MaxCyte Q3 2023 Earnings Call Transcript

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November 8, 2023

There are 9 speakers on the call.

Operator

Good day and thank you for standing by, and welcome to the MaxSight Third Quarter Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded.

Operator

I would now like to introduce your host for today's call, Sean Menargis, Senior Director of Innovation and Business Development, please go ahead.

Speaker 1

Well, thank you, Justin, and good afternoon, everyone. My name is Sean Menardis. I'm the Director of Innovation and Business Thank you all for participating in today's conference call. On the call from MaxSight, we have Doug Dorfler, President and Chief Executive Officer Douglas J. Sworski, Chief Financial Officer.

Speaker 1

Earlier today, Maxim released financial results for the Q3 ended September 30, A copy of the press release is available on the company's website. Before we begin, I need to read the following statement. Statements or comments made during this call may be forward looking statements Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward looking statements. Actual results may differ materially from those expressed or implied in any forward looking statements due to a variety of factors, which are discussed in detail in our SEC filings. The company has no obligation to publicly update any forward looking statements, whether because of new information, future events or otherwise.

Speaker 1

And with that, I'll turn the call over to Doug.

Speaker 2

Thank you, Sean. Good afternoon, everyone, and thank you for joining MaxSight's Q3 2023 earnings call. I will begin with a discussion of our business and operational highlights during Quarter, followed by a detailed financial review from Doug Sworski, DJ, our Chief Financial Officer. We will then open the call for questions. MaxSight reported $8,000,000 in total revenue in the 3rd quarter at the high end of our preannounced revenue range.

Speaker 2

Core revenue was $6,600,000 also at the high end of our preannounced range. Over the last month, the business has performed in line with the expectations we laid out On our call on October 4th and today, we are reiterating our revenue guidance for the full year of 2023. The operating environment for our customers has largely remained unchanged from when we spoke in October. Our primary focus remains on driving commercial execution To improve performance across our business and the commercial organization, MaxSight is actively working to increase and expand sales opportunities for the balance of 2023 and into 2024. I will briefly revisit some of the challenges we are facing that drove the pre announced reduction in our revenue guidance, which we pointed to on our call on October 4.

Speaker 2

The primary driver of core business performance was softness in processing assemblies or PA sales. We continue to believe can be attributed to these three factors: early stage customers in cell therapy and drug discovery, conserving spend and reevaluating their pipeline portfolio and R and D initiatives. Customers built up inventory in 2022 And due to the prioritization of programs and reduction in spend, the existing inventory has covered more of their PA needs. And 3rd, clinical SVL partners delaying clinical timelines due to challenges in obtaining additional financing for their clinical operations. Another factor in the weakness of our core business performance was early stage customers becoming incrementally more conservative on capital expenditures as the year has progressed, which has impacted our instrument placements.

Speaker 2

Though we have seen the macroeconomic operating environment play out unfavorably this We continue to see cell therapy industry trends that favor MagCyte's platform. The industry continues to move toward non viral cell engineering, Approaches that include multiple pathway engineering steps across many diseases. Specifically, our partners continue to expand their cell therapy indications into new unmet needs including autoimmune disease providing us with the opportunity to support our partners as they scale up and scale out their manufacturing process. Furthermore, developers are increasing the complexity of their cell therapy product with multiple edits on the cell, which positions Mac cited well given the platform's high cell engineering performance across a wide variety of gene edits and gene edited modalities. Developers are also looking into multiple doses and or increased dosing regimens for complex indications, which further supports the market need for engineered large cell volumes.

Speaker 2

Our customers and partners can leverage our scientific, technical and regulatory support and capabilities to optimize the clinical manufacturing process for the growing set of cell therapy applications. Just this year, we signed 5 SPL Partnerships, which highlights the value that our platform brings to our customers. We continue to see a healthy pipeline of potential partners. All in all, we are encouraged by the non viral engineered cell therapy trends in addition to the potential for our partners to make an impact as they progress their programs through the clinic and reach commercialization. We remain highly engaged with our customers, both current and prospective, and are excited by the opportunity to expand our SPL partnership portfolio and grow our revenue.

Speaker 2

In the Q3, we reported SPL program related revenues of 1,400,000 And remain confident that we will at least meet our guidance of approximately $6,000,000 this year. We believe this high value revenue line will We are excited by partners' progress and look forward to the potential impact of therapies that utilize MaxCyte's platform. Looking ahead, there is substantial clinical milestone and commercial revenue opportunity for MaxCyte as our partners move toward late stage clinical development and commercialization. In what would be the 1st commercially approved product enabled by our platform, CRISPRVERTEX Exacel is nearing the PDUFA date of December 8, 2023 March 30, 2024 for sickle cell and beta thalassemia, respectively. Just last week on October 31, the FDA held an AdCom meeting to discuss the treatment, which highlights the therapeutic benefit of Exacel and the important medical advance for the field and for patients.

Speaker 2

As a reminder, we believe that all necessary investments Manufacturing and regulatory quality have been made on our end to support ExaCell's commercial launch. We look forward to the potential FDA approval of the 1st non viral engineered cell therapy product validating MagSight's platform and which would also result in a significant milestone payment to us under our partnership with Vertex. We continue to be excited about the prospects of the VLX platform and our expansion into the bioprocessing market. To provide some context, we are looking to help our customers improve workflow efficiency and accelerate time for the preclinical and early stage manufacture of monoclonal antibodies, recombinant proteins and vaccines. The VLX has a unique capability to enable rapid production of transiently As a result, customers will be able to evaluate more preclinical leads at an appropriate scale and derive conclusions from late stage The efficiency that VLX brings to the process can potentially accelerate important decisions on late stage preclinical development to enable developers to prioritize Their clinical investments to the most promising assets.

Speaker 2

We believe that the current market opportunity for the VLX is across approximately 3,000 preclinical assets in monoclonal antibody, recombinant protein and vaccine development We are optimistic about our opportunity in the coming years. To lead this effort, we recently appointed Ali Soleimanazad As Executive Vice President of Bioprocessing, Ali has been an important addition to the leadership team at MaxSight with almost 20 years of experience In Biomanufacturing, Bioprocessing and Bioanalysis, including serving as Executive Vice President For separations and purification at Toso Biosciences prior to joining MagSight. We firmly believe that he will guide the future of MagSight's bio Processing business beginning with the growth of the VLX platform. For the remainder of 2023 and into 2020 We are focused on supporting our customers and partners through targeted investments. We have already made substantial progress in enhancing our infrastructure and scientific and manufacturing capabilities to support customers pursuing complex cell therapies in the clinic as well as when they reach commercialization.

Speaker 2

Over time, we believe the investments we are making today will derive substantial incremental value as we support multiple partners at various stages of development and commercial activity. In closing, we continue to navigate the current operating environment with tact and flexibility. MagSight remains committed to supporting our current SPL partners in their program development and further expanding our portfolio of partnerships. With that, I will now turn the call over to D. J.

Speaker 2

To discuss our financial results. D. J?

Speaker 3

Thanks, Doug. Hello, everyone. Total revenue in the Q3 of 2023 was $8,000,000 compared to $10,600,000 in the Q3 of 2022, representing a 25% decline. In the Q3, we reported core revenue of $6,600,000 compared to $9,900,000 in the comparable prior year quarter, representing a 33% decline. This includes revenue from cell therapy customers of $4,700,000 and revenue from drug discovery customers of 1,900,000 which declined 40% and 5% year over year respectively.

Speaker 3

The decline in revenues was primarily the result of softer PA sales as well as weaker instrument sales, primarily in cell therapy due to the challenging funding environment. Revenue from instrument and PA sales were down 44% in the 3rd quarter compared to the previous year and revenue from leased instruments declined 11%, driven by the challenging operating environment that our customers continue to face. We recognized $1,400,000 of SPL program related revenue in the Q3 of 2023 as expected Due to our partners' continued progress through the clinic compared to $800,000 of SPL program related revenue in the Q3 of 2022. Moving down the P and L, gross margin was 90% in the Q3 of 2023 compared to 87% in the Q3 of the prior year, driven by our mix between core and SPL program related revenue. Total operating expenses for the Q3 of 2023 were $21,200,000 compared to $17,000,000 in the Q3 of 2022.

Speaker 3

The overall increase in operating expenses was primarily driven by R and D, Sales and marketing and manufacturing expenses. The company continues to strategically invest in commercial sales and marketing operations, Innovative product development and field application scientists, automated manufacturing capabilities, as well as business and corporate development to drive long term growth. We finished the Q3 with combined total cash, cash equivalents and investments of $208,700,000 and of course no debt. Moving to our full year 2023 guidance, we updated our outlook on our Q3 preliminary results conference call on October 4th And we are reiterating that outlook today as we expect total revenue for 2023 to be approximately $34,000,000 to 36,000,000 Core revenue is expected to be approximately $28,000,000 to $30,000,000 for the year and SPL program related revenue expectations remain unchanged customer purchasing patterns for the remainder of 2023. As we have discussed previously, the timing of partnership revenue is dependent upon our customers' clinical and Regulatory progress is fundamentally more difficult to predict than our core revenues, which clearly has also been difficult to forecast this year due to the challenging operating environment discussed earlier.

Speaker 3

Finally, MaxSight remains in a strong financial position and continues to expect to end 2023 With approximately $200,000,000 in cash, cash equivalents and investments and no debt on our balance sheet, our expected cash burn for 2023 is approximately 27,000,000 In line with our 2022 cash burn of approximately $28,000,000 we have prudently managed our expenses and burn in 2023 and executed disciplined cost management in order to position the company to achieve our long term goals. I would like to close by reiterating that we remain in our 2023 revenue outlook and we believe that our modest cash burn and balance sheet will support our future plans for long term growth. Now I'll turn the call back over to Doug.

Speaker 2

Well, thank you, D. J. Overall, despite the challenging operating environment this year, we Firmly believe in the long term outlook for MaxCyte. We're excited about the potential of our partnerships as they progress their assets through the clinic And we remain committed to expanding our partnership portfolio to support the development of advanced cell based therapeutics in the growing cell As always, we thank our MaxSci team as well as our Board, suppliers, investors, partners, patients and the great industry that we have the honor of serving. With that, I will turn the call back over to Justin for the Q and A.

Speaker 2

Justin?

Operator

Thank you. Please stand by while we compile the Q and A roster. One moment please. And our first question comes from Dan Arias. Your line is now open.

Speaker 4

Good afternoon, guys. Thanks for the questions here. Doug, maybe just a couple on the instrumentation side, Specifically on cell therapy, do you expect the lease versus sold dynamic to change at all in light of the things that are going on in the industry, At least it's become a bigger part of that mix. And then on the VLX system, appreciate your comments. Is there anything quantitative that you might be able to add on the launch.

Speaker 4

And then along those lines, I mean, when we think about usage there, I'm curious whether you think some of Program prioritization that's taking place across the industry could impact the adoption curve just in the sense that to your point, it's a good Tool for evaluating preclinical assets, some of those are being backburned right now, so maybe a less of a need for that kind of horsepower. Do you see that as a likely outcome or not really? Thanks.

Speaker 2

There's a lot of questions there, Dan. Yes, there are. Sorry about that. That's okay. Let me talk about let me take 2 cuts at this and see if I answer all your questions.

Speaker 2

On the kind of the business model instrument side, I mean, I made a comment about being with our partners and I think it's truly important that we understand the situation they're in. We look at our business model and We're going to make changes as we feel are appropriate for helping our partners. And We're seeing the rationalization of these pipelines. And I do foresee us, we may very well make some changes to our approach for the business model. Although I don't think they're going to be major approaches, they'll be around the edges.

Speaker 2

And again, Thinking through kind of the new use cases for our technology, moving into autoimmune disease where you have Large patient population. So I think you're seeing the cell therapy industry moving from autologous Blood center therapies moving into solid tumors and now autoimmune, which is going to open up to served population. So we're excited about that. And that, of course, is going to have an impact on our business model. On the VLX, quantitatively, we put a slide in the deck that laid out the difference between What we believe our system and being able to produce a protein in a couple of months versus the traditional way, which could be 6 months plus.

Speaker 2

I think that when there's more rationalization, I think there's going to be a lot more attention placed On speed to market, speed to decisions, and I think that's exactly what we're focusing our attention on. It's whatever we can do to reduce the early stage preclinical development timeline for these partners and they could be big pharma, they could be A relatively early stage ADC company, they're all looking to do the same thing and that's to get better products into the market faster. And if we Cut 6, 4, 6 months, a year off of that timeframe, we think that's pretty valuable. So we're excited. We think the VLX is coming in at the right time To address some of the problems I think that we're seeing in the industry at large.

Speaker 4

Okay. Appreciate you sticking through those there. Maybe just one quick follow-up to your point, we are closing in on this XFL decision here. Obviously, we'll see how that ends up. But if we were to assume approval, I'm just curious about your expectation for a ramp in instrument utilization and consumables consumption as Scale presumably takes place there scale up presumably takes place there.

Speaker 2

Well, we obviously can't give you any guidance in terms of what 2024 looks like and this will be That said, we have been investing in ensuring that we've got instrumentation support From Vertex's side and CRISPR's side in terms of manufacturing, and we're ready to scale up. I think we just saw an announcement they made, I guess, yesterday, our press release about getting breakthrough therapeutic designation in Saudi Arabia. So it will be interesting to see how this business Develops and expands, but be assured that we're prepared fully to support them and execute against whatever plan They believe this makes the most sense from them commercially.

Speaker 4

Okay. Thank you, Doug.

Speaker 2

Thank you.

Speaker 5

Thank you. One moment please. Our next question comes from Jacob Johnson with Stephens Inc.

Speaker 6

Hey, good afternoon. This is actually Hannah on for Jacob. You've talked about expanding your geographic reach. Is this still a priority in this environment?

Speaker 2

That's a good question. I think The world is changing, of course. We're I think we're all focused on how we can navigate the China situation. I think we are frankly, I think this is more of an organic expansion. The science around cell therapy is expanding well beyond the U.

Speaker 2

S. And Europe and moving into Eastern Europe, it's moving into South America moving certainly to APAC. And so we're following where those hubs of activity are. For us to enter into that a new geography, it could be as simple as us bringing a field application scientist And the salesperson into that account, it could be as extensive as bringing in a new distributor or Building it up more on land field applications people. So I think our interest is always to follow the science, always follow where the commercial cell therapy field is heading.

Speaker 2

And then we'll make decision what makes the most sense from an investment perspective for us.

Speaker 6

Thanks. And then you're tracking ahead of your usual 3 to 4 SPL additions per year with 5 this year. How many are you expecting to add total in 2023? And do you expect the annual rate of additions to Continue to outpace 3 to 4 in the future.

Speaker 2

We'll talk about 24 when we give guidance or resist talking about that. I think we're pretty comfortable with the 5 we did this year. We really I don't think we are in a position to talk about anything additional in 2023.

Speaker 6

Great. Thanks. I'll leave it there.

Speaker 2

Thank you.

Speaker 5

Thank you. One moment please. Our next question comes from the line of Matt Larew with William Blair.

Speaker 7

Good afternoon. There was earlier this year sort of a it seemed like a round one of Risks, restructurings, pipeline prioritization, and then it seems that over the last couple of months, we've maybe had around 2. And A number of your SPL partners have been impacted by that in terms of risk restructuring. Just would be curious for your perspective on how much Potentially more there is to go just in your interactions with SBL Partners or core revenue, core customers, How much they've really cut down programs to true high priority assets? How much they've Brought down their teams from a size perspective, just as maybe as a different way to gauge What inning of sort of the drawdown in the industry we're at?

Speaker 2

I'm trying to What is the question that I'm trying to understand? I agree with you that we're in a situation right now where we've got companies that are and partners who are scaling back. We've seen a couple of them just most recently Lyle for instance and Sona did another one. So we're keeping pace with those Customers, we're staying close to those. What we're seeing is that when they're the focus and the rationalization is being drawn toward Our products that we're currently involved with them.

Speaker 2

So that's a good sign. I think overall, It's a strong point for MacSight that we're working on those lead assets. I think it's very difficult for us to try to predict Where the next situation is, I mean, companies won't share that with us, obviously. They're going to announce it when they announce it and we're going to React and hopefully manage well with them as they make those decisions. I'm not sure I answered your question though.

Speaker 2

Is there something more specific that you were looking for? Just want to be responsive to you, Matt.

Speaker 7

No, I guess it was maybe unintentionally vague, but I think you addressed So the second one would be, you referenced, I think Dan's question around Sales versus lease of instruments that you're willing to make changes as appropriate to help partners. So that may be an internal change in response to The macro environment, have you noticed or you're aware of any sort of external changes, be it Competitive

Speaker 3

behavior around

Speaker 7

giving away instruments or cutting prices, have you noticed any Price pressure or additional competition kind of in the changing macro environment.

Speaker 2

I think our value proposition still holds true. I mean, it's all about reducing risk and accelerating development, and those are two things that all these companies Obviously, one indication is our gross margins, 90% gross margins in the quarter, and I think That's attributed to our ability to maintain pricing in the marketplace. So just give you those kind of data points right now, we're feeling pretty comfortable With where we are in terms of competition, we're not really seeing anything in kind of in our area. We have mentioned Xenon in the past. We've seen Lonza come in and out, a lot of companies that are trying to get into the space, kind of newer companies that are Trying to figure out how they can take us on.

Speaker 2

I think that's just a healthy environment. It points to the I think it points to the importance of non viral cell engineering in the future. And I would predict that after Exacel gets approved, there will even be more people interested in trying to Figure out how big that market is and how they can participate. That said, we're in a great position with our partners and our technology and we're Continue to be the go to premier company in this space.

Speaker 7

Okay. The last one is to follow-up on VLX. Earlier this year on the Q4 call, you mentioned that there was it was revenue generated in 2022 that, that would grow in 2023. We're now a little over a year into the launch. So I think it's just sort of an early access focused launch.

Speaker 7

But Is there anything you can share with us about how much VLX is contributing to the financial model at this point? Or is that something that you may be able to

Speaker 2

I think we'll be much more comfortable sharing it next year. Ali is on board. He's doing a great job really Increasing the visibility of the offering to high profile clients and really just talking About how disruptive this technology is and how important it's going to be for early stage development of these programs. So I think we'll be able to provide a much more fulsome view of the strategy and provide some expectations when we do 7/24.

Speaker 7

Thank you.

Speaker 5

Thank you. One moment please. Your next question comes from Stephen Ma with TD Cowen.

Speaker 8

Great. Thanks for the questions. Maybe a follow-up to Hannah's questions on SPL adds, maybe I'll ask it a different way. This is more with regards to the funnel of your SPL leads. Has the potential success of Exacel, has it led to more business development inbounds or tractions with potential partners?

Speaker 2

I think the pipeline itself continues to be really, really strong and great. We're having excellent discussions With folks, some of them fall into the same camp that we've been talking about where they have their early stage development companies and they really don't have the financial Support to move into the clinic and so that's that can pause our SPLs. Although, I think it's fair to say that we've got other companies that we're working with that May not have that same situation and they're moving forward. I think what my sense is that when Exacel gets approved, I mean, I think You heard it in the if you we heard it, we did. We heard it in the AdCom meeting that there was very little concern about the manufacturing of That product safety profile looks great and the clinical evidence was extraordinarily strong.

Speaker 2

So Our sense is that once that product gets approved, I think that's going to check a big box in the industry. And they're going to be looking upon us as the company that's going to Able to help accelerate and move those non viral cell therapy assets into the clinic and through the clinic. And again, as we've mentioned, we continue to see an Expansion of cell therapies in the new indication areas like autoimmune, for instance, we're seeing a lot of that in the past few months. Ross, and that will require no doubt, more volume of cells to be delivered to patients on a longer period more of a chronic therapy. I think that fits well with the scale and the efficiency of our system.

Speaker 8

Great. Thanks for that color. And One more question. When you brought the guide down in October, you mentioned inventory destocking of process assemblies. Some of the BAW production companies recently said on earnings that they're seeing a bottom with regards to destocking headwinds.

Speaker 8

Could you comment on what you're seeing out there? And if you have any customer visibility that suggests maybe there could be an uptick As activity picks up, as this excess inventory gets used? Thank you.

Speaker 3

Thanks for the questions. This is D. J. So part of the challenge in answering that is we've got 7 weeks left in the year. We don't want to start providing guidance for 2024 talking about how we see that year starting off.

Speaker 3

But what we can say is that We've taken a very conservative view on PA sales just because we wanted to make sure that we would be We're very close to our customers. We've got a good sense that we've got a good number here for you A big part of that is PA. So if you look at the breakdown of why we're confident with the revised guidance, we have very good visibility into Lease revenue, we've got 7 weeks left in the year to execute against a good number of opportunities of which only a fraction would need to close In order for us to be comfortable with our number and of course on the PA side as we mentioned on the October call, we've really brought that down. We haven't factored into any recovery. We haven't factored in any We haven't factored in any of the seasonality that we've seen where you do get some water drip free a purchase later in the year.

Speaker 3

We're just basically going off the daily run rate We saw in Q3, which was depressed, and that gives us some comfort. But to fully answer your question, I think we need to delve into what happens 7 weeks from now and entering 2024. We're just not in a position to provide nearly too much information there.

Speaker 5

Thank you. I'm showing no further questions. I'll now hand the call back over to Doug Dorfler for any closing remarks.

Speaker 2

Thank you, Justin, and thanks everyone for joining us today and your questions. We look forward to providing an update on the Q4 call. So thank you all very much. Have a great Thanksgiving. Thank you.

Speaker 5

Ladies and gentlemen, thank you for participating. This concludes today's program. You may now disconnect.

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