Maxcyte, Inc. Q2 FY2021 Earnings Call

Good afternoon, everyone. Thank you all for participating in today's conference call. On the call for MaxCyte, we have Doug Doerfler, Chief Executive Officer, and Amanda Murphy, Chief Financial Officer. Earlier today, MaxCyte released financial results for the second quarter ended June 30, 2021. A copy of the press release is available on the company's website. Before we began, I needed to read the following statement. Statements or comments made during this call may be forward-looking statements within the meaning of federal 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 the forward-looking statements due to a variety of factors which are discussed in detail in our SEC filings. The company undertakes no obligation to publicly update any forward-looking statements, whether because of new information, future events, or otherwise. And with that, I’ll turn the call over to Doug.

Well, thank you, Sean. And good afternoon, everyone, and thanks for joining MaxCyte’s second quarter earnings call. I'll begin the call with a discussion about business and operational highlights during the quarter. Following that, Amanda will provide a detailed financial review and then we'll open up the call for questions. I would like to start off by saying that we're very excited to be speaking with you for the first time following our IPO back on July 30. After trading for five years on the LSE, which we look forward to continuing, I feel the U.S. offering raised approximately $200 million in gross proceeds, which followed a $55 million price earlier in 2021. On behalf of the MaxCyte team, I would like to thank everyone who was involved with and supported us during the IPO process. We are thankful for the hard work of our dedicated MaxCyte team, our board of directors, our advisors, and for the support of our customers, partners, their patients, new stockholders, and your ongoing supportive long-term shareholders both in the UK and the U.S. With the NASDAQ IPO now complete, we're raising over $200 million and have $73 million in cash and short-term investments on the balance sheet as of June 30, 2021. We are better positioned than ever to become the premier cell engineering platform technology to support the development of advanced therapeutics. Now Amanda will provide more details later in the call, but we realized very strong second quarter results as outlined in the press release published just a few minutes ago. This was driven by robust performance in our core enabling cell therapy engineering business, in both cell therapy and drug discovery end markets. Total revenue was just over $7 million, representing growth of close to 40% compared to the same period in 2020. Cell therapy and drug discovery revenues, including both instruments and disposables, each grew approximately 50% versus FY 2020. We also recognized $0.5 million in pre-commercial milestone revenues from our strategic partnership licensed commercial partners. As many of you know, investment into innovation and the next generation of cell therapy has been explosive. The next-generation cell therapy market has become quite an exciting opportunity for MaxCyte, as it has become one of the fastest-growing and most promising treatment modalities to address a host of human diseases with high unmet medical needs. We're seeing incredible and ongoing success from our partners in their efforts to progress next-generation cell therapies into and through the clinic. This has translated into positive revenue momentum in our enabling cell engineering business and burgeoning strategic partnership pipeline. MaxCyte’s proprietary Flow Electroperation platform provides both a scale-up and high performance needed to support the development and manufacturing of complex next-generation cell therapies in a CGMP compliant manner. We believe MaxCyte’s value has been validated by the long-term success we’ve had in signing mutually beneficial long-term collaborative arrangements with a growing number of leading cell-directed developers across a broad range of applications. With the addition of Myeloid Therapeutics in the first quarter, Cellularity in the second quarter, and Sana Biotechnology in the third quarter, we now have 14 of these agreements referred to as certified licenses or SPLs. In addition, our electroporation system has been used to manufacture drug products now for over 35 clinical trials. As of January 20, 2021, we indicated the SPL could generate close to $1 billion in pre-commercial milestone revenues, and all of our licensed programs have achieved regulatory approvals. Given our commitment to providing confidentiality to our partners, we expect to update key metrics surrounding the SPL agreements more formally at the end of the fiscal year, including the potential pre-commercial milestone revenue, the number of programs covered under the SPLs, and the progression of those programs into the clinic. With the three additional partners year-to-date, MaxCyte has the potential to realize revenue, and the potential future downstream economics continue to grow. As we have indicated, as these partners move closer to commercialization, one of our major initiatives is to position ourselves to support our customers through the regulatory process and into approval, which includes investing in our own manufacturing capability and automation. Following our NASDAQ IPO, we are committed to investing in the business to accelerate growth. We're expanding our commercial efforts and investing in research and development. More specifically, we're investing in research and development initiatives for the export portfolio, as well as developing new applications for our systems, including the commercialization of our large-scale VLx platform under the ExPERT umbrella. We're on track to release the improved VLx large-scale system by the end of 2021. As a reminder, the VLx can process 10 times the capacity of the number of cells as our CGMP-compliant system utilized by cell therapy developers. While our long-term initiatives are exciting, we are also enthusiastic about the opportunities for the VLx to enable the company to expand into larger scale bio-processing applications over time. We're also investing meaningfully this year and have made key hires and announced important internal promotions, including the promotion of Dr. Sarah Meeks to Senior Vice President of Business Development, Dr. Jim Brady to Senior Vice President of Technical Applications, and Steve Nardi who joined us recently from Haemonetics as the Senior Vice President of Manufacturing and Engineering Operations. We are also adding resources to our Alliance management team as a reflection of increased interest on the part of commercial cell therapy developers to work with us on a more strategic basis. We're expanding our corporate development team, including the addition of Kevin Gutshall as Vice President of Strategy and Corporate Development, who recently joined us from MilliporeSigma. Finally, we continue to add to our sales, marketing, and field application teams with opportunities we see as we move into new applications and new geographies. We have expanded our board of directors with the addition of Ms. Rekha Hemrajani, current Chief Executive Officer and Director of Jiya Acquisition Corp, and Yasir Al-Wakeel, current Chief Financial Officer and Head of Corporate Development for Kronos Bio. Ms. Hemrajani and Dr. Al-Wakeel bring valuable insights and perspectives to our board, and we look forward to their contributions in the future. In closing, we had a very strong first half of the year highlighted by our NASDAQ IPO, the announcement of three SPLs, and important additions to our team and board. We're very excited about our opportunity to go forward, particularly in the cell therapy market, and believe we are making the right investments and executing on our plan to drive growth across all of our businesses. I will now turn the call over to Amanda to discuss our financial results.

Thanks, Doug. Good afternoon, everyone. I assume you have the press release by now, so I’ll quickly go over some key financial highlights before we dive into Q&A. As Doug pointed out, we saw a strong second quarter, largely due to our core business performance. We recorded total revenue of $7.1 million, reflecting an increase of nearly 48% from the previous quarter. This growth is primarily fueled by our cell therapy business and a renewed expansion in drug discovery. For clarity, this revenue excludes milestone payments from our partnerships. Cell therapy revenue reached $4.8 million, which is a 59% increase compared to the second quarter of 2020. Additionally, drug discovery revenue, at $1.8 million, grew 60% over Q2. Overall, it's been a solid quarter for the core business. I don’t want to delve too deeply into details, especially for those unfamiliar with our operations, but we define our end markets in a specific way: cell therapy involves our product directly contributing to drug manufacturing. For this, we either sell our instruments or, in some instances, license them. We also offer proprietary disposables used to produce ex-vivo cell-based therapies for both preclinical and clinical settings, with increasing use across multiple indications. In contrast, drug discovery mostly sees CARMA utilizing our platform to produce proteins, particularly for virus manufacturing, leveraging cells to manufacture transient proteins or other products like monoclonal antibodies. The quarter's success mainly stemmed from our core business. We did receive $0.5 million from partnership milestones, as Doug mentioned, which I’ll touch on shortly regarding our guidance for the year. Our gross margin this quarter was 89%, down from 91% the previous quarter, largely due to an increase in milestone revenues this quarter. The underlying gross margin remained relatively stable from the previous quarter. Total operating expenses came to $10.7 million, up from $7.5 million, primarily due to an increase in headcount as we continue hiring, along with a rise in stock-based compensation linked to our stock price increase over the past year. We also anticipate higher public company expenses following our NASDAQ listing, particularly in the second half of the year, many of which will be recurring. We plan to invest in operating expenses, notably R&D, which has risen significantly this year at 60%, excluding CARMA. We are adding considerable staff to support our efforts on the VLx and new products. Sales and marketing expenses also rose by about 60%, driven by our outlook for accelerating organic growth and stock-based compensation increases. I wanted to update you on our adjusted EBITDA excluding CARMA; this quarter, CARMA revenue was minimal at approximately $426,000 with nominal stock option expenses, providing clarity for modeling purposes. We expect CARMA-related clinical spending to be relatively minor moving forward. The tapering of CARMA clinical expenses has been in line with our expectations, and we anticipate it will conclude in the first half of 2021. As I mentioned, we're heading into the end of 2021 with a robust balance sheet, holding nearly $75 million in cash and cash equivalents, not counting the over $200 million we raised during our recent NASDAQ offering. Regarding our 2021 guidance, historically we’ve focused on total revenue growth while offering insights into our core business trends in cell therapy and drug discovery, along with milestone revenues. We’re seeing substantial strength in our core operations, as mentioned for the first half, and this momentum appears to be continuing into the third quarter. However, this guidance assumes a typical scenario concerning COVID, as the situation remains unpredictable. Based on the core business growth we’ve experienced year-to-date, we anticipate maintaining a growth rate of nearly our historical 25% 5-year CAGR in the latter half. Notably, with the $0.5 million in program-related or milestone revenue this quarter, we believe there’s potential for an additional $0.5 million in the second half. Accumulating all this, we expect total revenue for the year to be around $30 million, aligning with our historical 25% CAGR. Concerning SPLs and milestones, we acknowledge the challenges in precisely timing these, as many factors are beyond our control. Nonetheless, we possess a robust SPL pipeline, demonstrating our success in securing three additional SPL agreements, including the latest with Sana in Q3. Our pipeline continues to show depth with new applications emerging. We are confident that within the next 12 to 18 months, we will see substantial revenue contributions from our partners in terms of program economics. As noted, this year is relatively back-end loaded, with two customers potentially entering pivotal trials, though the exact timing of these trials remains uncertain. We are increasingly optimistic that 2022 will be a particularly strong year for program economics, especially regarding pivotal trials. I’ll stop there with the guidance overview, and I’ll handle questions later. Now, I’ll hand the floor back to Doug to conclude before we shift to Q&A.

Well, thanks, Amanda. We remain very excited about our place in the industry, with our technology supporting the development of these really novel and exciting advanced cell-based therapeutics. We successfully completed our NASDAQ IPO, and we're really pleased to announce our second quarter results and provide this preliminary full-year guidance projections. We remain very well-positioned, and we're excited about the opportunities ahead. Let me stop here and turn it over to the moderator for any questions you may have that Amanda and I can contribute to.

Thank you. Our first question comes from Julie Simmonds with Panmure Gordon. You may proceed with your question.

Hi, congratulations on an excellent quarter. I was just wondering, historically, you've talked about the number of programs you're ongoing and the number of clinical programs you have. I was wondering if you could give us some idea about how those numbers are progressing.

So Julie, I mentioned in my part that we're going to be reporting against the SPLs and trade promotion milestones, the numbers of programs. We'll do that at the end of the fiscal year. We have to be careful about confidentiality and each of the deals, as you can well imagine.

Could you give us some idea of the proportion that are in clinical trials? Just sort of getting a feel for the proportion you have clinical relationships with because that helps in terms of the modeling going forward?

We announced in the S1 that we've had 15% of 75 programs currently in the clinic. Hopefully that will help.

We are mindful of confidentiality when it comes to reporting. Regarding the LOAs, we previously mentioned that there were 30 trials referencing them, which has now risen to 35. We are observing progress, and since our last update, we have added two SPLs. These figures are likely to increase, but out of respect for our customers, we will continue to provide formal updates on an annual basis.

Thank you. Our next question comes from Max Masucci with Cowen. You may proceed with your question.

Congrats on a strong first print as a NASDAQ-listed company. To start, can you just walk through some of the assumptions in the $30 million revenue guide? Any swing factors on both the core razor-razor blade business, whether it's the manufacturing and shortages we've seen for certain bioprocessing applications? Just in terms of your visibility into the timing of some milestone triggering events?

Yeah, so I'll pick that, and maybe Doug wants to add in. If you look at the consensus numbers for the core business for 2021, we're assuming around 20% growth. If you plug in the actuals that we reported this quarter, it's closer to 25%, just shy of 25%. What we're seeing with the trajectory so far leads us to expect to be a bit above that. So again, our 5-year CAGR revenue rate doesn't really include milestones, and it's been around 25%. I would say we're a little bit ahead of that, which is great. Part of that is due to a couple of partners that are coming into pivotal trials. We're seeing a resurgence of growth in drug discovery, and we've launched a couple of new PAs, which allow for multiple experiment times instead of lowering transaction costs. We're seeing good visibility for the remainder of the year because we have a number of platforms that are leased. We know that revenue is coming in with fairly consistent pulser rates. Ultimately, it comes down to COVID affecting the business like every other business. The team has done a good job of switching to virtual demos, but conferences switching to more in-person is encouraging. We're being fairly cautious in terms of our guidance based on what we’re seeing in the strength of the business, but it's a hard variable to pin down. When it comes to milestones, that's out of our control; we have some near-term visibility that may be proprietary to us based on our customers, and some of it depends on public commentary. It's hard to pinpoint timelines exactly. We do believe 2022 looks strong, and we are excited about the next year based on what we see so far.

That's great. One more just sticking on PAs. Nice to see that the RUO multi-walled processing assembly. Can you give us a sense for how the recent consumables PA launches have impacted competitive dynamics from other electroporation-based instruments in drug discovery?

The purpose of those multi-walled plates is to allow more transactions into a single disposable. This allows customers to do more at a lower production cost without having to cannibalize pricing in either cell therapy or drug discovery. We're seeing significant adoption of our platform now, and this has led to competitive advantages, especially with our voices from customers who understand that we deliver high performance at reasonable costs. We are seeing quite a bit of adoption in drug discovery and earlier cell therapy research.

Great, thanks for taking the questions.

Of course.

Thank you. Our next question comes from Dan Arias with Stifel. You may proceed with your question.

Afternoon, guys. Thanks! Doug, I wanted to start with a topical industry question. The FDA panel discussed toxicity concerns related to viral delivery. Is that impacting the conversations you're having with customers, or is it too early to say? Do you expect it to? I'm just trying to understand whether safety is positioning your approach more favorably or if that's just an innate aspect that isn't going to translate into a commercial impact.

Dan, I don't know the answer to your question, frankly. We don’t lead with that. We're working with developers migrating more towards non-viral methods. Safety is one issue, but we're also considering complexity, speed, and cost as key drivers. I think we're seeing a large shift towards non-viral methods like CRISPR and other gene editing tools, which allow people to gain the benefits of a non-viral system, particularly where safety is a bigger concern.

Yeah, it does. It is early, so I guess we'll just have to see. Amanda, on the VLx system, you mentioned ramping up by the end of this year. What should we expect when it comes to contributions from a commercialized product there? Is that something that will be immaterial this year or phased in a way where we should start seeing revenues in 2023?

The VLx is available now commercially. We're pulling it into the ExPERT umbrella, which we expect to have by the end of the year. We are improving the industrial design and user interface. Then we're going to work on GMP compliance and build out what we think are interesting large-scale bioprocessing applications. We see interest from customers, but it will take time. I would think about this as a two to three-year revenue contribution opportunity. We're excited about investing in it, but we are thinking in longer time frames.

As Amanda said, we've been receiving interest for it over the last several years without actively marketing it. A number of customers are known for specific applications, and we're excited about marketing it now that we have the full support for application development. It’s aimed to enable us to expand beyond cell therapy in the future.

Got you. Okay, thanks very much.

Thank you.

Thank you. Our next question comes from Matt Larew with William Blair. You may proceed with your question.

Hi, good afternoon. As you think about the investment coming from the recent fundraising, you talked about needing some of that cash to expand sales and marketing within the business. Can you give us some sense of where you plan to direct that investment, whether in terms of the number of sales force, field location scientists, or where that's going to be targeted in product development?

As a company, we don't believe that putting up about 50 sales people will drive a major revenue increase. We don't see that in this marketplace. We need to be attuned to what's going on in the marketplace for identifying new applications and new geographies. We have excellent salespeople who stick with us because we treat them right, so we'll build our sales team strategically. There are interesting applications on the R&D side we’re working on. Once we have the platform and investment in place, the next step is to identify new opportunities. There is a constant evolution, with new cell types and approaches that require our support as these companies aim to move products into IND stages. The VLx will take additional investment to support our partners' success.

Okay, that's great. I just wanted to clarify that those program milestones are not related to CTX-001. And also, you alluded to two pivotal trials upcoming; what other milestones or items should we look for from the program side over the next year?

We're not speaking to specific milestones from specific programs. We are confident that we recorded $0.5 million this quarter and can see another $0.5 million in the second half. With 14 partners now, we have more than 75 programs, with 15% in the clinic. We cannot predict specific timing for these as it depends on our customers and their pace. Right now, next year seems strong, particularly with pivotal milestones which are typically larger. We are excited for next year but cannot pinpoint when these might hit.

Okay, thanks, Amanda. Congrats on the quarter.

Thank you. Our next question comes from Mark Massaro with BTIG. You may proceed with your question.

Hey, guys, congrats on the good quarter and on a successful NASDAQ IPO? My first question is really on delivery. You essentially beat our estimates on cell therapy, drug discovery, and SPLs, but I wanted to drill down on drug discovery. The growth rate of 60% sort of surprised me to the upside. I would have thought that the business would not be growing as quickly in part because cell therapy dramatically outperformed drug discovery last year. So can you talk about that 60% growth rate? To what extent do you see better growth than expected looking into the back half? You're almost done with Q3; can you talk about trends that may have occurred after June and how you think that business can trend later this year?

The second quarter of 2020 was tough for many companies, including those in discovery. Many big biotech and pharma companies reduced their operations considerably during that time. Now, we're seeing companies getting back to work. This rebound from a difficult Q2 2020 is reflected in our solid growth rate.

Got it. My second question, we've had the opportunity to speak with a number of your users. What I found unique to MaxCyte is your high transaction efficiency relative to competitors, the gentle nature of your platform, and the variety of cell types that your platform works on. Can you give us a sense for competitive dynamics now and how that might change over the next year?

I don’t think anything’s changed since we last spoke. We believe we are top of class with high efficiency, our IP, master file, and large scale. There is no one that can do what we do as well as we do it. While capital is important, it also requires intellectual property, understanding, and execution. We have seen increasing focus and understanding from our customers on why they choose our system, and we are confident in our competitive position in the marketplace.

Sounds good. Thanks very much.

Thank you.

Thank you. I'm not sure if there are any further questions at this time. I would now like to turn the call back over to Doug Doerfler for any further remarks.

Well, thanks again for this call. It was exciting for Amanda, Sean, myself, and the whole team as our first earnings call. It’s great to do it on such a positive note. We look forward to updating you on our Q3 progress on our next earnings call. Thank you for your support and everyone, stay safe. Thank you again for your support at MaxCyte.