Q3 2024 MaxCyte Inc Earnings Call
Hello and welcome to Max Fake 3rd Quarter Earnings Conference Call. At this time, all participants are in listen only mode.
Apples and Speakers Presentation, there will be a question and answer session. To ask the question and do in the session, you will need to press star, one one on your telephone. You would then hear automated message, advising your hand is raised. To withdraw your question, please press star, one one again.
Speaker Change: I would now like to hand the conference over to Scott Feinberg of Investor Relations.
You may be good.
Scott Finder: Good afternoon everyone. My name is Scott Finder and I'm responsible for Revestor Relations here at MaxLay. Thank you for participating in today's conference call. Joining me on the call from MaxLay, we have my Hermitza, President and Chief Executive Officer and Doug Swirsky, Chief Financial Officer.
Earlier today, Max site released financial results for third quarter and is September 30, 2024.
A copy of the press release is available on the company's website.
Scott Finder: Before we begin, I need to read the following statement.
Statements are comments made during this call may be forward-looking statements within the meaning of federal security 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 FTC violence.
Scott Finder: Excesses 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 my heart.
Speaker Change: Thank you Scott, and after and everyone, and thanks for joining Maside's Third Corps of 2024 earnings call. Masoud for a 8.9-year-old revenue in a third quarter, primarily comprised of core revenue, which exceeded our internal expectations.
Speaker Change: 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. They were signed this year, including one sign in a third quarter, a new record number of SPL sign in the city of New York, the company.
Speaker Change: We have increased our expectations for Coral Revue Growth in 2024. Doerfler, Comments and Underline Business Transwisting of the Last Three Quoters.
Speaker Change: The core business for Max Fythe and Third Corps have performed very well, particularly in cell therapy.
Speaker Change: Our instrument install base grew 739 as a September 30th, and the instrument gravity was 1.8 million. As our sales team executed, well against our pipeline opportunities in the third quarter.
Speaker Change: Theoer instrument revenue continues to be impacted by continued customer caution on capital equipment spending. We replace with our stable instrument results and a return to you over your growth in quarter.
Speaker Change: Pay a revenue is very strong, 3.4 million in the quarter, growing 54% of your over year and else to the country. Driven by Bob Bays customer development.
Speaker Change: Our PA revenue 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.
Speaker Change: The funding environment remains large and unchanged from last quarter at a stable state.
Speaker Change: However, through this third quarter, we are very encouraged by stability and growth in our core business, which underscores our consistent execution throughout the year.
Speaker Change: Overall, cell and gene therapy market trends continue to build well for MaxCite's platform.
Speaker Change: We continue to see growth in activity in non-viral cell therapies and cell therapy developers moving towards more complex therapies that require multiple engineering steps.
Speaker Change: Furthermore, our scientific expertise in the space allows us to support customers utilizing electroporation with other transfection modalities, such as with viral transduction, as evidenced by some of our SPL partners such as B-BioPharma and Kamau Therapeutics.
Speaker Change: We remain extremely optimistic about the future of cell and gene therapy and MaxCite's long-term opportunities.
Speaker Change: 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.
Speaker Change: Our SPL pipeline continues to be robust, and we've executed well in the opportunities in our pipeline this year, resulting in six new SPLs signed in 2024 thus far, including most recently signed come-out therapeutics in September.
Speaker Change: 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 hospitalization platform, the execution of our global teams, and the sizable opportunity in cell and gene therapy that continues to strengthen.
Speaker Change: Our most recently signed SPL Kamau Therapeutics is a clinical stage stem cell therapy gene correction company utilizing targeted gene integration to develop cell therapies that can potentially cure a variety of life-threatening diseases, including sickle cell disease.
Speaker Change: We are excited that MaxTite School of Operations Technology has the potential to enable them to optimize their clinical manufacturing process and progress their lead asset through the clinic.
Speaker Change: The addition of Kamau Therapeutics brings our total number of signed SPLs to 29. We continue to pride ourselves on our ability to maintain long-lasting relationships with our customers and provide them with the regulatory, scientific, and technical support required for them to succeed.
Speaker Change: In the quarter, we received a small amount of SPL program-related revenue from commercial royalty revenue related to cash severity following completion of patient dosing.
Speaker Change: We are excited about the strong commercial opportunity of Vertex's FBA-approved cash jockey, as we are seeing that Vertex is just beginning to recognize revenue.
Speaker Change: During their Q3 earnings call on Monday.
Speaker Change: Vertex reports that the first patient was officially dosed in Q3.
Speaker Change: and around 40 patients completed cell collection, up from approximately 20, as noted on their Q2 call. Vertex indicates that CASH-chevy has been enthusiastically received by patients, physicians, and policy makers, and the launch is gathering momentum across all regions.
Speaker Change: 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 cash-related commercial milestone revenue from our 2024 revenue guidance. We plan to provide you with updates as they come from Virtex.
Speaker Change: We remain very optimistic of the potential of Caschevi 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.
Speaker Change: which could be approved as early as 2026 or 2027, all of which will provide us commercial milestone revenue if approved.
Speaker Change: For the remainder of 2024, we plan to continue to invest in areas of high growth, which include sales and marketing, best-in-class customer support, and product development.
Speaker Change: As part of the strengthening of our commercial infrastructure, we are pleased to have announced the promotion of Ali Soleimanizadeh, former Executive Vice President of Buyer Processing, the Chief Commercial Officer at Maxline.
Speaker Change: Ali will lead our commercial operations to increase adoption of the expert platforms, support our customers, and expand the company's market in cell gene therapy.
Speaker Change: We also continue to invest in complementary technologies for our customers and recently hired a head of engineering, Jeremy Kollenbrander, who has more than 25 years of cell and gene therapy product development experience to best understand our customers' workflow needs and improvements.
Speaker Change: Maxar remains very disciplined with spend. We carefully evaluate our portfolio of opportunities for investment and remain focused on allocating resources to high-value projects that we believe will deliver long-term growth.
Speaker Change: This year we established discipline processes across organizations.
Speaker Change: This was done for a few reasons, to allow us to have the capabilities to launch and commercialize products our customers need and to help us expand our customer base, all while maintaining our healthy cash balance sheet.
Speaker Change: With our healthy cash 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.
Speaker Change: Similar to the operational and management changes we implemented, recently we announced the appointment of Cynthia Collins to MaxSite's Board of Directors.
Speaker Change: 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.
Speaker Change: Cynthia has over 40 years of experience in the biotechnology industry.
Speaker Change: including her recent role as CEO of Editas Medicine and prior role as CEO of Human Longevity.
Speaker Change: Her expertise and leadership in cell and gene therapy are unparalleled, and I am excited to work with her to help cell therapy developers bring a new class of therapies to market over the coming years.
Speaker Change: In summary, we are pleased with our third quarter results and the strong progress that we have made so far this year.
Speaker Change: Maxite 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.
Speaker Change: The differentiated support that MaxCite brings to our customers is truly unparalleled. From regulatory know-how to scientific and technical support on programs, we believe that we are and will continue to remain the stealth engineering platform of choice in the industry.
Speaker Change: Before I close and turn the call over to Doug, I want to take a little time to explain Maxite's future growth, what we have implemented this year, and my vision of our company's future.
Speaker Change: I joined MagSci over seven years ago, but we're still trying to figure out how to monetize our best-in-class, highly differentiated, cell engineering platform for non-viral delivery.
Speaker Change: Over the last seven plus years, we became one of the only companies in the cell and gene therapy space.
Speaker Change: With an enabling technology which garners clinical and commercial recurring revenue and have signed 29 SPLs with significant future revenue potential.
Speaker Change: Since I took over as CEO to start the year, we have bolstered 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.
Speaker Change: 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.
Speaker Change: With these changes we've made significant progress towards our goals of launching new products in the foreseeable future while we continue to sustain our healthy cash balance sheet.
Speaker Change: I remain as confident today as the first Agilent Max site that we will continue to help drive the industry forward and be a leader with best-in-class product offerings.
Speaker Change: With that, I will now turn the call over to Doug to discuss our financial results. Doug.
Doug Swirsky: Thank you, Maher.
Doug Swirsky: 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%.
Doug Swirsky: We reported core revenue of $8.1 million compared to $6.6 million in the comparable prior year quarter, representing an increase of 23 percent.
Doug Swirsky: Within poor revenue, interest rate revenue was $1.8 million compared to $1.7 million in the third quarter of 2023.
Doug Swirsky: 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 and quarter.
Speaker Change: 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 SPL partners.
Doug Swirsky: PA Revenue demonstrated strong growth in both year over year and sequential performance which we were pleased to see.
Doug Swirsky: 53% of core revenue in the third quarter was contributed by SPL customers demonstrating our continued balance of early stage to clinical stage customers.
Doug Swirsky: Moving down the P&L, gross margin was 76% in the third quarter of 2024, compared to 90% in the third quarter of 2023.
Doug Swirsky: 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 our PAs.
Doug Swirsky: 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.
Doug Swirsky: 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.
Speaker Change: We recently hired a new head of engineering to spearhead our new product design and development efforts. As Maher 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.
Speaker Change: Total operating expenses for the third quarter of 2024 were $20.3 million, compared to $21.2 million in the third quarter of 2023.
Speaker Change: The decrease in operating expenses was driven by operational and process changes made this year, which Maher referenced. Going forward, the company continues to be disciplined, making moderate and targeted investments in high-growth areas that offer long-term returns.
Speaker Change: We finished the third quarter with combined total cash and cash equivalents and investments of $196.6 million and no debt.
Speaker Change: We are increasing our expectations for year-end cash, equivalents and investments and now expect to end the year with $185 million.
Speaker Change: Continuing with our full year 2024 revenue guidance, we are increasing our core revenue guidance and reiterating our SPL program-related revenue outlook.
Speaker Change: We are increasing our core revenue expectations to be at least 5% growth compared to 2023.
Speaker Change: We also continue to expect SPL program-related revenue of approximately $6 million in 2024, which represents no additional milestone payments this year.
Speaker Change: 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 Cascade.
Speaker Change: To close, MaxCite 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'll turn the call back over to Maher.
Maher: 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 MaxCite 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?
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, as a reminder to ask a question, please press star 1-1 on your telephone.
Speaker Change: And then wait for your name to be announced.
Maher: To withdraw your question, please press star 11 again.
Speaker Change: Our first question comes from the line of Matt LaRue with William Blair. Your line is open.
Matt LaRue: Good afternoon.
Matt LaRue: Wanted to focus on TAs in the quarter, obviously up.
Speaker Change: about 50% year-over-year up sequentially.
Speaker Change: Your number is quite yet.
Speaker Change: What was your sort of assessment of what drove the strength beyond your expectations in the quarter and how does both that outperformance as well as the continued funding environment shape the way you're thinking about the fourth quarter versus the third quarter and then sort of into next year?
Speaker Change: Thanks. Thanks for the question, Matt.
Speaker Change: So, you know, we've always talked about
Speaker Change: PA is a sort of leading.
Speaker Change: instrument sales in terms of being able to see that there's been some recovery here. So we're very pleased to see PAs have been strong really all year. So we do think that there are some signs out there that the market is improving.
Speaker Change: I think that really is a lot of it. Clearly, you'll note there's a slight uptick versus, you know, on a year-over-year basis on how much of our core revenue was from SPL partners. So clearly the maturity of some programs is helping drive PA sales to some extent. But in terms of sort of driving our output for the year, you know, we've raised guidance.
Speaker Change: for 2024 to reflect the fact 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're a month into the fourth quarter and we feel really good about the position we're in versus the revised expectations we just set.
Speaker Change: Okay, and then just on the.
Speaker Change: The write down he took related inventory and product development.
Speaker Change: You know, I think over the last couple of years, obviously, you've made nice progress as your as your partners have advanced kind of the core business as well as SPL, but sort of look at VLX development. And then this development, I think two things that
Speaker Change: Maybe you would have liked to see a different outcome.
Speaker Change: Just as you, 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 paths you take, you know, to either improve the technology or broaden out some of the capabilities?
Speaker Change: Yeah, no, great question, Matt. And that's, that's the reason why we hired an engineer, Jeremy Columbar, as I mentioned.
Speaker Change: Obviously, you know, we're not giving guidance as to what those improvements are that we're bringing, but we've built capabilities within the organization that will allow us to understand those high customer impact needs.
Speaker Change: and build workflows around those needs and ensure that we're doing it in a very smart and efficient manner where we're obviously going to do what we believe has the highest impact or revenue for the company before we actually take on those initiatives.
Speaker Change: And as you mentioned, you talked about the one-time write-off and the VLS. The processes that we've built in this year, in addition to the management team as well, and really removing inefficiencies across the organization, help prevent us from having those type of one-time write-offs and really work on those customer workflows that we believe has the highest revenue potential for the company over the foreseeable future.
Speaker Change: Okay, and then just one quick accounting cleanup, that $24,000-ish of
Speaker Change: Revenue related to Cast Chevy, the level of granularity you're able to maybe just provide us how the the rubric works here because I guess I hadn't anticipated we'd see anything in the quarter.
Speaker Change: Thanks, Matt. I guess I'll take that one. We have, we didn't necessarily expect it this quarter either, but obviously they've dosed a patient. We did recognize some revenue associated with that. We have a process where we interface with our partners.
Speaker Change: Douglas Doerfler, Erik Abdow, Maher Masoud, Sean Menarguez, Douglas Doerfler, Unknown
Speaker Change: income, but you clearly can represent that the majority of it is related to that. They're just getting started. And again, we've got a process to make sure that we're getting data from our customer that allows us to, you know, appropriately recognize revenue. And, you know, that's just getting started.
Speaker Change: Okay, thanks very much.
Speaker Change: Thank you.
Speaker Change: Please stand by for our next question.
Speaker Change: Our next question comes from the line of Julie Simmons with Panmure Librium. Your line is open.
Julie Simmons: Thank you. Congratulations on beginning to see a turn in the process as far as cell therapy is concerned. It's 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.
Speaker Change: So deferred income would be related to the leases.
Speaker Change: And so we take in that income. It gets amortized over the life of the lease. In general, lease revenue has been relatively stable. And so in terms of sort of the health of business, that's just one indicator. I don't think there's that much to read into where we sit on this versus previous quarters. It's been very stable. And yeah, I don't have much to add on that.
Speaker Change: Lovely, thank you. And then just as far as sort of the SDLs are concerned, clearly you've done six this year, which is really good and a nice step up on previously. In terms of sort of
Speaker Change: Remainder of this year, I'm not going to ask whether you're going to do another one or not, because that would be, you know, if you do, you do it. If you don't, you don't. Great. But should we be looking sort of in future years as to be on the three to five that you've historically guided to? Or do you see this as a sort of
Speaker Change: a one-off bumper year as it were.
Speaker Change: Yeah, no, great question, Julie. Obviously, you know, when we think of the three to five, we're comfortable with that. That's a sign of a very healthy company. It's a sign that we're still doing the best scientific support. We have the best platform, highly differentiated. So that three to five
Speaker Change: is what we're comfortable with for the foreseeable future. Obviously, we signed six this year, which is above that five, which is great.
Speaker Change: A lot of that has to do with also the fact that we've built out
Speaker Change: these high valued relationships over the years of these companies that happen to be close to all going into the clinic around the same time or preparing to go into the clinic around the same time. So that's why we signed six.
Speaker Change: in a relatively short time period. But three to five is where I feel very comfortable that that shows that we're highly differentiated from the rest of the field. And that's why that three to five is a number we can stand by for the foreseeable future, Julie.
Speaker Change: 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?
Speaker Change: Well, I think in general, you know, we've demonstrated, you know, that we're focused on
Speaker Change: Operating expenses, want to make sure that every dollar that we're putting to work that we believe is being used wisely. So we started the year with
Speaker Change: with that cash expectation. We don't guide operating expenses, as you know, but we've been able to increase
Speaker Change: Our estimated cash position at the end of the year through a combination of 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 perplexing.
Speaker Change: You know, the discipline spending environment, you know, under, you know, the stuff that we put in place here under our new CEO.
Speaker Change: Lovely. Thank you very much.
Speaker Change: Thank you.
Speaker Change: Please stand by for our next question.
Speaker Change: Our next question comes from the line of Jacob Johnson with Stevens. Your line is open.
Jacob Johnson: Hey, good afternoon, everybody. Maher, at the end of your comments, pretty deliberately, you talk about leveraging your infrastructure to sell a number of products.
Jacob Johnson: 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 are those comments designed to kind of suggest kind of more of a focus on developing more products in-house to bolt onto the platform?
Speaker Change: I think it's a combination of both, but obviously in the sense of.
Speaker Change: We have
Speaker Change: So the development of the internal programs themselves are part of our current cost basis. 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.
Speaker Change: 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
Speaker Change: Current structure of the company we have high growth margins we always want to make sure that's the case.
Speaker Change: We have a very healthy cash balance sheet, we're always going to make sure that's the case.
Speaker Change: So whenever we're looking at a product development, whether it's organic or inorganic, it's going to be into ensuring that we are increasing our healthy cash balance sheet and really put us in a position where we're doing better in the future than we are now.
Speaker Change: So it's a combination of both, Jacob, and really we've 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 MaxCite DNA as well. So a combination of both, Jacob.
Jacob Johnson: Got it. Thanks for that, Maher. And then.
Jacob Johnson: Doug, you guys raised guidance.
Jacob Johnson: 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, 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?
Speaker Change: So when we raise 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 Ervingsville, I think, with the company, and the first few weren't that fun, because 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,
Jacob Johnson: 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 had been reluctant, even though we've had a really good year, it's been consistently good quarter after good quarter from our seat, we've been pleased and
Speaker Change: I think we beat expectations in many cases, but this is 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 don't wanna put like, you know, bizarre numbers in there that, you know.
Speaker Change: Doug Swirsky, Erik Abdow, Maher Masoud, Sean Menarguez, Douglas Doerfler, Unknown Executive
Speaker Change: and you know, we could have probably, we can always pick it apart. I get what you're saying, no good deal is unpunished. We can 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 that's left in the year, and then, you know, come up with a scenario where we feel within a certain confidence interval that it's time to raise guidance and to come up with what that number is.
Speaker Change: Got it. I'll leave it there. Thanks for the questions, guys.
Speaker Change: Thank you, Jacob.
Speaker Change: Please stand by for our next question.
Speaker Change: Our next question comes from the line of Paul Cutting with Dutra Numis. Your line is open.
Paul Cutting: Thank you very much. I've got two questions, please. Firstly, just any learnings from the kind of commercial launch of Cachevi just on the on the instrument, how it's working in the field on a commercial basis and any processes that could be improved.
Speaker Change: And then secondly, with some customers moving towards sort of in vivo gene editing, I'm 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.
Speaker Change: Yeah, great questions, Paul. So let me draw the first one on the commercial launch for Cachevian. What we did, we took the last few years before the launch to prepare for it. So we wanted to ensure that we were
Speaker Change: supporting them from regulatory quality and then also instrumentation perspective to ensure that there were no mishaps. So, and obviously that launch has gone impeccable so far. I believe Vertex even announced that they are now manufacturing at another manufacturing site, which we will support as well, obviously.
Speaker Change: So, in terms of improvements.
Speaker Change: To be honest with you, I'm not sure there are any many more improvements. I mean, we've had no mishaps on the launch, fully supporting there to ensure that our not just our instrumentation itself, but also the processing assemblies are produced and manufactured and can meet the ramp up of, you know, of any of any adoption curve for any therapeutic being manufactured on our therapy.
Speaker Change: And then your second question in terms of, you know, the ex-people in the in vivo.
Speaker Change: If you look at the complexity of what we're seeing in terms of cell gene therapies, how many edits are happening to cells,
Speaker Change: You're seeing the need for ex vivo editing even when there is in vivo delivery. If you look at even when we talked about, and we talked about come out therapeutics as well, you have a case where you're using CRISPR-RNP to knock out the DNA of interest using our electroporation system, and they're using AAV6 to knock in the DNA of interest.
Speaker Change: So you're seeing complementary technologies. It's not necessarily ex vivo or in vivo. The complexity of engineering, the multiple engineering steps are lending themselves more and more to ex vivo editing as well. And that's where we really have that high differentiated support that we provide. Over 20 plus years of scientific expertise that we've developed that really is proprietary to MaxCite. No one else has that expertise.
Speaker Change: And that's why we feel the more the field gets more complex and that growth of the cell gene therapy space that we've talked about, as it continues to grow, we're positioned perfectly to take advantage of it and really be the premier, you know, electroporation and cell engineering company for therapy developers.
Speaker Change: See you then. Thank you very much.
Speaker Change: Absolutely. Thank you, Paul.
Speaker Change: Our next question comes from the line of Dan Arias with Steve Will Nicholas & Company. Your line is open.
Speaker Change: Hi, this is Rohan Walker at Home for Dad.
Rohan Walker: Thanks for the time. We've got two questions, so bear with me here. On the SPL side,
Speaker Change: How should we be thinking about the duration period it takes to sign an SPL agreement for small, mid, and larger sized companies?
Speaker Change: 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.
Speaker Change: more bureaucratic nature with a bigger company. And then secondly, how has the beta customer feedback been so far this year for the VLX platform? Hoping for more color there. Thanks.
Speaker Change: Yeah, let me let me address that first on the second as well. So the first question, really small, medium or large, it's not so much whether it's, you know, there's not much of a difference. It really comes down to showcasing that scientific support that we provide from early research through process development.
Speaker Change: And then when they're ready to enter into the clinic or they're about to do clinical development work.
Speaker Change: That's when they're going to negotiate that license with us and enter into a license for that future support.
Speaker Change: So regardless of the size of the company, you're looking anywhere from
Speaker Change: Soft months, even 18 months of that of that true partnership early on, whether it's a small or large size company.
Speaker Change: And obviously, this field is a very highly scientific field. So whether you're a large company or medium size or small size, having that scientific partnership early on is the key for why we're developing these relationships. So it's not really tied to the size of the company.
Speaker Change: And then to your second question on the BLS in terms of the early adopters.
Speaker Change: You know, obviously, as we mentioned, we're still working with early adopters. We were not commenting there, you know, other than we'll 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 VLX.
Speaker Change: But I won't really comment much more on that other than the fact that we're 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.
Speaker Change: All right, thank you guys.
Speaker Change: Thank you.
Speaker Change: Please stand by for our next question.
Speaker Change: Our next question comes from a line of police corpsmen with Craig Holland. Your line is open.
Speaker Change: Yeah, hi, this is actually Matt. Can you guys hear me?
Speaker Change: We can hear you, man.
Speaker Change: 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 cast JV approval last year, when you first started talking to them. So I guess the question is...
Speaker Change: With the approval, I would expect that you would see increased interest in the platform.
Speaker Change: And if so, you would think that those, you know, conversations that likely started in Q1 and Q2, maybe even here in Q3, you're looking at potentially signing additional SPLs for next year. And I realize you're comfortable with the three to five. I'm just kind of thinking through this, though, that
Speaker Change: There's there's a good chance that you could actually see more than that next year just given the excitement That's built because of that first approval. Am I thinking about that, right?
Speaker Change: It's a good question. I mean, that's tough to answer in terms of, you know, just based on the healing capacity would be more. You still have to do what we do to sign these SPRs, 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.
Speaker Change: But that doesn't just translate into people just signing a license with you. You still have to show that scientific support, show a higher level of efficiency of editing, show a higher level of viability post.
Speaker Change: Douglas Swirsky, Erik Abdow, Maher Masoud, Sean Menarguez, Douglas Doerfler, Unknown Executive
Speaker Change: Understood. All right. Thank you. And then maybe just a modeling question. I realize the write-down impacted gross margins here in the third quarter, but your expectation is that those will bounce back to kind of a normalized mid-upper 80s here in Q4, or is there some further write-down that will occur or hit in the fourth quarter? Thank you.
Speaker Change: Thanks. You know, we're providing this non-GAAP measure here just to basically...
Speaker Change: Part of it is just to make sure that people understand where the inventory provisions fit in here. But also, we recognize that every quarter people are backing out the SPL, program-related revenue, which comes in without any additional cost to us, and basically calculating this as it is. So
Speaker Change: if you do that, you know, we're 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, we 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 than ultimately, was probably required. And that's impacted margins. But if you look at this,
Speaker Change: Got it. All right. Thank you.
Speaker Change: Thank you. As a reminder, ladies and gentlemen, that's star 11 to ask the question.
Speaker Change: Please stand by for our next question.
Speaker Change: Our next question comes from the line of Brendan Smith with TD Cohen. The line is open.
Speaker Change: Hey guys, this is Chad Wytroski on for Brendan. Just in your discussions with prospective SPL customers, are you seeing any trends in terms of cell type or disease area?
Speaker Change: So you are seeing a trend more so now than before in terms of autoimmune diseases. You're seeing many more companies either repurposing or really establishing certain programs going after autoimmune diseases, which is perfect. It lends itself to the cell therapy space. That is what we're seeing.
Speaker Change: And obviously that's that that's that shows the sign of health of the cell gene therapy space that the longest time
Speaker Change: The targets were in the oncology space, but now as you're seeing the ability to target many more therapies than initially thought, that's where you're seeing that the autoimmune space really start to kind of transcend itself and become part of the cell gene therapy space.
Speaker Change: You're also seeing companies begin to have
Speaker Change: in a far more complex way of ensuring that the therapies have more persistence and durability.
Speaker Change: as they are targeting in the oncology space as well, right? So that's one of the early learning cell therapy spaces that oftentimes, you know, your cell therapy itself was not able to endure. And now you're seeing edits that are allowing that durability and that persistence.
Speaker Change: And that's what we're seeing more so than anything else.
Speaker Change: And I appreciate the stickiness of the customer base and how that's a sort of a competitive note. But when you're looking at
Speaker Change: What 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?
Speaker Change: Thanks for the questions. Yeah.
Speaker Change: Yeah, no, great question. Actually, it's so this year we have, we've converted to our SPLs, we're converting converts from previously in the clinic using a different operation platform that converted to backside. And there's reason for that when you have a highly differentiated platform.
Speaker Change: that we truly do have, you know, the highest efficiency and the highest cell viability post electroporation. We truly do have that scientific support, the regulatory support, the quality support.
Speaker Change: that can streamline the process element, where we can show companies how you can go from early research to clinical scale up 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.
Speaker Change: So that that is what we're seeing. We're actually seeing the conversions and we saw two of them this year, which I think speaks it's a testament to what we do to everything we've built.
Speaker Change: and related to the strength of our scientific.
Speaker Change: engineering expertise. We're 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.
Speaker Change: Thanks.
Speaker Change: Thank you. Ladies and gentlemen, I'm Sean. No further questions in the queue.
Speaker Change: I would now like to turn the call back over to Maher Masoud for closing remarks.
Maher Masoud: Thank you, operator, and thank you, everyone, for joining us today. We'll look forward to speaking to you again in the next earning calls in a few months. Thank you.