Q2 2023 MaxCyte Inc Earnings Call
Thank you for standing by and welcome to Mac Sykes second quarter 'twenty to 'twenty three earnings call. At this time all participants are in a listen only mode. After the speaker presentation.
There will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone to remove yourself from the question queue. Please press star one again.
Now I'd like to hand, the call over to the head of Investor Relations Shawn Menarche. Please go ahead.
Thank you Keith and good afternoon, everyone. My name is Tommy and I'm, the head of Investor Relations.
Thank you all participating in today's conference call on the call from X sight, we have Doug Doerfler, President and Chief Executive Officer, and Douglas J Swirsky, Chief Financial Officer earlier today <unk> released financial results for the second quarter ended June 32023, 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.
It's contained in this call that relate to expectations or predictions of future events results or performance are forward looking statements actual results may differ materially from those expressed or implied in any forward looking statements due to a variety of factors, which are discussed in detail in our SEC filings. The company has no obligation to publicly update any forward looking state.
Whether because of new information future events or otherwise.
Now I'll turn the call over to Doug.
Thank you, Sean and good afternoon, everyone and thank you for joining Mack <unk> second quarter 2020 regarding store.
I will begin with a discussion about business and operational highlights during the quarter followed by a detailed financial review from DJ Our Chief Financial Officer.
We'll then open up the call for questions.
Baxter reported $9 million of revenue in the second quarter as we experienced softness.
Cell therapy industry, the cell therapy industry has prioritized pipeline programs, which is a result of the nominal growth of R&D spending.
Less R&D spending in the industry. We believe has resulted from a challenging macroeconomic environment.
Despite this we are confident that our updated annual outlook for 2023.
Continue to be excited about the health of our long term business.
Our partnership pipeline is robust highlighted by our Fi partnerships. So far this year customer engagement remains high and I remain extremely excited about the opportunities for bags like the platform as the Premier cell engineering technology and support for their growing industry.
You'll note that our second quarter revenues, including our core business revenues were down from the same quarter last year.
As discussed on last quarter's call 2023 has been a challenging year for the industry, which has been impacted by multiple macroeconomic factors, including the challenging capital markets environment.
The biotech industry continues to prioritize pipeline assets, the R&D investment, especially with small development stage cell therapy companies focused on programs in late stage preclinical and early stage clinical trials with this backdrop, we are seeing continued cautiousness.
Capital investments for our customers.
All thing and extended purchasing cycles for instruments and process in the subways.
Our negative growth rate in the first half of 2023 were exacerbated by difficult year over year comparisons, which T. J will discuss in a few minutes.
While some of our customers are narrowing their investments we are encouraged by our clinical SPL partners progress, where we are generally enabling their lead assets. These assets remain our partners active focus for their development investment and progressing through the clinic.
Outside of these evolving trade winds cell therapy industry continues to move briskly toward non viral so engineering approaches with an increased focus on more complex engineered cell therapies.
Including Baltimore interest bearing steps and molecules across.
Gravity itself.
Disease types.
We believe these industry trends play to the strength of the <unk> platform, which has driven the continued high level of engagement.
Current and prospective customers.
Our robust pipeline has led to five SPL partnerships being signed this year, which supports our view of the value derived from our platform.
In July and August , we announced three new SPL partnerships, including awhile in Oklahoma.
<unk> biotherapeutics.
Prime medicine.
Our partnerships with loyal and Vitoria diversify our portfolio into new therapeutic modalities, expanding our exposure to the next generation autologous car Ts.
Previously only allogeneic car Ts and.
In addition, low expands our exposure for solid tumor indications, which opens up a significant commercial revenue opportunity per Mac site.
First generation autologous car Ts, including yes, probably Cobra consist of one engineering suite.
And certainly our transducer the car industry sells with a viral vector.
As the field evolves to expand the applications for cell therapy developers are focusing on more complex approaches with additional edits and unique.
I think tools, which has further accelerated the shift to non viral cell engineering approaches.
<unk> has highlighted the Leila Vitoria partnerships with <unk>.
<unk> continues to advance complex non viral cell engineered techniques in both autologous and allogeneic settings, <unk> is well positioned to address these evolving market trends.
The breadth of our SPL partnership funnel as a result of broad engagement with that could that be.
Clinical translational centers and commercial customers, we have developed new SPL partnerships in both customer segments with Victoria being the recent example of our work with University of Pennsylvania's GMP Translational Center tortillas.
He is working toward commercializing our proprietary cell therapy, three point or technology, which was developed out of the University of Pennsylvania.
Our partnership with Prime Medicine supports their prime editing technology platform, which is a novel next generation gene editing cold targeting repair almost all types of genetic mutations across a broad range of tissues, Oregon and cell types.
Medicine is another example of expanding applications in cell therapy, many of which.
The backside platform is at the forefront of enabling.
Given the evolving operating environment SPL partners of all to narrowing their focus to their lead assets, which they continue to progress through the clinic.
Progression through the clinic of such programs and their positive clinical data Readouts are critical to the current funding environment and have led the capital raises in recent months.
We are also seeing our existing partners pursue new indications, including for example, the expansion of car T applications to autoimmune diseases.
All therapy indications to expand.
Into autoimmune or solid tumors. For example, they also require multiple doses. This is where the performance and scalability of the <unk> platform has a key competitive advantage based on our partner's decisions. We believe it is clear that the <unk> platform is the platform of choice for innovative cell therapy development.
We look forward to the first commercial approval of a product enabled by our platform <unk>.
<unk> and CRISPR spectra cell program.
Earlier this year, the <unk> cell program announced the completion of our rolling BLA submission to the FDA.
For sickle cell disease, and transfusion dependent beta thalassemia.
More recently at the European Hematology Conference vertex presented updated data from the extra sales showing pivotal trial data for beta thalassemia and sickle cell disease, the primary and key secondary endpoints.
Pivotal data was integral to the XFL, receiving <unk> dates for sickle cell and beta thalassemia of December eight 2023, and March 32020 core respectively. This application approval would be the first non viral engineered cell therapy product granted by the FDA and what further validate the utility.
Max Eights platform as the Premier enabler of non viral engineered cell therapies.
Our unique partnerships provide nice site with their medium term and long term revenue potential for <unk> has the opportunity to share the performance of partners programs as those programs reach commercialization.
To provide more context on the scale of our commercial opportunity. We highlighted this perpetual on new slide 15 in our corporate presentation.
As you may be aware, we are approaching the first wave of partnered commercial approvals, which include the potential launch in 2024 of XL and sickle cell disease beta thalassemia.
Followed shortly thereafter by a second commercial wave of seven potential therapies with expected launch potential between 2025 and 2027.
The second wave of therapy spans across blood cancers, including lymphoma, and leukemia solid tumor internet diseases with.
The third commercial way potentially includes eight partnered therapies with a large window between 2028 and 2030.
The commercial revenue opportunity per Mac side, probably from the success of only a portion of these partner programs is substantial and our portfolio of commercial opportunities continues to grow in preclinical development as well with more than 20 preclinical programs currently being developed by our partners.
Additionally, following the signing of five strategic partnerships to date this year the total pre commercial milestone revenue potential.
Has increased by about 30% or $500 million to approximately $2 billion across 23 announced partnerships.
In 2023, we focused on effectively fortifying our position in the market with targeted investments to support our future growth driven by our customers and expanding SPL partner base.
These investments included enhancing our process development capabilities and ongoing product and technology development to best serve the market.
In addition, we continue to make investments in our applications lab, which will enhance our ability to support next generation cell therapy innovators that are pursuing complex cell therapies.
We believe these are the right investments to ensure the long term success with Mac site and support the growth of the cell therapy sector.
Our expert <unk> large scale transfection system launch continues to be focused on working with early access customers.
Find the value proposition for applications.
The potential of the <unk> is across several applications such as transient protein manufacturing and is currently focused on preclinical development and early stage clinical trials.
The key capabilities of the <unk> instrument enabled customers to shorten development timelines and have brought accountability, including workflow integration and flexibility.
We look forward to further engagement with early access customers. So we can provide the market with applications data and a large scale transaction solution to address current bottlenecks in the bio processing market.
In summary, our team members are working through an evolving and challenging operating environment. This year, which will impact the timing of our customers' development programs and capital investments.
However, we are confident in our updated full year outlook and long term strategic goals.
Substantial promise of the cell therapy industry over the long term remains intact and importantly maintain a high degree of confidence in the value our technology provides for the industry.
We're excited by the potential of the SPL partnerships, we've signed in 2023 and the robust pipeline of additional opportunities. We are honored to support our partners and believe we remain the partner of choice for non viral cell engineering technology.
With that I will now turn the call over to D J to discuss our financial results.
Jay.
Thank you Doug Hello, everyone total revenue in the second quarter of 2023 was $9 million compared to $9 6 million in the second quarter of 2022, representing a 6% decline.
In the second quarter.
We reported core revenue of $8 3 million compared to $9 $6 million in the comparable prior year quarter, representing a 14% decline. This includes revenue from cell therapy customers of $6 6 million and revenue from drug discovery customers of $1 7 million, which both declined 14% year over year.
The decline in revenues was the result of the challenging operating environment oftentimes, leading to prioritization of pipeline assets for R&D, causing elongated purchasing cycles from customers in instruments and PFS.
Call that in the first half of last year, the core business at Max site benefited from some pent up purchasing demand as customers return to lab work following Covid policy changes.
In addition to strong revenue growth from a later stage SPL partner approaching commercialization.
We recognized.
Zero point $8 million of SPL program related revenue in the second quarter of 2023.
Our partners continue their progress through the clinic compared to no material SPL program related revenue in the second quarter of 2022.
To provide more color on the core business instrument NPA sales were down 24% for the first half of 2023 compared to the comparable prior year period.
As previously discussed within the challenging funding environment, we are seeing increased cautiousness and capital investments from our customers, resulting in extended purchasing cycles for instruments and PFS.
The lower <unk> utilization as seen in the first half of 2023 was primarily impacted by de prioritized research and development programs at earlier stage customers and lower demand from a later stage program that has progressed to the regulatory filing stage. Excluding this particular partner.
Utilization of our platform by clinical SPL partners remains a bright spot and grew year over year.
Revenues from leased instruments also remains stable with a growth of 2% for the first half of 2023 compared to the prior year period, driven primarily by our SPL partners.
Moving down the P&L gross margin was 85% in the second quarter of 2023 compared to 88% in the second quarter of the prior year margins were negatively influenced by the ramp up of in house manufacturing and related production costs.
Total operating expenses for the second quarter of 2023, or $20 7 million compared to $17 2 million in the second quarter of 2022.
The overall increase in operating expenses was primarily driven by increases in R&D sales and marketing head count and to a lesser extent legal and strategic consulting expenses.
The company continues to invest in commercial sales and marketing operations innovative product development field application scientists.
<unk> manufacturing capabilities as well as business and corporate development to drive long term growth.
We finished the second quarter with combined total cash cash equivalents and short term investments of $216 million and of course no debt.
Moving to our full year 2023 guidance, we are updating our outlook and now expect core revenue for 2023 to be comparable to 2022.
And SPL program related revenue expectations remain unchanged from our previous guidance at approximately $6 million for the year.
Our updated guidance incorporates cautiousness around the challenging macro environment and the timing of purchasing patterns from our customers and partners.
As we have discussed previously the timing of partnership revenue is predicated on our customers clinical and regulatory progress and therefore is fundamentally more difficult to predict than core revenues.
And finally I want to note our strong financial position as we still expect to end this year with approximately $200 million in cash cash equivalents and short term investments and no debt our cash position is a strategic asset for the company as we are funded well into future profitability, allowing us to focus on realizing the long term potential.
Our business model.
Let me close by saying that overall, we are confident in our updated 2023 revenue outlook and we believe that our modest cash burn and debt free balance sheet will support our future plans for profitable growth.
Now I'll turn the call back over to Doug.
Thank you T. J in summary, we are excited about our partnership progress during the first half and are increasingly optimistic about the long term outlook for that site.
The depth of our partnership pipeline.
We are committed to strengthening our opportunity to lead the industry as the Premier cell engineering platform technology.
Pointing to the development of advanced cell based therapeutics for patients who may not otherwise have treatment options.
As always we thank our <unk> team as well as our board suppliers investors partners pace.
And the amazing industry that we have the honor of serving with them.
I will turn the call back over to the operator for the Q&A operator.
Thank you as a reminder to ask a question you will need to press star one one on your telephone again Thats Star one one on your telephone SaaS question to remove yourself from the question queue. You May Press Star one one again, please standby, while we compile the Q&A.
Roster.
Our first question comes from the line of Julie Simmonds Panmure Gordon.
Thank you very much.
Couple of questions. Please firstly, just about the sort of slightly lighter.
<unk> therapy revenues coming through.
I was just wondering how much of that is to do with.
Customers delaying because it sort of financial reasons or do you think there is anything to do with the delays coming through for potentially looking at alternative methods just non viral manufacturing that they could be looking at and is there any competitive angle to it is that causing any sort of pricing issues that could also be closing right now.
Hey, Joel its Doug.
No we're not seeing any major competitive issues there is always some.
People coming in and out of Thermo Fisher.
<unk> drove doing doing their xenon we've had.
We've had.
Im sorry, Alonso with air products. So it comes in and that I think when we look at all the data we look at all the sales reports, it's really based on that.
The belt tightening of the early kind of the early early stage companies product developers Thats where were seeing.
The shortfall, we're still seeing significant strength in the SPL part of our business, but it's these companies that really arent very well funded there.
Typically either just recently receive series of your series B funding.
As you can imagine it's pretty tough out there theyre all tightening their belts.
So Brian glad there's nothing coming through this sort of interfering with your lead to the market and just wondering in terms of timing verses Q3, Q4, probably won't go DJ This one.
Normally there's been a sort of big.
At least as far as Q4 is concerned.
Because companies get towards the end of the year, we're making decisions on these things are you looking for a similar sort of profile. This year or do you think it's going to be more measured throughout given the first half of last year with very strong.
Thank you Julien, we're expecting certainly a heavier Q4 in that space really I'm looking at the book of business and specific opportunities. When we think that the purchases are going to occur. So we do not provide quarterly guidance as you know but.
I would definitely be thinking wait slightly heavier in Q4 versus Q3 based on what we see specifically as well as history here.
Thank you very much.
Thank you.
Thank you please standby for our next question.
Our next question.
Comes from the line of Dan Arias of Stifel.
Good afternoon, guys excuse me thanks for the questions.
Doug one of the details are nuances that seemingly emerge as a part of this belt tightening that youre, referring to has just been this observation that.
Some companies are pulling back and definitely and some are just sort of.
<unk> purchases or extending purchase timelines can you just talk about what youre seeing from your seat when it comes to that.
Product prioritization that Youre talking about and then the follow up question for DJ would be sort of along the lines of the last one which is.
Looking at the back half of the year can you just talk about that confidence that you expressed on the revised outlook.
Flat for the year, but you're down mid teens, so far so maybe a comment on the extent that the order book is informing the back half of <unk> and the visibility that you might have to stepping up to.
Higher gross number thanks, so much.
Thanks, Dan Nice to hear your voice so a couple of things one is.
When we were talking obviously.
Sure.
The softness really is in those companies that are not our partners at this point. They are typically as you know.
Really early kind of early stage preclinical partners.
We're seeing them pulling back.
Pretty substantially across the board and rationalizing their product portfolio. We've had some of these companies racing series, a and series B you've seen you've seen their pipeline.
Charts, they have been dramatically cut over the last I want to say six to 12 months. Unfortunately were seeing layoffs in the field.
And we're seeing restructuring.
We're seeing folks basically abandon certain programs even if they are in late stage preclinical.
We're also seeing most recently announcements by companies that they are taking their assets that looked like they're going to have to invest quite considerably to move through the pivotal and they're talking about.
Trying to partner those off too.
Either big companies or other other ways of gaming.
Guinea revenue getting capital for those so it's across the board I don't think were seeing anything in particular, I think you've covered the waterfront pretty well.
It's all those different things.
In terms of looking at the back half of the year here revenue I think we've got good line of sight into how our revenue model gets put together I think we've already factored in.
All of these headwinds that Doug just mentioned, we've looked at particular pieces of the business and opportunities and we've reflected that in terms of moving those out of our projections for 2024, So I understand that the first half was down and we need a very reasonable second half to get back to level four.
Terms of a year over year comparison, but.
But were reasonably confident in our forecast here with an emphasis on Q4.
I think.
Yeah.
Working hard to make sure we have a reasonable Q3, but I think looking at the back end of year. I think Q4 is where we're going to make the most of the deficit up in terms of reaching.
A comparable level of core revenue for the year versus 2022.
Yeah, Let me, let me add to what DJ saying I think we're also seeing on the commercial side.
A significant increase in the amount of activity going on in the marketplace in the first half of this year, which we really haven't seen until recently people bracket business. We want to go to meetings. They are attending meetings, we're getting really good at.
Tenants of Tradeshows booth traffic.
At a level of leads coming in I think also we've made as you know some investments in sales and marketing over the last let's say six to 12 months.
New salespeople coming into the organization finding their way building their book of business.
I wanted to add that to the confidence that DJ said as well as the activity we're seeing in the commercial marketplace.
Okay I appreciate it guys. Thank you.
Thank you.
Our next question.
Comes from the line of Jacob.
Jacob Johnson of Stephens.
Hey, thanks.
Good afternoon, maybe a question on the.
The recent SPL additions.
Looking at some of these companies they have some decent cash balances seem to have stronger balance sheet. So I'm just curious.
Something youre being more selective about on your end there.
Or does this just happened to be the opportunities that are coming your way right now.
Yes.
I think what we're finding is that we're in.
Spending a lot more time with folks who have more advanced programs, obviously, we as our head of commercial operations as we do a wallet check before we get too far down the path of some of these negotiations. So I think it's a combination but I also wanted to just recognize that some of these deals. We did this year are really kind of pushing you on.
<unk> in terms of the whole.
Field of engineered cell therapies.
Obviously, the lessor prime as an example.
US being at the forefront of this whole area. So.
Maybe that maybe that comes with more and more.
More capital for these companies as we're moving into new more novel ways.
Of treating and potentially carrying some of these diseases.
Okay, Thanks for that Doug and maybe one.
For U D J.
On kind of Opex.
And managing expenses in this environment.
Obviously kind of a lighter revenue outlook.
Start of the year.
I'm trying to manage opex, a little bit more in this environment customers are.
100%.
Although we are moderating our revenue guidance, we are still maintaining our goal here.
During the year with $200 million in cash and equivalents and stricter investments. So we are mindful of operating expenses. They did grow year over year for the second quarter, but I think.
That growth is slowing and we're going to continue to work hard to make sure that.
We treat the cash that we have as a strategic asset and we're going to protect that by being mindful of our spending the same time, we still really believe in the long term viability of this industry that we're supporting and our business model and so.
Perhaps we'll be mindful on the G&A side, but in terms of investing in R&D and in sales and marketing I think those are items that we need to continue to invest in because again, we want to fully take advantage of the opportunity in front of us.
Got it makes sense, thanks for taking the questions.
Thank you.
Thank you.
Our next question.
Comes from the line of Matt Larew of William Blair.
Hi, This is actually modeling moment on for Matt.
I just wanted to ask about gross margin I know it ticked down a little bit this year year over year and you said that was from increased costs from moving into the next study and things like that I'm. Just wondering how much of the gross margin is tied to the lower revenue volume versus how much is tied to ramping up the new facility and additional costs.
The absolute bulk of that relates to a decline in margins related to ramping up manufacturing in the facility.
Great. Thank you and then how do you anticipate that to the cadence of gross margin over the back half of the year.
I think gross margins can be heavily dependent obviously on product mix and we also are.
Anxiously awaiting some additional.
Milestone revenue, which comes at no additional cost to us. So I think the overall gross margin as can be heavily influenced by the achievement of those milestones in terms of operating margins on the <unk>, we would expect those too.
Yes.
Get higher over time, as we sort of worked through getting the facility up and running which investing in automation and things like that.
Great. Thank you.
Thank you.
Our next question.
It comes from the line of Mark Massaro upbeat AIG.
Well Dan on for Mark Thanks for taking the question.
How long does the outlook of three to four per year there.
Looking beyond the core revenue guide is there any impact tiara STL visibility of funnel.
I think you talked about the dynamic in the past that Sps generally lead therapeutic candidates.
So I'm also wondering if you could maybe comment on how many programs under the SPRI active will come up.
Brian .
Thanks.
We're.
Could you really part of the question.
So on the SPL revenues are asking.
Which of the Sps, we signed which of those relationships are around lead asset is that the question.
Their leadership.
Yeah, just broadly I was just asking if there's any impact.
The guidance does not include <unk>.
You bet.
<unk> got about.
And the cadence of signing data per year.
And in terms of yes.
Yes, absolutely and we also.
Mick.
Let's see we talked about.
But what I will talk about that later, yes. So yes, no I think that the majority of these programs are their lead asset theyre working with.
And these are tough tough company. So we're quite excited about the prospects and the prospects for this year and next year.
Okay perfect.
Okay.
Yes.
It's difficult to.
Kind of quantify the contribution from your first.
Partner approval, but.
Obviously, a key topic key upcoming event here, but I think a part of the year and it may be model of mid single digits.
Millstone payment.
And thinking about a low to mid single digit royalty rate in the out years.
But we'd be in the right ballpark there.
So we've always said low to mid single digits would be the the percentage of the topline of the partner. So when you model that I think that would be the more appropriate number low to mid.
For the total and that would include royalties.
Instrument leases and single use disposable revenue.
Okay perfect. Thank you for taking my question.
Thank you.
Thank you again to ask a question. Please press star one on your telephone again star one one on your telephone to ask a question.
Our next question comes from the line.
Steven Ma.
D Cohen.
Okay, great guys. Thanks for taking the questions.
Lot of ground covered already.
So just some follow up questions a follow up question on the guide.
<unk>.
Given that the.
The SPL revenue was maintained at $6 million.
What gives you guys some confidence on that given the macro softness and longer sales cycles that you guys have mentioned.
If you think is the question is how confident we werent in the $6 million.
Guide that we're maintaining sure.
Downtown.
Yes, that's right.
Okay.
Very confident in that number.
We've modeled out and risk adjusted that and come up with the three scenarios and we feel pretty good about that but you can imagine that there is a particular approval that we have our eyes on and that would heavily influence the achievement of that or not.
Also we can add to that these companies that we're working with the SPL partners.
Generally they are all pretty well financed.
And again, we're working with their first or second asset, which is where they're prioritizing their investment right. Now so we're not seeing them backing off on those.
Yeah.
Okay, Great and then a follow up question on the gross margin on the Ppas that were impacted based on the.
The in house manufacturing.
Im assuming thats due to the scale that you are just amortizing the fixed costs over a smaller number of products.
That's the case when should we start to see the gross Matt gross margin impact on the in house manufacturing normalizing. Thank you.
Again, I don't think we have a timetable I think it is influenced by volume and I think we would expect that number to trail off.
We can't give you specifics I mean, when we start cross back into historical margins I think bringing manufacturing in house.
Some of these ppas did it for a lot of reasons and some of which is related to costs, but a lot of it's related to other items, such as theyre controlling our own destiny and being able to support our.
Partners in particular.
Thank you at this time I'd like to turn the call back over to Doug Doerfler for closing remarks, Sir.
Okay, well. Thank you all for participating and thank you operator, and thanks, everyone for joining our earnings call today, and we look forward to providing an update on the third quarter. Later this year. Thank you very much.
This concludes today's conference call. Thank you for participating you may now disconnect.
Goodbye.
Okay.
[music].
Okay.
Okay.
Yes.
[music].
Okay.