 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. Except as required by applicable law. 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 will turn over the call to Maher.

Thank you, Scott. Good afternoon, everyone and thank you for joining MaxCyte's third quarter 2024 earnings call.

MaxCyte reported 8.2 million of full revenue in the third quarter, primarily comprised of core revenue which exceeded our internal expectations. We were pleased with the execution of our team and continued demand for our expert platform which has been further demonstrated by the six new strategic platform licenses that we signed this year including one signed in the third quarter. A new record number of SPL signed in a single year of the company.

We have increased our expectations for core revenue growth in 2024 due to our confidence and underlying business trends we have seen over the last three quarters, the core business for MaxCyte in the third quarter performed very well particularly in cell therapy.

Our instrument installed base grew 739 as of September 30th and the instrument revenue was 1.8 million as our sales team executed well against our pipeline opportunities in the third quarter.

Though our instrument revenue continued to be impacted by continued customer caution on capital equipment spending. We were pleased with our stable instrument results and a return to year over year growth in the quarter PA revenue was very strong at 3.4 million in the quarter, growing 54% year over year and sequentially driven by broad based customer development.

Our PA revenues is dependent upon our customers research activity, progress of clinical programs and commercial activities. The strength in PA growth sequentially year over year was encouraging to see the funding environment remains largely unchanged from last quarter at a stable estate.

Then we have continued to see some green shoots customers overall and selling gene therapy are operating with a somewhat cautious mindset particularly when it comes to capital equipment spending.

However, through the third quarter, we are very encouraged by stability and growth in our core business which underscores our consistent execution throughout the year.

Overall, cell and gene therapy market trends continue to build well for max sites platform, we continue to see growth in activity in non viral cell therapies and cell. The developers moving towards more complex therapies that require multiple generic steps. Furthermore, our scientific expertise in the space allows us to support customers utilizing electrication with other transfection modalities such as with viral transduction, as evidenced by some of our SPL partners such as B BioPharma and Kal therapeutics.

We remain extremely optimistic about the future of cell gene therapy and maximize long term opportunities.

Turning to our SPLS, we remain encouraged by our customers continued progression through the clinic during the quarter and optimistic about their future impact for patients.

Our SPL pipeline continues to be robust and we've executed well on the opportunities in our pipeline this year resulting in six new SPL signed in 2024 thus far, including most recently signed come out therapeutics. Since September, we have reached a new record number of SPLS signed in a year which we believe is a true testament to the differentiation of our platform, the execution of our global teams and the sizable opportunity in cell gene therapy that continues to strengthen. our most recently signed SPL come out therapeutics is a clinical stage stem cell therapy gene correction company utilizing targeted gene integration to develop cell therapies that could potentially cure a variety of life threating diseases including sickle cell disease. We are excited that MaxCyte's technology has the potential to enable them to optimize their clinical manufacturing process and progress their lead asset through the clinic. The addition of come out therapeutics brings our total number of signed SBL to 29. We continue to pride ourselves on our ability to maintain long lasting relationships with our customers and provide them with a regulatory scientific and technical support required for them to succeed.

In the quarter, we received a small amount of SPL program related revenue from commercial royalty revenue related to cash chevy. Following completion of patient dosing, we are excited about the strong commercial opportunity of Vertex's FDA approved CASGEVY. As we are seeing that vertex is just beginning to recognize revenue.

The Q3 earnings call on Monday, Vertex reported that the first patient was officially dosed in Q3 and around 40 patients completed cell collection up from approximately 20. As noted on their Q2 call vertex indicated that cash checking has been enthusiastically received by patient is physicians and policymakers. And the launch is gathering momentum across all regions. However, as we have previously mentioned, we have limited visibility on the timing of the patient treatment journey as such. We are continuing to exclude CASGEVY related commercial milestone revenue from our 2024 revenue guidance. We plan to provide you with updates as they come from vertex.

We remain very optimistic of the potential of CASGEVY to benefit patients as the first and only approved CRISPR gene editing therapy just as we remain excited about the multiple therapies being developed by our other customers which could be approved as early as 2026 or 2027 all of which will provide us commercial miles on revenue if approved for the remainder of 2024. We plan to continue to invest in areas of high growth which includes sales and marketing best in class customer support and product development as part of the strengthening of our commercial infrastructure. We are pleased to have announced the promotion of Ali Solomon Isod, former Executive Vice President of buyer processing, the Chief Commercial Officer at Maide Ali will lead our commercial operations to increase adoption of the expert platforms, support our customers and expand the company's market and sell gene therapy.

We also continue to invest in complementary technologies for our customers and recently hired a head of engineering, Jeremy Colen Brander who has more than 25 years of selling gene therapy, product development experience to best understand our customers workflow needs and improvements. MaxCyte remains very disciplined with spend. We carefully evaluate our portfolio opportunities for investment and remain focused on allocating resources to high value projects that we believe will deliver long term growth.

This year, we established discipline processes across the organization.

This was done for a few reasons to allow us to have the capabilities to launch a commercialized products our customers need and to help us expand our customer base all while maintaining our healthy cash balance sheet with our healthy cast position. Compared to initial guidance, our updated revenue growth guidance and the impact our new Chief Commercial Officer and head of engineering are having on the organization. I am very confident the best practices we have implemented will continue our growth into next year.

Similar to the operational and management changes we implemented recently, we announced the appointment of Cynthia Collins to Backside's board of directors. I would like to take a moment to extend a warm welcome to Cynthia as we look forward to her support in our efforts to drive future growth. Cynthia has over 40 years of experience in the biotechnology industry, including her recent role as CEO of Editas medicine and prior role as CEO of human longevity.

Her expertise and leadership in cell and gene therapy are unparalleled and I'm excited to work with her to help cell therapy developers bring a new class of therapies to market over the coming years.

In summary, we are pleased with our third core results and the strong progress that we have made so far. This year, MaxCyte is well positioned to deliver on our increased 2024 financial projections. And we are excited to continue to provide the best quality support to our customers to differentiate support that maxCyte brings to our customers is truly unparalleled, derogatory, know how to scientific and technical support on programs. We believe that we are and will continue to remain the cell engineering platform of choice in the industry before I close and turn the call over to Doug, I want to take a little time to explain MaxCyte's future growth, what we have implemented this year in my vision of our company's future.

I joined MaxCyte over seven years ago, but we are still trying to figure out how to monetize our best in class highly differentiated cell engineering platform for non-viral delivery over the last seven plus years we became one of the only companies in the cell and gene therapy space with an enabling technology which garners clinical and commercial recurring revenue and have signed 29 SPLS with significant future revenue potential.

Since I took over as CEO to start the year, we have both our management team and our engineering and scientific expertise to underpin my vision to expand our sales funnel and increase the number of products we sell and license throughout therapeutic product development for research, clinical and commercial use. Our goal is to become the premier cell engineering company providing therapeutic companies with multiple product offerings to drive development of the next generation of therapies.

The cell gene therapy space is in the early stages of growth whereby the landscape of medicine and treatment patients will rely on cell gene therapies. And I truly believe Mac site can leverage us to talent and the infrastructure we have built over the last few years to commercialize many more product offerings.

With these changes, we have made significant progress towards our goals of launching new products in the foreseeable future. While we continue to sustain our healthy cash balance sheet, I remain as confident today as the first on MaxCyte that we will continue to help drive the industry forward and be a leader with best-in-class product offerings.

With that. I will now turn the call over to doug to discuss our financial results done.

Thank you, Meyer.

Total revenue in the third quarter of 2024 was 8.2 million compared to 8 million in the third quarter of 2023. Representing an increase of 2%.

We reported revenue of 8.1 million compared to 6.6 million in the comparable prior year quarter, representing an increase of 23%. This includes revenue from cell therapy customers of 6.5 million which increased 39% year over year and revenue from drug discovery customers of 1.6 million which declined 14% year over year within core revenue. Instrument revenue was 1.8 million compared to 1.7 million in the third quarter of 2023 lease revenue was 2.5 million compared to 2.4 million in the third quarter of 2023. And processing assembly or PA revenue was 3.4 million compared to 2.2 million in the comparable prior year quarter.

As Maher mentioned, instrument revenue continues to be most impacted by the cautious capital spending environment for our customers. At the same time, lease revenue has remained stable indicating strength in our revenue from clinical SPLS partners.

P revenue demonstrated strong growth in both year over year and sequential performance, which we are pleased to see 53% of core revenue in the third quarter was contributed by SPLS customers demonstrating our continued balance of early stage to clinical stage customers.

SPLS program related revenue. In the third quarter of 2024 was immaterial compared to 1.4 million of SPLS program related revenue in the third quarter of 2023. As Maher mentioned, the SPLS revenue recorded in the quarter was primarily from vertex patient completion of CASGEVY infusion.

Moving down the P and L gross margin was 76% in the third quarter of 2024 compared to 90% in the third quarter of 2023.

The decline in gross margins is primarily due to a one time inventory write off related to our decision to discontinue a product redesign initiative for RPAS.

This initiative began about two years ago with the bulk of the design and engineering work done last year.

Ultimately, the PA redesign efforts were deemed inadequate due to lower efficiency and viability compared with our current pas we've taken the appropriate steps including changes to our leadership earlier this year to ensure that similar design and procurement does not happen again. Moving forward, we recently hired a new head of engineering to spearhead our new product design and development efforts. As I mentioned, excluding inventory provisions and spl program related revenue. Non-GAAP adjusted gross margin was 85% in the third quarter compared to non-GAAP adjusted gross margin of 88% in the third quarter of 2023 total operating expenses for the third quarter of 2024 or 20.3 million compared to 21.2 million in the third quarter of 2023.

The decrease in operating expenses was driven by operational and process changes made this year which I have reference going forward. The company continues to be disciplined, making moderate and targeted investments in high growth areas that offer long term returns.

We finished the third quarter with combined total cash and cash equivalents and investments of 196.6 million and no debt.

We are increasing our expectations for year end cash equivalents and investments and now expect to end the year with $185 million.

Continuing with our full year 2024 revenue guidance. We are increasing our core revenue guidance and reiterating our SPL program related revenue outlook.

We are increasing our core revenue expectations to be at least 5% growth compared to 2023.

We also continue to expect SPL program related revenue of approximately 6 million in 2024 which represents no additional milestone payments this year.

Our spl program related revenue is difficult to predict and subject to the timing of partner development programs. As a reminder, our 2024 outlook also does not include royalty revenue from CASGEVY to close. MaxCyte remains in a great position to execute on our 2024 outlook with a continued focus on exercising discipline spent to deliver long term growth. Now, I will turn the call back over to my hair.

Thank you, Doug. We are proud of our progress thus far in 2024 and look forward to supporting our customers as they progress through the clinic. I would like to thank our MaxCyte team for their dedicated work to our company and customers each and every day with that, I will turn the call back over to the operator for the Q&A operator.

Thank you.

Ladies and gentlemen. As a reminder to ask the question, please press star 11 on your telephone and then wait for your name to be announced to withdraw your question. Please press start 11 again.

Please stand by while we compile the Q&A roster.

Our first question comes from the line of Matt Larew with William Blair. Your line is open.

Good afternoon.

I wanted to focus on pas in the quarter, obviously up about 50% year, over year up. Sequentially, you referenced that the funding environment while improving is not really, you know, impacting your numbers quite yet. What was your sort of assessment of what drove the strength beyond your expectations in the quarter? And, and how does both that performance as well as the continued funding environment shaped the way you're thinking about the fourth quarter versus the third quarter and then sort of into next year?

Thanks. Thanks for the question, Matt. So, you know, we have always talked about pas is sort of leading instrument sales in terms of being able to see that there is been some recovery here. So we are very pleased to see, PAS have been strong really all year. And so we do think that there's some signs out there that the market is improving. I think that really is a lot of it. Clearly you will, you will note there is a slight uptick versus, you know, on a year over year basis on how much of our total core revenue was from pl partners. So clearly, the maturity of, of some programs is helping drive PA sales to some extent. But in terms of sort of driving our outlook for the year, you know, we have, we have raised guidance for 2024 to reflect the fact that that we are doing better than we thought we would. When we set guidance at the beginning of the year, we're not in a position to guide for 2025 obviously right now. But, you know, we are a month into the fourth quarter, and we feel really good about the position we are in versus the revised expectations we just set.

Okay. And then just on the the write down you took related inventory and product development. You know, I think over the last couple of years, obviously, you have made nice progress as your as your partners have advanced kind of with the core business as well as SPL. But I sort of look at the LX development and then this development, I think two things that maybe you would have liked to see a different outcome. Just as you, you know, being a company with a good past position, ability to invest, as you think about where to go for organic investment from here, really where the return is for you. What are the next, you know, what are the next path you take? You know, to either improve the technology or, or broaden out some of the capabilities?

Yeah, no great question, Matt. And that is so that is the reason why we hired an engineering, Jeremy Columb, right, as I mentioned, obviously, you know, we are not giving guidance as to what those improvements are that we are bringing, but we built capabilities within the organization that will allow us to understand those high customer impact needs and build workflows around those needs and, and ensure that we are doing it in a very smart and efficient manner where we obviously are going to do what we believe has the highest impact for revenue for the company before we actually take those initiatives. And as you mentioned, you talked about the one time write off and the vox, the processes that we are, we have built in this year and the addition to the management team as well and really moving inefficiency across the organization help prevent us from having those, those type of one time write offs. And really work on those customer work flows that we believe has the highest revenue potential for the, for the company over the foreseeable future.

Okay. And then just one quick accounting clean up The I think 24,000 is of revenue related to CASGEVY. The level of granularity you are able to maybe just remind us how the, the rev rec works here. Because I guess I had not necessarily anticipated we would see anything in, in the quarter.

Thanks Matt. I guess I will take that one. We have we did not necessarily expect it this quarter either, but obviously, they, they have dosed a patient. We did recognize some revenue associated with that. We have a process where we interface with our, our partners as, as our customers as we will for, for all folks that reach that commercial stage where we have got downstream economic participation, we will have a process in place to, you know, to recognize revenue when, when it is been earned. In this case, I do want to emphasize that amount you see there is, you know, it is not just related to that one item. There is some, some, you know, some legacy revenue in there related to an advert organization of a of a previous upfront associated with one of the one of the, the clients. So, it is not all great you know, CASGEVY royalty income. But we can represent the majority of it is related to that. They are just getting started. And again, we have got a process to make sure that, that what we are getting data from our customer that allows us to, you know, appropriately recognize revenue. And you know that that's just getting started.

Okay, thanks very much.

Thank you. Thanks, man.

Please stand by for our next question.

Our next question comes from the line of Julie Simmonds with Panmure Liberum. Your line is open.

Thank you. Congratulations on a beginning to see a turn in the process as far as cell therapy is concerned. It is nice to see quick question as far as the deferred income is concerned historically, that always used to be a fairly good guide as to sort of growth rates going forward. I was just wondering what that currently includes and whether we can still see it as a sort of leading indicator.

So, the deferred income would be related to the leases. And so, we, you know, we take in that income, it gets advertised over the life of the lease in general, lease revenue has been relatively stable. And so, in terms of, you know, sort of the health of business, that is just one indicator. I do not think there is that much to read into where, we sit on this versus previous quarters has been very stable. And yeah, I do not have much to add on that.

Lovely, thank you. And then just as far as sort of, the SDLS are concerned clearly, you have done six this year, which is, you know, really good and a nice step up on previously in terms of sort of remainder of this year. I am not going to ask whether you are going to do another one or not because that would be, you know, if you do, if you don't, you don't great. But would, should we be looking sort of in future years as to be beyond the 3 to 5 that you have historically guided to or, do you see this as a sort of a one-off bumper year as it were?

Yeah. No. Great question, Julie. Obviously, you know, when we think of the 3 to 5, we are comfortable with that, that is a sign of a very healthy company. It is a sign that we are still doing the best scientific for we have the best platform highly differentiated. So that 3 to 5 is what we are comfortable with for the foreseeable future. Obviously, we signed six this year, which is above that five, which is great and a lot of that has to do with also the fact that we have built out, you know, these high violent valued relationships over the years of these companies that happened to be close to all going into the clinic around the same time or preparing to go into clinic around the same time. So that is why we signed six and in a relatively short time period, but 3 to 5 is where I feel very comfortable that shows that we are highly differentiated from the rest of the, of the field. And that is why that 3 to 5 is a number we can stand by, you know, for the foreseeable future Julie.

Excellent. Thank you. Just one quick accounting one. CapEx has been a little bit lower this year. Is that just sort of your ongoing, slightly more moderate approach to spending? And we should expect that to continue.

Well, I think in general, you know, we have demonstrated, you know, that, we are focused on operating expenses, want to make sure that every dollar that, we are putting to work that we believe is, you know, is being used wisely. So, we started the year with that cash expectations. We do not guide operating expenses as you know, but we have been able to increase our estimated cash position at the end of the year through a combination of you know, talk to unexpected payments we got earlier this year is $2 million. We talked about that in a previous call and the balance of it really is just reflects, you know, the discipline spending environment, you know, under you know, that we put in place here under our new CEO.

Lovely. Thank you very much.

Thank you. Julie,

please stand by for our next question.

Our next question comes from the line of Jacob Johnson with Stevens. Your line is open.

Hey, good afternoon, everybody. My here at the end of your comments, pretty deliberately, you talked about leveraging your infrastructure o sell a number of products to Matt's question, it sounds like some of this is going to be kind of internal efforts and organic. But should we think about inorganic and M&A as a way to do that as well? or were those comments designed to kind of suggest kind of a more of a focus on developing more products in house to bolt on to the platform?

Yeah, I think it is a combination of both, but obviously, in the sense of awe, we have so the development of the internal programs themselves are part of our current cost base. What we did, Jacob throughout the year, we removed inefficiencies throughout the organization to make sure that we can begin to work on those organic initiatives that we believe will have a high value impact to our current customers and future customers.

And then we also have a very healthy corporate development group. Now, obviously, the way we think about those other product developments is it needs to be part of our current structure of the company. We have high growth margins. We always want to make sure that is the case. We have a very healthy cash balance sheet we are always going to make sure that is the case. So, whenever we are looking at product development, whether it is organic or inorganic, it is going to be into ensuring that we are increasing our healthy cash balance sheet and really bring us a position where we are doing better in the future than we are now. So, it is a combination of both Jacob and, and really, we built out the team here internally to have that product development capability and have the ability to assess technologies that come and, you know, that can potentially become part of the MaxCyte, DNA as well. So, a combination of both Jacob.

Got it. Thanks for letting me here and then do you guys raised guidance? And no good deed goes unpunished. So, 5% plus core growth for the year, obviously, that's a bit of a wide range with the plus on it. So, you know, like at 5% that would suggest revenues would be down sequentially. Can you just, if, that plays out, why would that be or any other thoughts about how we should be thinking about the fourth quarter?

So, when we raised guidance, one of the things we want to do is make sure that, you know, I think, you know, we were, this is my seventh earnings call, I think with the company and the first few were not that fun because we, we did, you know, walk back guidance. I think this year we took a very disciplined and very, you know, very clear approach to setting this. We want to make sure that when we model out all the scenarios, that we were going to, you know, certainly meet and potentially exceed what we laid out for ourselves. You know, in this case, you know, we have been reluctant to, even though we've had a really good year, it has been consistently good quarter after quarter from, from our seat, we have been pleased and I think we beat expectations and, in many cases, but this, this is a scenario where we do the modeling internally. You know, we come up with something that says, you know, with a very high confidence interval, we feel good about raising guidance, you know, to this amount. We also are mindful that, you know, we do not want to put like, you know, bizarre numbers in there that, you know, you know, provide a range. It does not make sense. You know, we know that we are, you know, we feel very comfortable based on where we are today that we will be more the five. I understand that that math would apply to, to be at that low end of the range would imply maybe we did not have the astronomy quarters as, as others, but we feel really good about how things are coming together. We are only one month into Q. So, I think stay tuned. We just wanted to establish basically about a parameter that we felt comfortable that we were going to meet. And, you know, we could have, we could always pick it apart. I, I get what you are saying, no good deals unpunished. We could always decide whether or not, you know, we set it, you know, precisely at the right amount. But again, the view here is we model out everything that could happen, you know, in the remaining time left in the year and then, you know, come up with a scenario where we feel with it within a certain confidence or well, that it is time to raise guidance and to come up with that with that number is.

Got it. I will leave it there. Thanks for having the questions guys.

That takes a second,

please stand by for our next question.

Our next question comes from the line of Paul Cuddon with Dia numis, your line is open.

Thank you very much. I have got two questions, please. Firstly, just any learnings from the kind of commercial launch of CJ, just on the on the instrument, how it is working in the field on a commercial basis and any processes that could be improved. And then secondly, with some customers moving towards sort of in vivo gene editing. I am wondering if you could just perhaps reflect on some recent data from any other customers on ex vivo gene editing and where you see the advantages there that will use your technology more in the future. Thank you.

Yeah, great questions Paul. So let me address the first one on the commercial launch for Cash JBI. And what we did, we took the last few years before the launch to prepare for it. So we wanted to ensure that we were supporting them from rogatory quality and then also instrumentation perspective to ensure that there were no mishaps. So and obviously that launch has won, has gone impeccable so far. I, I believe we actually have been announced that they are now manufacturing at another, at another manufacturing site which we, we will support as well, obviously. So in terms of improvements, to be H1st with you, not sure there are any many more improvements. I mean, we have had no mishaps on the launch fully supporting there to ensure that our, our not just our instrumentation itself, but also the processing assemblies are produced and manufactured and can meet the ramp up of you know any of any adoption curve for any therapeutic being manufactured on our therapy. And then your second question in terms of, you know, the X people and the NBO, if you look at the complexity of what we are seeing on, in terms of selling gene therapies, how many edits are happening to cells? You are seeing, you are seeing the need for Xvivo editing, even when there is invi delivery. If you look at, even when we talked about and we talked about come out therapeutics as well. You have a case where using Chriss for R&P to knock out the DNA of interest, using our electrication system and they're using an AV six to knock in the DNA of interest. So you are seeing complementary technologies. It is not necessarily Xvivo and vivo, the complexity of engineering. The multiple of engineering steps are lending themselves more and more to Xvivo editing as well. And that is where we really have that highly differentiated support that we provide over 20 plus years of scientific expertise that we developed that really prior to MaxCyte, no one else has expertise. And that is what we feel as though the more they feel it gets more complex and that growth of the cell gene therapy space that we have talked about as it continues to grow, we are positioned perfectly to take advantage of it and really be the premier, you know, Electrication and cell Engineering Company for therapy developers.

Deep that thank you very much.

Absolutely. Thank you, Paul.

Please stand by for our next question.

Our next question comes from the line of Daniel Arias from Stifel Nicolaus and company. Your line is open.

Hi, this is Rohan Daniel Arias. Thanks for the time you got two questions. So, bear with me here on the SPL side. How should we be thinking about the duration period? It takes to sign an SPL agreement. For small, mid and larger sized companies do, the smaller companies typically take a bit longer than the mid to large under the assumption that cash might not be as plentiful to spend, it might take longer to sign up a large player due to the more bureaucratic nature of bigger company. And then secondly, how is the beta customer feedback been so far this year for the VLX platform? Hoping for more color there? Thanks.

Yeah, let me address that, first on the second as well. So, on the first question, really small, medium or large, it is not so much whether it is, you know, there is not much of a difference, it really comes down to showcasing the scientific support that we provide from early research to process development. And then when the right is to enter into the, because they are about to do clinical development work, that is when they are going to negotiate that, that license with us and enter into a license for that future support. So regardless of the size of the company, you are looking anywhere from 12 months to even 18 months of that, of that true partnership early on whether it is a small, medium or large sized company. And obviously this field is a very highly scientific field. So, whether you are a large company or medium size or small size, having that scientific partnership early on is the key for why we are developing, you know, these relationships. So, it is not really tied to the size of the company. And then to your second question on the vox in terms of the early adopters, you know, obviously, as we mentioned, we are still working with early adopters. We, we are not commenting there, you know, other than we will continue to learn from those early adopters that have purchased our VLX, learn how big the field is, learn how we can better support the VOX. But I would not really comment much more on that other than the fact that we are doing it in a very methodical way learning from our early adopters before we can assess further, how best we can capture any future VLX revenue?

Alright, thank you guys.

Thank you.

Please stand by for our next question.

Our next question comes from the line of Matt Hewitt from Craig Hallam. Your line is open.

Yeah, hi, this is actually Matt. Can you guys hear me?

We can hear you now. Hey, Bud.

Oh hey guys. So just I just want to dig in a little bit more on the SPL side. I think you've previously talked that it's 12 to 18 months kind of on average where from the beginning of the conversation as to when you actually sign these contracts, I think, you know, you look at the timing of even this most recent one, it would actually predate possibly the KJE approval last year when you first started talking to them. So, I guess the question is with the approval, I would expect that you would see increased interest in the platform. And if so, you would think that those, you know, conversations that likely started in Q1 and Q2, maybe even here in Q3, you are looking at potentially signing additional SPLS for next year and I realize you're comfortable with the 3 to 5. I am just kind of thinking through this though, that there is a good chance that you could actually see more than that next year, just given the excitement that is built because of that first approval. Am I thinking about that? Right?

It so good question. I mean, that is tough to answer in terms of, you know, just based on the on the heels of cash would be more, you still have to do what we do to sign these S pr right? And to show that scientific support that really no other company can provide. So yes, as I mentioned, we have a healthier pipeline now than we did, you know, 12 months ago, but that that does not just translate into, into people just signing a license with you. You have to show that scientific support show a higher level of efficiency of editing, show a higher level of viability, post electrication. That is still something that does take somewhat of a time, which is that 12 to 18 months, sometimes it is faster. So, you are right, we are seeing that that increased speed a bit. But I think it is too early yet to comment whether more than 3 to 5 would be the case just based on the approval of CASGEVY. That.

Understood. All right, thank you. And then maybe just a modeling question. I realize that the write down impacted gross margins here in the third quarter. But your expectations that those will bounce back to a kind of kind of a normalized, you know, mid to upper 80s here in Q4 or is there, you know, some further write down that that occur or hit in the fourth quarter? Thank you.

Yeah, thanks. You know, we're, we are providing this non-GAAP measure here just to basically part of it is just to make sure that that people understand where the the inventory provisions fit in here. But also, we, you know, we recognize every quarter people are backing out the spl per related revenue which comes in without any additional cost to us and basically calculating this as it is. So, if you do that, you know, we are mid 80s was a little higher last year, I think as we talked about previously, you know, last year there was a lot of manufacturing going on. You brought this facility back online. It also took a little while for us to, you know, really get a sense for where the market was and So there was more production last year and then ultimately was probably, you know, required and that is impacted margins. But, you know, if you, if you look at this, and you strip out some of the, some of the noise here, I think, you know, we are comfortable, we are able to operate the business with very good margins. Not guiding to where they go from here. But we were in the mid 80s when you factor when you make these adjustments and we think that is a reasonable place to think about the business.

Got it. All right. Thank you.

(Operator Instructions)

Our next question comes from the line of Brendan Smith with Cowen Inc. The line is open.

Hey guys, this is Chad Wiatrowski from Brendan. Just in your discussions with prospective spl customers. Are you seeing any trends in terms of cell type or disease area?

Interesting. So you, you are seeing a trend more so now than before. In terms of auto immune diseases, you're seeing many more companies either repurposing or really establishing, you know, certain programs going after autoimmune diseases, which, which is perfectly lends itself to the cell therapy space. That is what we are seeing. And, and obviously, that is shows the sign of health of the cell gene therapy space that for the longest time, you know, the targets were in the oncology space. But now as you are seeing the ability to target many more therapies than initially thought, that is where you are seeing that on space, really start to kind of, you know, transcend itself and become part of the cell gene therapy space. And you are also seeing, you know, companies begin to have in a far more complex way of ensuring that the therapies have more persistence and durability as they are targeting in the oncology space as well. Right. So that is one of the early learning cell therapy spaces is that oftentimes, you know your cell therapy itself was not able to endure. And now you are seeing it is there allowing that durability and that persistence. And that is what we are seeing more so than that than anythingelse.

And I appreciate the stickiness of the customer base and how that is sort of a competitive note. But when you are looking at other competitors, are you able to have customers switch when they're in the clinic? Or is that dynamic true for your competitors as.

Well?

Thanks for the questions.

Yeah. No, it is, yeah, no great question. Actually, it is. So this year we have, we have converted two of our SPLS were, you know, converts from previously in the clinic using a different operation platform that converted to back site. and there is a reason for that when we have a highly differentiated platform that we truly do have, you know, the highest efficiency and the high sell liability post electrication. We truly do have that scientific support, the regulatory support, the quality support that can streamline the process element rather where you can, we can show companies how you can go from early research to clinical scale up and is in a very short time period rather than have to optimize your process and take you 9, 12 or longer to have to optimize from research to the clinic. So that, that is what we are seeing. We are actually seeing the conversions. We saw two of them this year, which I think speaks. It is a testament to what we do, everything we have built and, and really to the strength of our scientific and engineering expertise. We are not just a tools company. We are a cell engineering company that can help companies get into the clinic and really give them the best, the best potential outcome for success.

Thanks.

Absolute.

Thank you.

Ladies and gentlemen, I am showing no further questions in the queue.

I would now like to turn the call back over to my hair massage for closing remarks.

Thank you, operator, and thank you everyone for joining us today. We look forward to speaking to you again in the next earning calls in a few months. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.