Q2 2022 MaxCyte Inc Earnings Call
The conference will be.
Okay.
Good day, and thank you for standing by and welcome to <unk> second quarter 2022 earnings conference call. At this time all participants are in 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 will need to press star one.
One on your telephone please be advised that today's conference is being recorded I would now like to hand, the conference over to rich.
And today, Sean Monarchists director of Investor Relations. Please go ahead.
Thank you Donna and good afternoon, everyone. My name is <unk> and I'm the director of Investor Relations here at that site. Thank you all for participating in today's conference call on the call from that site, we have Doug Doerfler, President and Chief Executive Officer.
And Ron holds interim Chief Financial Officer earlier today, <unk> released financial results for the second quarter ended June 32022, 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 meeting of federal Securities laws.
Statements contained in this call that relate to expectations or predictions of future events results or.
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.
<unk> undertakes 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.
Well, thank you Sean and good afternoon, everyone and thank you for joining Mack <unk> second quarter earnings call I will begin with a discussion of our business and operational highlights during the quarter followed by a detailed financial review from run along with an update on our revenue outlook for the year.
We'll then open the call for questions.
I am very pleased with our start to 2022 as our team continued to deliver on our financial and strategic objectives in our plan.
<unk> expert platform and team continues to be the Premier So engineering technology and partner.
Labeling the development of a growing set of advanced cell based therapeutics with additional resources at hand, we continue to invest in our people and capabilities at a measured but healthy rate as we seek to take advantage of the growing markets and support our customers and partners growth.
Ron will provide more details later in the call, but I'd note that we generated very strong second quarter 2022 results that was outlined in the press release this morning.
We continue to build traction and saw steady growth in our core business, which was up 45% year over year led by revenue from cell therapy customers, which increased 61% year over year, while revenue from drug discovery customers increased 4%.
Cell therapy revenue growth was driven by significant increases in both instrument NPA sales, we're seeing expansion of our global customer base across all stages of development and are encouraged by our traction with a cell therapy customers in early development stages, which continues to strengthen our robust pre SPL partnership pipeline.
Our partnership pipeline is the strongest it's ever been and spans across a wide array of cell types approaches.
And indications.
We did not recognize any SPL program related revenue during the second quarter and we remain excited about the progress our partners have been making as they progress through their clinical programs, including into pivotal studies.
We are also hopeful regarding the potential for some of our partners therapeutics to reach commercialization over the next 12 months to 24 months with others, reaching that stage thereafter, which we believe will generate meaningful and growing revenue to us.
In addition, we continue to sign new strategic platform partners I do want to note that due to the confidentiality of our partnership agreements, we will not be able to answer any specific questions related to SPL partners their clinical progress or their respective development programs.
A few weeks ago, we signed an SPL with LG Chem Koreas largest chemical company in a globally diversified petrochemical advanced materials and biotechnology company.
We are excited to partner and support their car T programs for solid tumors.
This represents our first SPL with a south Korean company and broadens our reach in Asia.
With this most recent agreement we now have 17, SPL partnerships covering more than 95 development programs in the aggregate that's based on the calculations.
We talked about in January of 2022 of which more than 15% of enter the clinic.
We remain optimistic regarding the potential to add additional SPL partnerships. This year, the comparable economics to prior partnerships.
We maintain strong relationships with our partners and customers and believe the combination of Max eights expert platform.
The support of our team is a core aspect of their therapeutic development strategy.
Our partners are well funded and leaders in the cell therapy industry developing a wide ranging set of innovative gene editing approaches are.
Our platform continues to lead the industry in transfection efficiency cell viability, and scalability, which are critical capabilities to the development of cell based therapeutics and <unk>.
Combined with our unparalleled scientific support is the core of what brings customers to our platform.
A key element of our work. This year is the ongoing investment we are making to support our future revenue growth.
These investments include expanding our commercial teams.
Spanning in house manufacturing.
Enhancing our applications in process development capabilities and ongoing product development as well as reinforcing our business infrastructure. All of these investments are essential to supporting our customers and partners success in driving continued revenue growth.
This summer we are completing our move to new headquarters facility nearby in Maryland.
A key part of our headquarters project is the expansion of our instrument and disposable manufacturing capacity from research and clinical to get scale to now commercial therapeutic scale.
Building out in house manufacturing is expected to increase our manufacturing capacity.
Build redundant disposable manufacturing capability and enhance our control over our supply chain.
These developments are critical to supporting our SPL partners as their programs advance.
In addition, we continue to see exciting growth in our end markets, particularly in novel cell types.
Gene editing applications, our ongoing investments in our applications and process development labs will keep us at the forefront of these changes where we play a central role, enabling innovation and cell therapy as the field advances.
Additionally, the PD lab is building out the platform and processes needed to support the use of it.
The <unk> platform.
<unk> bio processing, including the production of monoclonal antibodies.
We also are investing in our sales marketing and field applications team to further our ability to capitalize on growing markets.
Finally, we are making the necessary investments in our business infrastructure.
Information systems quality systems regulatory legal finance and accounting to support the growth of the company. These.
These investments will advance our ability to support expanding markets engaged successfully with emerging therapeutic development programs in companies and support our partners as they move towards commercial launch of therapeutic products. We remain confident in the value of these investments through our partners.
And that they will continue to deliver strong growth.
As we make these investments important to note that remain well funded with modest cash burn and a strong balance sheet as we move toward profitability in.
In summary, we had an excellent second quarter of 2022, we remain excited about our opportunity going forward, especially in the cell therapy market as we continue to execute on our financial and strategic goals and make the right investments to drive growth across our business.
I will now turn the call over to Ron to discuss our financial results Brian .
Thank you Doug Hello, everyone.
As Doug mentioned, we reported total revenue of $9 6 million in the second quarter compared to $7 1 million in the prior year's quarter driven by strong performance in our core business.
Core business revenue was $9 6 million in the second quarter of 2022 compared to $6 6 million. In 2021. This includes revenue from cell therapy customers are $7 7 million, which grew 61% year over year, while revenue from drug discovery customers was $1 9 million up 4% year over year.
The increases were primarily driven by strong instrument and disposable sales growth in cell therapy.
We did not recognize any material SPL program related revenue in the second quarter of 2022 as compared to a half a million dollars of program related revenue in the second quarter of 2021.
Moving down the P&L gross margin was 88% in the quarter versus 89% in the second quarter of the year prior.
Total operating expenses for the second quarter of 2022 were $17 2 million compared to $10 7 million in the second quarter of 2021.
Overall increase in operating expenses was primarily driven by increased staff and field sales in science manufacturing lab teams that support customers and partners growth the.
The increase also included growth in public company related stock based compensation and marketing expenses compared with the same period a year ago.
Furthermore, we have a very healthy balance sheet with combined total cash cash equivalents and short term investments of $249 million as of the end of the second quarter and no debt as communicated last quarter total investments. This year in our new headquarters is expected to be approximately $12 million in 2022.
Based on the growth year to date and our robust pipeline, we are raising our revenue outlook for 2022.
We remain cautiously optimistic about the balance of 2022, and now expect revenue from our core business, which includes sales and leases of instruments and sales of disposables cabela's cell therapy, and drug discovery customers to grow approximately 30% compared to 2021 core business revenue.
Turning to our SPL program economics, as we've discussed previously the timing of SPL revenues is predicated in our customers' clinical and regulatory progress and therefore is fundamentally more difficult to predict and core revenues, which we manage directly based on that more limited visibility we continue to expect 2022.
Milestone revenue of approximately $4 million.
Lastly, we believe that our modest cash burn and debt free balance sheet will support our future plans for profitable growth. We expect to end this year with approximately $220 million in cash cash equivalents and short term investments now.
Now I'll turn it back over to Doug.
Well. Thank you Ron So in summary, we remain optimistic about the opportunity to lead the industry forward as the premier. So it was very platform technology.
Supporting the development of advanced cell based therapeutics for patients who may not otherwise have treatment options we.
We're very pleased to report strong second quarter results and raised our full year revenue outlook. We're.
We're excited about the opportunities ahead and as always we want to take this opportunity to thank our team.
The board suppliers investors partners and the amazing industry that we have the honor of serving.
Thank you.
For any questions.
Thank you.
As a reminder to ask a question you will need to press star one on your telephone.
Please standby, while we compile the Q&A roster.
One moment for our first question.
Okay.
Our first question comes from Max Masucci with Cowen Your line is open.
Hi, Thanks for taking the questions.
First one related to the core cell therapy business another strong beat in the segment.
It would be great to understand how much of that strong growth.
The core cell therapy business, both on the instrument placements and processing assembly side of things how much of that growth is being driven by SPL partners versus customers that you haven't signed STL agreement side, Brian you want to take that one thanks, Thanks, Max Yes sure. So.
The SPL customers on the cell therapy side tend to be larger customers and so.
More of the growth comes from them than from smaller customers or new customers, where they are typically buying one instrument.
A single instrument.
Yes.
Alright.
Lease.
So.
It's.
I don't have the proportion in my head, but it's certain.
The larger.
Portion is coming from SPL customers.
Okay great.
And then secondly can you.
Is there a way for us to better understand maybe even qualitatively, yes just.
How licensing fees have evolved as a contributor to revenues and growth and maybe compare it.
So at the time, the NASDAQ IPO in recent quarters.
Yes, so I don't think that there has been a lot of movement in that proportion.
<unk>.
The mix is kind of recurring revenue. So you have instruments that are licensed and those are those grow and because of their recurring as long as the instruments are in place.
As a strong base for growth with processing assemblies tend to be repeating and also by consistent proportionate revenues.
And I don't I'm, just looking at it today I don't think I think there has been much in the way of the shift in the past even few years really.
Okay got it maybe final one.
Yes, several match site engineered therapies.
Changes of clinical development, all with aspirations of yes.
Regulatory approval and launch.
And then for I'd say at bio manufacturing conferences, there seems to be an emphasis on companies preparing for commercialization logistics and scale up a bit earlier than say a few years ago. So just a broad question is that what you're.
<unk>.
On your end.
If so.
Is there anything that.
You need to do at Max site startup and our prepare yourself operationally for that next wave.
That will be coming over the next call it three to four years.
Let me, let me take that makes it so it's a great question sure precisely what we've been.
We're investing in the last year or so.
We talked about moving into our new facility.
The basis for that move is to substantially expand our manufacturing operation and to become more basic.
The manufacturing of <unk>.
Processing assemblies.
So we want to build up a lot of capability. It also give US you also will see some increase in inventory and Thats a result of us.
Again, becoming more basic building out our supply chain, so that we can support.
To support our customers as they move.
The late stage clinical development into the launch phase.
As you can imagine there is a lot of.
Speculation about what those numbers look like but we want to make sure that we're in a position where we can support.
So most of our customers at every level.
They need so specific a lot of time thinking about that.
Also investing in regulatory field support.
These are typically thinking about global launches or at least.
<unk>.
U S losses.
And also build together.
<unk>.
Operating group as it relates to two <unk>.
Quality group and making sure we have all.
All the all the processes built in there.
Redundancy to support audits by our customers. So there's a lot of work I think it's fair to say back so thats our number one priority right now is preparing it for our partners losses.
Great well I appreciate all the detail and congrats on another great quarter. Thanks.
Yes.
Thank you.
One moment for next question please.
And our next question comes from Julie Simmonds Panmure. Your line is open.
Thank you.
Excellent quarter, guys well done.
Just looking at the split between cell therapy, and the drug discovery side of things. So all therapy, obviously going amazingly well drug discovery slightly lower in terms of take rate is there anything particular behind that.
Can you just sort of an internal refocusing of where the sales team the focus because I know they do both now or is there something else going on underlying in the market, we should be thinking about well hi, Julian thanks for staying up late in London I know it's late there.
The drug discovery market for us is a smaller revenue compared to the cell therapy market. So naturally there youre going to see some lumpiness in the growth rates from quarter to quarter.
That being said we.
Posted double digit growth.
Okay.
Do we lose that.
Ladies and gentlemen, please standby.
Yeah.
Again, ladies and gentlemen, we're experiencing technical.
Difficulties please standby.
Yes.
Okay.
Yes.
Yeah.
Yeah.
Yeah.
Okay.
And thank you Doug you may resume.
Hi, sorry, I'm, not sure where I cut off here.
But my Internet completely went down I'm sorry, Julie.
Got it.
Okay, sorry about that.
So the drug discovery business is a smaller business in cell therapy, just from a revenue perspective, and so I think youre going to see some we're experiencing some lumpiness from quarter to quarter.
That said if you look at the first half of 2022.
The growth rate was around 13% or maybe 15%.
It is a bit higher than the Hudson until that point I think our growth rate.
The mid single digits. So I think you are seeing any increase in the <unk>.
We released the <unk> and the drug discovery area, So were pretty were quite.
Excited about that launch which will happen.
We would anticipate again than women's with Alex launch.
Kick back you think about being in my next question.
Hey, Julien a formal launch of MPLX will be sometime this year.
So you know.
<unk> into the market and again at the beginning of this year and we're going to put it out formally at the appropriate conference.
That's something that's in our planning.
Can we just havent announced today.
I'm, sorry, I'm, just trying to move between three different computers and sorry about this.
Hello.
And as far as Jim just one final question just as far as cost.
Okay any of that continuing to ramp which is what we'd expect.
We are doing.
Are you expecting by the fourth quarter EBITDA on sort of which that are more sort of stable.
Stable and generally growing run rate then the step ups we're seeing.
When do you think by that point, you're hoping.
Okay place.
Place that took the lateral length et cetera.
Ongoing costs at that point.
Julia.
I missed a piece of that when you are asking about the operating growth step up in the same quarter, yes, okay. So that makes sense.
It's <unk>.
Actually it's sort of an ordinary pattern for us to have a bigger step up in R&D.
Quarter on quarter and operating expenses, when we get to the second quarter as people are <unk>.
Starting the hiring process early in the year, which takes a little while to get going and then putting the people in place which is most of the expense growth.
<unk>.
As they go into the second quarter and those expense growth rates tend to moderate in the second half of the year. So we won't see the kind of step up we saw from Q1 to Q2 there'll be I'm not completely flat, but quite a bit flatter than what we saw in the first half of the year.
This has been a big investment year for us is as Doug talked about in the.
Initial comments.
And we would expect that as we go through future years that that expense growth year over year with moderate from the big step up that we took here as we did a lot of important in vascular medicine.
I've talked about in house manufacturing and the exclusivity.
Expanding the team on a broader basis.
Thank you very much.
Thanks Sterling.
Thank you.
One moment for our next question please.
Okay.
And our next question comes from Dan <unk> with Stifel. Your line is now open.
Afternoon, guys. Thanks for the questions, Doug Ron maybe to Ron's point on the growth skewed towards the SPL programs.
When we were talking last year, you noted that the average number of platforms per strategic partner was I believe three or four.
So assuming that there are some one or twos in the mix and that would also mean.
There may be or something like five or six years. So my question is one is that is that sort of the installed base range within the SPL subset and then I'm. Just curious if there is a pull through difference per instruments within that subset.
Kind of speaks to sort of the consumables runway per unit.
Might expect as these partners progress or does the pull through of per unit basically stay the same they just have more.
Yes, let me take a crack at that Ron you can follow up.
Alright, thanks for the question.
We're trying to think through with our partners right now I don't think theres enough and actually have a meaningful.
Expectation of how many placements. These these.
Customers are going to need these partners a lot has to do with the indication they are pursuing their manufacturing strategy.
Their launch strategy in which countries the regulatory strategies all of that has to be built in each of these is an individual most snowflake.
So I really can't we don't know where we are with some of these customers in terms of this.
Are we just beginning to see a surge in placements or is this kind of steady state. So we're watching that very closely that said we're prepared for.
A surge if we.
If that's the case.
So.
And what we're also seeing as pull through.
I think it's.
We had we had suspected that some of the pull through it would go down as partners move further into the clinic, but.
But I think what we're seeing is there are a number of these partners are actually doing quite a bit of non clinical work in parallel to the clinical work.
So we're really not seeing a reduction in.
And pull through when they move late stage clinical they are actually increasing that because theyre doing additional research work to substantiate there.
CMC in their controls hopefully thats helpful.
Yes. It is but can I just just for clarification is that total pull through as they accumulate more instruments or pull through per instrument such that as we think about these customers moving forward there their utilization of one instrument is higher and so therefore, maybe more revenue generating.
Dan I understand the question I don't think we have enough data yet to say okay.
Okay. So that's the point yeah.
I gotcha, Okay, maybe just a follow up.
On the telecom it yes, I just wanted to add one other thing Dan one of the things that also drives the number of instruments per SPL partner.
Number of programs that ran through the clinic.
I think their revenues.
The pulsar as Doug talked about as hard tab.
Sure.
Summarize.
You tend to see a balance between where revenues are coming from instruments from our revenue is coming from milestone from processing Assembly and they tend to grow together.
But if youre thinking about the number of instruments. Okay helpful. It varies a lot for program, but the number of programs drives that how many instruments you might see for customers. So a customer with one program. Its a small number of instruments and a customer thats now has two programs or three or four and then five in the clinic.
In the clinical stage is really driving their instrument counts.
Yes, definitely makes sense and maybe relatedly just as a follow up.
Doug obviously, a lot going on in Biopharma and selling their cell therapy, specifically one of the assumptions that underpin. Your long term model was that you would average three new npls per year.
Is that an assumption of an assumption that you are more or less still comfortable with when you look out say the next like three to five years. Yes. We are very comfortable I mean, I think we've done two already this year. So we're very comfortable with that expectation.
And we're building an organization around that.
Okay Super Thank you guys. Thanks, Dan.
Thank you.
One moment for our next question.
Yes.
Yes.
And our next question comes from Matt <unk> with William Blair. Your line is now open.
Hi, This is Max on for Matt Thanks for taking my questions.
Just wanted to start off with a high level question around Sunday, and obviously, there's been a lot of attention paid to that slowdown we've seen year to date and then just wanted to get your thoughts and see if you've seen any sort of impact from the slowdown in biotech funding observed year to date, Doug I think maybe in the past you mentioned a little bit of pipeline rationalization expect at some point in the future, but I'm just wondering.
How things have trended so far since the end of this quarter and whether or not you're seeing a slowdown in activity. So far here in the back half of the year.
Yes, it's obviously something we're paying a lot of attention to and thinking through and communicating not only with our partners, but with other capital sources to make sure that we see this on a longer term basis.
That said, we're really not seeing a pullback in the cell therapy side of the business evidenced by our second.
Second quarter and first half loss numbers.
And I think we've mentioned before that.
So is it safe harbor.
So theyre leader number two asset and Thats.
If they're going to tighten their belts are not going to do it.
In later stages of all of them, but theyre going to probably do it we'll find out in the research side. So we're really not seeing that as an impact to us, but we're watching it we're also seeing quite a bit of.
New capital formation, new companies that are being launched.
With more complex cellular therapies.
As their basis their base asset, which really portends well for backside because that's what we that's.
Now wheelhouse in terms of doing these more complex cell therapies.
Got it that's very helpful. Thanks, Doug.
For my second one I wanted to follow up on Julie's first question around the outlets are the different segments. So you're guiding to 30% growth now for the base business for the year. Just wondering if you can provide any detail around how to think about growth in the back half of the year for each segment I apologize if I missed this earlier when youre cutting out a little bit, but and then moving forward in prior to 2023.
I mean, you pointed to 25% growth in the base business long term just trying to get your initial thoughts on whether or not you think that's a reasonable read.
<unk> bar for next year.
Your thoughts on how to think about the growth rates for each segment beyond 2022.
Brian you want to take that first of all I'll jump in.
Yes.
Hi, Doug.
<unk> said, if we dial back a little bit from a single quarter drug discovery. We think is growing nicely. It's been growing double digits in the first half of this year. That's an increase from where we were in Covid, which had pretty drug discovery pretty hard and I think that kind of expectation on globally consistent grower capable of doing double jet.
That's a reasonable way.
We don't see much change in that trajectory on the cell therapy, either maybe quarter on quarter.
A particular quarter and it'll be lumpy.
Some way.
Insistent with what you've seen in the past and to deliver the kind of growth that we've been doing in the past 18 months.
Okay got it.
On <unk> just a quick one so you've talked about rapid production monoclonal antibodies being abroad Tam expansion opportunity for you but.
How realistic should we think of this being given it would require the FDA to waive its requirement for Matt to be produced from the Master cell line and are there any other applications that youre thinking about in the near term that could lead to some DLA revenue here either in the back half of the year or in 2022.
Yes, so the uptake the eventual large opportunity and monoclonal production would be when FDA clears the.
Use of transit materials, right and I think that's the big opportunity, but there's also a significant opportunity before that that is larger volumes of <unk>.
Monoclonal antibodies to do later stage preclinical work.
Many of that work is being done with stable cell like produce material, which can take anywhere from months to years to produce so we're going to see some uptake.
Can't really talk too much about the use case that that'll that'll happen when we launched the product and we mentioned we'll launch it in the second half of this year.
So the other applications are behind it would be the production hubs.
Allogeneic cell lines, which I think is going to be.
A large opportunity, but that's going to come.
More a.
A bit longer longer term.
Near term would be the production of Bartleby.
Viral vectors and suspension cells versus the current process of manufacturing them adherent cells, so that would be more than that.
The next major area will be will be.
Putting applications information into the marketplace to produce those products.
Got it thank you thanks.
Thank you.
One moment for our next question please.
And our next question comes from Jacob Johnson with Stephens. Your line is now open.
Hey, Ken on for Jacob Good afternoon, a couple of questions.
You signed your first STL in APAC with LG and it seems like you've had traction in this area are there any updated thoughts on traction internationally, especially as it relates to apex.
Yes.
So.
So we're just right after we closed the second.
Second quarter LG Chem is a.
Pretty large biotech group that they go for well over half a billion dollars invested in biotech now.
We've had a we've had a standing.
Group of relationships in.
As we do in Japan and China.
The challenge for US is really around the licensing model and does that work in those environments.
We've been cautious about entering in a big way the China market for a lot of there are a lot of different reasons.
But we are beginning to make more investments to secure license deals in that market.
So it's up it's part of our our.
Our strategy for the next couple of years again, there's a huge opportunity we think in that marketplace, but I think we have to be really thoughtful about how we enter it how we protect our.
Our franchise and how to ensure we worked with the right partners that can they can provide us kind of a long term value that we're seeing with our existing 17 partners.
Thanks, and one follow up as we think about the cell and gene therapy pipeline at a high level. It seems like interest in gene editing and allogeneic therapies continues to grow.
You think about your customer conversations now versus a year or two ago are you seeing more opportunities at the macro level.
Yes, absolutely.
We started talking about this when we went public about a year ago about the.
The burgeoning if you will increase in electronic cell therapies, and that's really that really has.
Some of the fruition and now.
Companies are.
Moving away from autologous one when they can because the opportunities we think are larger and ela generic.
When you move into allogeneic non viral becomes a very important part of that of that engineering.
Our strategy.
And also multiple edits, which which really falls into.
Light sweet spot so.
One of our one of our key.
One of our key themes when we went public about a year ago was the increase in the attention and electronic cell therapies, and I think we're extraordinarily well positioned in that space and that's turning out to be.
In the area of increasing interest.
By companies and increasing interest by investors. So we're quite quite excited about some of the new programs, we are seeing coming out of that in that area.
Thanks, I'll leave it there.
Thank you.
Thank you as a reminder, ladies and gentlemen that star one wanted to ask a question.
And at this time Im currently showing no further questions I would now like to hand, the conference back over to Mr. Doerfler for any closing remarks, well. Thank you very much and thank you all for your participation today and your engagement and certainly these questions and we look forward to speaking to.
Many of you in the near term and again, thank you for support.
And look forward to again.
Updating.
<unk> the market in the third quarter, but we will also be taking.
Individual meetings.
Couple of weeks with investors and analysts so thank you very much appreciate it.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
Yes.
Okay.
The conference will begin shortly.
As Johan during Q&A, you can dial star one one.
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