MaxCyte Inc. Q1 2023 Earnings Call

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Good day and thank you for standing by. Welcome to the Maxite First Quarter Earnings Conference call. At this time, all participants are on a listen only mode. After the speakers presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised.

To withdraw your question, please press star 1 1 again. Please be advised today's conference being recorded.

I would not like to turn the concerto your speaker today. So I'm an ergot, please go ahead.

Good afternoon, everyone. My name is Sean Minaris and I'm the head of investor relations here at Maxide. Thank you all for participating in today's conference call. On the call from Maxide, the end of Doug Dorfler, President and Chief Executive Officer, and Doug Luxorski, Chief Financial Officer. Earlier today, back there released financial results.

for the first quarter and in March 31, 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 are comments made during this call made before looking statement within the meeting of federal securities laws. Any statements contained in this call that relates to expectations?

or prediction the future events, results, or performance are forward-looking statements. Actual results made different materially from those expressors applied in any forward-looking statements due to a variety of factors which are discussed in detail in our SEC violence. The company undertakes no obligation to publicly update any forward-looking statements.

whether because new information, future events or otherwise. Now at that, I'll turn the call over to Doug. Thank you Sean. Good afternoon everyone and thank you for joining Max Fight's first quarter 2023 earnings call.

I will begin with a discussion about business and operational highlights during the quarter. Followed by a detailed financial review from Douglas Horskey, known as DJ at Maxite, a recently appointed CFO . We will then open the call for questions.

I would like to start off by extending a warm welcome to DJ who joined Maxxite's leadership team as our chief financial officer in March. He is a seasoned financial leader with over two decades of experience in the healthcare sector. He brings financial strategic and operational expertise.

across multiple life science companies, including NASDAQ listed public organizations.

We look forward to the pivotal role he will play a max life continue growth as an industry leading So engineering company

I also thank Ron Holtz, who served as our interim CFO for the past year, as well as Max Knight CFO from 2005 to September 2020 for his dedication and contributions to the Max Knight. Ron is supporting DJ's transition to CFO as he moves into a new role as EVP of administration for the company.

Next, I began 2023 with the first quarter financial results we're in line with our expectations. Although given some of the challenges in the self-therapy industry that I will discuss, we have determined that it is appropriate to lower our revenue expectations for the remainder of the year. DJ will talk more about this in his results.

So engineering technology for the industry, enabling the development of a growing set of advanced cell-based therapeutics, and I am confident with our team's ability to deliver against our long-term strategic plan.

You'll note that our first quarter revenues, including our core business revenues, are down from the same quarter last year. As discussed on last quarter's call, we are expecting a return to more typical seasonality in our financial performance in 2023 than we had in 2022. It's important to note that in the first half of 2022,

Laboratories came back in near full capacity following COVID-19 related disruptions, which resulted in elevated spending on instruments and PAs in that six-month period, and has created a more difficult year-over-year comparison for the first half of 2023.

With regard to PA purchasing among customers with advanced clinical programs, we believe some purchases were accelerated in the 2022 in anticipation of potential product approvals, which is resulting in lower levels of PA purchases in 2023.

Outside of our core business, we generated $800,000 in milestone revenue during the first quarter. Our partners continue to make progress in their development programs with several progressing into and through clinical development over the course of the year.

As discussed on last quarter's call, 2023 shows signs of being a challenging year for the industry.

development, which is having some impact on timing a project in 2023, especially for smaller cell therapy biotech companies with late-stage pre-clinical and early-stage clinical programs.

We also have seen numerous restructuring and expense cutting measures being undertaking itself every company's and recent months, including several such announcements coming within our customer base.

the investments from our customers.

We felt the impact of that macro environment impacting the timing of instruments and PA purchases as 2023 has progressed, increasing the caution we discussed in March and as DJ will describe in more detail.

Despite those evolving headwinds, in the near-term, are opportunity pipeline remains healthy, and our confidence in the value-or-offerings remain strong for the longer term.

Cell therapy companies continue to move toward non-viral approaches and or focus and invest in more complex engineered cell therapies including multiple molecules and editing formats across a variety of disease types that play to the strengths of our platform.

Our customers are narrowing and focusing their investments, but we do not see weakness in our core clinical SPL partners as they continue to focus development on their lead aspects. As a reminder, most of Maxxite's partner programs are tied to the partners lead and or second clinical program asset, where investment is continuing and progress through the clinic remains well-funded.

Importantly, even in this challenging year-term environment,

partnerships so far in 2023 and we anticipate continuing momentum toward announcing more of this year.

In January , we announced a partnership with Cadmium Bio to support its CAR NK Self-Appier programs to treat a variety of solid tumor types.

to partnership with walking fish therapeutics to support its innovative B-cell platform. The partnership with walking fish further expands our SBL program portfolio into B-cells and rare diseases.

Additionally, this partnership expands the application of the Maxlite platform as walking fish is developing an innovative B-cell platform to serve as indeed low protein factories that produce the efficient enzyme and fabricate disease.

The addition to Tamarion Bayon walking fist therapy to bring the total number of our partnerships to 20 and with continued high level of engagement with potential partners, we remain confident in Maxight's position as a partner of choice to sell in gene innovators. We look forward to a potentially first commercially approved product.

enabled by a platform. Vertex and CRISPR's exocel program, which recently announced completion of the rolling well, myologic license and application, BLA to the U.S. Food and Drug Administration for Cycle Cell Disease and Trius Fusion Dependent Beta Thelousemia with Request for Priority Review. This application approval would be the first non-viral engineered cell therapy product to the U.S. Food and Drug Administration.

tax-like platform technology as the premier enabler of non-viral cell therapies.

So far in 2023, we continue to position ourselves strongly with targeted investments to support our future growth, as well as our customers and partners' success.

We are focusing on growing our commercial teams, implementing automation and our recently expanded manufacturing capabilities, enhancing our process development capabilities, and ongoing product and technology development.

In addition, we continue to make investments in our applications lab, which will enhance our ability to support next-generation self-therapy innovators. We believe these are the right investments to ensure long-term success for max-fight and the self-therapy sector. Late last year, we took key steps to formalize our approach to environmental, social, and governance disloyal.

Earlier this week we issued our inaugural ESG report, which can be found on our Investor Relations website. In this report, we highlight our ongoing efforts in all areas of ESG, including our value for patient initiative, launched in 2021, which establishes our efforts to better understand

The differential challenges that discrete patient population face. In the time since launching this initiative, we are developing an understanding of the potential social, racial, economic, and bioethical challenges relating to developing gene and cell therapies. We have taken these findings.

and partnered with key opinion leaders, proactively participate in efforts that support the novel treatments we enable as they move toward reaching the patients who need them the most.

We are pleased to share this first ESG report with our shareholders and to share our commitment to understanding, managing and monitoring our businesses' support for sustainability and responsibilities as a corporate citizen and our role in creating value for patient communities more broadly.

In summary, we expect a more challenging operating environment in 2023, which will impact the timing of our customers development programs and capital investments.

However, we see these developments as short-term in the therapeutic space with great promise over the long term. Importantly, we continue to have confidence in the value our enablement provides to our industry and in the strength of our SPL partnerships and pipeline opportunities, which remains as robust as ever.

We have made critical strategic investments positioning maxi to execute on long-term goals. We are honored to support our partners and believe we remain the partner of choice for non-viral snow engineering technology to support critical programs to development commercialization. The snow and gene therapy industry is in the early innings of the significant

I'm very excited to join the Maxide team. I appreciate the opportunity to support our mission for having the next generation of cell-based therapies. During my short time with the company, I've continued to be impressed by the quality of our team at all levels in the organization. It is an honor to work with all of them as we support our partners that they develop innovative therapies for patients who need...

in the first quarter we reported core revenue of 7.8 million compared to 9.6 million in the comparable prior year quarter, representing a 19 percent decline.

This includes revenue from self-interviewed companies of 6 million, which declined 19% year over year, and revenue from drug discovery customers of 1.8 million, which declined 17% year over year.

The year over your decrease in revenues were driven by an unusually strong first half of 2022, which did not see our typical seedinality and was strongly impacted by the purchasing patterns of late-stage pre-approval programs and laboratories time back to near full capacity following COVID-19 related disruptions.

As discussed on last quarter's call, we expect about 40 percent of 2023 core revenue to occur in the first half of this year, consistent with our historical experience outside of last year's less typical seasonality. We recognize 0.8 million of SPL program-related revenue in the first quarter of 2020.

Moving down the P&L, gross margin was 88% in the first quarter of 2023 compared to 91% in the first quarter of the prior year. Margins were influenced by highly variable milestone revenues as well as a mix of products and customer types and we saw those effects in the first quarter.

Total operating expenses for the first quarter of 2023 were 20.8 million compared to 14.7 million in the first quarter of 2022. The overall increase in operating expenses was primarily driven by increases in R&D, sales and marketing, headcount, and strategic consulting expenses.

As the company continues to invest in the expansion of commercial sales and marketing, as well as in business, and corporate development, and innovation, and product offerings for long-term growth.

We finished the first quarter with combined total cash and cash equivalent and short-term investments of 224.7 million as of March 31st, 2023 and of course no debt. Moving to our updated full year 2023 guidance, we now expect total revenue for 2023 to grow between 8-12%.

from our customers and partners which Doug discussed.

As we have discussed previously, the timing of partnership revenue is predicated on our customer's clinical and regulatory progress and therefore is fundamentally more difficult to predict than core revenues.

Our program-related revenue expectation is a risk-adjusted forecast, achievable under various potential outcomes across our 20 announced partnerships, and their planned clinical progress.

As I mentioned, we continue to expect a back half weighted seasonality split of roughly 40 to 60 percent, first half and second half core remnis in 2023, which would be consistent with our historical experience before 2022.

And finally, I want to note our strong financial position as we expect to end this year with approximately $200 million in cash-cached, equivalent and short-term investments. And no debt. Our cash position allows us to focus on realizing the long-term potential of our business model.

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

Thank you, DJ D. Jording. In summary, we're optimistic about the long-term outlook of Max Lane in the depth of our partnership pipeline.

We're committed to strengthening our opportunity to lead the industry as the premier son engineering platform technology, support the development of advanced cell-based therapeutics for patients who may not otherwise have treatment options. As always, we thank our MaxxX team, as well as our board suppliers, investors, partners, and the amazing industry that we have the honor of serving

time, please press star 11 on your telephone. If your question has been answered, you are seeing with yourself from the queue, please press star 11 again. It will pause for a moment while we compile our Q&A roster. Our first question comes from Julie Simmons with pen, we're going to your line is open.

Thank you. Good evening. And just a couple of quick questions on the split between cell therapy and drug discovery and whether there is any difference in the guidance as far as sort of the effects of this load and on the two separate divisions. Actually, one's more capital and one's more recurring in its revenue.

So we take a look at our revenue expectations across the entire business and developed our projection based on that. I think some of these sectors are going to be, some of the sub-secures are hit more than others. Obviously, we're very comfortable with what's happening with our SPL partners. People are focused very heavily on their late stage programs and it is.

capitals can strain the little bit within the industry. People are focusing on the product one or product two in the pipeline. So I think in terms of how we thought about this reduction in guidance, it does result looking at the business across all of our opportunities and I hesitate to break it down further.

Thank you. And then just on sort of the the co-sider thing, the fact you're taking down the top line does that change the investment plans at all in terms of the scale up of sales and marketing or R&D or are you expecting that to continue a similar rate as one rate as now? So we said last time that we thought we'd have $200 million at the end of the year.

Excellent. Thank you very much.

One moment for our next question. Our next question comes from Dan Harris with Steve Hill. Your line is open.

Thanks for the questions. Doug or DJ on the outlook here, can you just maybe clarify for us how much of what you're doing is due to lower instrument purchase expectations versus lower utilizations of the installed systems? Just holding on a little bit more.

And then, you know, how much of what you're doing is also due to sort of an explicit forecast from your customers or what you're hearing from your customers versus more of just an assumption that things will be tough and naturally more prudent outlook on the space just giving the industry headwinds that we're talking about.

But I think it's a combination of factors. We're very close to our customers and potential customers with our sales team and our field applications team. So a lot of this is direct feedback that's sort of factoring into our thinking in terms of where we see this again. We're not going to break this out.

in terms of where we see the softest in the markets. We feel very good about the book of business in front of us, and we're optimistic about executing as the goals we set for ourselves, but again, we're not going to break it out in fine detail in terms of instrument sales versus PA's and things like that. In terms of, you know, our people, you know, where we have installed.

Okay, I don't, I'm not trying to beat a dead horse. I think most people can understand that the placement dynamic and why instruments going out the door might be doing so at a lower clip. But by our math, the utilization came way, way in this quarter.

And you have a business that is hard for people to sort of dig into and understand just given the nature of it. So is there anything that you can offer us when it comes to the usage of the systems by those that have them that give you comfort that this is a temporary thing and that maybe there is something going on in one corner that's not going on in the other corner because again.

through the clinic and toward commercialization. We're not seeing any weakness in that part of the business, frankly. That continues to be very, very strong for us both in placements and in utilization.

I also want to point out that first off Q1 was sort of inconsistent with banquets expectations. We do recognize that year over year this quarter doesn't, it isn't as growing as last year's Q1, but I think there was a lot of things that went into that, you know, people coming back again.

after COVID-related disruptions, you know, people, you know, laboratories sort of getting back out ordering and things like that. So this is a little bit of a drop from first quarter of last year, but I met our expectations and we don't really believe that there's any real read-through for the rest of the year beyond what we're guiding here now.

Okay, thank you. One moment for our next question. Our next question comes from Jacob Johnson with Stevens.

Hey, good afternoon. This is Hannah on for Jacob. Thanks for taking the questions. In your investor presentation, you highlighted the potential for 50 total SPL pre-commercial milestone events over the next three years. How many of these are 2023 events? And.

or are these more weighted towards 2025? I think that's a three year total, Hannah. I think when we talked at the last quarterly meeting, we guided towards $6 million in milestone revenues, and we're still sticking by that.

We've built that plan from really the bottom up. We've looked at a number of different scenarios and we feel really comfortable with that $6 million number. Thanks, I'll leave it there.

We built that plan from really the bottom up. We've looked at a number of different scenarios and we feel really comfortable with that $6 million number. Thanks, I'll leave it there. One moment for our next question.

Our next question comes from Steven Moll with TD Cowen. You're long. Justangem...

Oh great, thanks for taking the questions. Maybe just to dig in a little bit more on the guide revision, and I'm not sure if you guys disclosed this or not, but could you give us a sense for the customer breakdown that you have? You know, how, you know, just rough and tough, you know, how many are small or emerging biotechs versus medium-sized.

versus large pharma and if you can't give that breakdown, on the guide revision, you mentioned it was impacted by customer feedback. Was that customer feedback across the board, across your whole customer base, or was it weighted to one particular demographic?

So as I did mention, we're very strong in the SPL partners, Steve, thanks for the question. What we're hearing, so we have a pretty, well for a small company, we have a pretty good number of people in the field, field application scientists and sales people who are in the field every day.

And so reading that feedback from them collectively, we're monitoring this, you know, basically on a daily basis. We're looking at macro numbers, and frankly, I think we may be seeing some stuff that haven't yet showed up in some of the macro numbers. So I still think that there's kind of a cross the board, some belt tightening. I think that you're seeing a situation where...

You know, larger dollar amounts capital items are getting a little bit more scrutinized. In some cases, we're seeing companies establish higher levels of authority to approve certain capital purchases. So I think that the dwell time, the cycle time is being a little bit elongated as well. Just basically across the board.

Okay, that's helpful and I can sneak one last question in. I appreciate you guys are guiding to your $200 million of cash at year end, but given that cash, the capital markets outlook and generally reduce valuations, how should we think about your M&A appetite and...

And could you have a sense of what an ideal target would be for you guys? Would it be like a technology bolt-on or...

any color would be helpful. Yeah, it's very active. We have a lot of sensing going on right now in the marketplace. We've identified a handful of opportunities for the company. As I mentioned before, these aren't going to be, I'll call them commodity bolt-ons, they're going to be more identified. We've identified a handful of problems. I've talked about

process analytic technologies. I talked about some other adjacent technologies to our platform, which we think would be very attractive for adding into the portfolio. But again, it's going to be driven by issues facing the industry and I think that we continue to believe that those issues are product characterization.

the ability to adequately identify product potency. Those are two main areas that we're taking a hard look at. Anything we can do to accelerate the manufacturing time and provide more consistent manufacture for these self-therapy drugs.

Great. Thank you.

Great. Thank you. One moment for our next question.

Our next question comes from Matt LaRue with William Blair. Your line is off. Hi. This is Ashley Madeline Moulton on for Matt. Just thinking about some of the pressures you've talked about with longer capital equipment purchase cycles, more approvals needed, things like that. Are you seeing the discussion of some of your clients moving into SPSS?

something that's really important for these companies to move forward. We've just signed two deals this year already and we expect to keep the pace we've historically had, which is somewhere between three and five deals. So we're not seeing any major slowdown of those deals. Typically these companies are driving toward...

value generating events and moving something to the clinic is clearly a value generating event in this in this environment. Great, thank you. And then sort of piggybacking off of that, thinking about your rock cell facility, can you talk about where you see utilization trending this year? And I know in the past you said it has the ability to support multiple commercial products when fully scaled. What would you consider like a utilization level that would be considered fully scaled?

Good question. So what we have told, what we have talked about is that we built out our manufacturing here and I don't think we really have a capacity in terms of instrument manufacturing and we've also dramatically increased our manufacturing.

for disposables. We also are making, continue to make major investments in automation. Automation will translate into more flexibility and more capacity. So, you know, we're monitoring our partners' progress. We're marketing their potential commercial success. And we're staying well ahead of that and frankly we can make those automation.

investments well ahead of the demands of the partners. So we feel very comfortable how the capacity to support all of our SPL partners as they move in the commercialization.

well ahead of the demands of the partners. So we feel very comfortable, we have the capacity to support all of our SPL partners as they move into commercialization. Great, thank you.

One moment for our next question. Our next question comes from Mark Massara with BTIG. Your line is open.

Hi, guys. This is Vivian on Thomas. Thanks for taking the questions. So maybe one for DJ. I guess I was curious on the decision to keep the SPL revenue guidance at 6 million. I would have thought that that revenue would tend to be a little more lumpy as opposed to the core business. So

regarding milestone revenues to remain unchanged and six million for the year. And the way we think about that is we've got 20 SPLs, we're modeling out multiple scenarios that helps us generate a number that we can get comfortable with. I can assure you it's probably not a normal distribution curve. We're just looking at it in many different ways how we make what the year could look like. And when we do that, the number...

the number will hopefully center around 6 million so that we look smart, but I think it's probably not going to be that number exactly.

Okay, perfect understood. And then just a quick 1. how should we think about gross margin? Cadence from here. Just getting the step down in the guide. I think I also heard you talk about more targeted investments. So. Just any comments you have there. So, just as a reminder in terms of how the gross margin is determined, you know, we've got.

You know, different things, different types of revenue, one of which is milestone revenue. So the lumpiness and that also sort of contributes to the lumpiness or the fluctuations of the milestone revenues, what the mix of instruments, etc. But we feel very good about it, more margins. We've got margins in the high 80s.

and we think it's going to continue to be at that level.

All right, awesome. Thanks for taking the question. Thank you.

Ladies and gentlemen, this concludes the Q&A portion of today's conference. I'd like to turn the call back over to Doug for any closing remarks.

Well, thanks, operator. And thanks everyone for joining today's call. And, you know, this is our first quarter 2023 earnings call. And I'd like to thank DJ for joining the team and supporting the great work we're doing and look forward to providing an update on the second quarter later this year. So thank you all very much. Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.