Maxcyte, Inc. Q4 FY2023 Earnings Call

Good day and thank you for standing by. Welcome to the MaxCyte Fourth Quarter Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Sean Menarguez, Senior Director of Innovation and Business Development. Please go ahead.

Well, thank you and good afternoon, everyone. My name is Sean Menarguez and I'm the Senior Director of Innovation and Business Development here at MaxCyte. Thank you all for participating in today's conference call. On the call from MaxCyte, we have Maher Masoud, President and Chief Executive Officer; and Douglas J. Swirsky, Chief Financial Officer. Earlier today, MaxCyte released financial results for the fourth quarter and full year ended December 31, 2023. A copy of the press release is available on the company's website. Before we begin, I need to read the following statement. Statements or comments made during this call may be forward-looking statements within the meaning of federal securities laws. Any statements other than statements of historical facts provided on this call, including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations are forward-looking statements. These statements about us or our industry involve substantial known and unknown risks, uncertainties and assumptions, including those that are discussed in detail in our annual report on Form 10-K and elsewhere in our SEC filings that may cause our actual results, performance or achievements to be materially different than any other future results, performance or achievements expressed or implied by such statements. These statements are inherently uncertain and investors are cautioned not to unduly rely on these statements. The company undertakes no obligation to publicly update any forward-looking statements, whether because of new information, future events or otherwise except as required by law. And with that, I'll turn the call over to Maher.

Thank you, Sean. Good afternoon, everyone and thank you for joining MaxCyte's fourth quarter and full year 2023 earnings call. As you know, I was appointed to the role of President and CEO of MaxCyte effective as January 1 of this year. It is an honor to lead MaxCyte through its next phase of growth after working closely with the executive team and Board over the last 7 years. I would like to thank our founder, Doug Doerfler, for his contributions to MaxCyte over the past 25 years. In my first couple of months as MaxCyte CEO, we have continued to execute our core mission and strategy to expand our strategic platform licenses or SPL portfolio and support the next generation of cell-based therapies with our ExPERT electroporation platform. Our top priority remains supporting our customer success throughout the life cycle of research, clinical development and commercial launch. I believe we have substantial opportunities ahead of us in the cell therapy industry and I am committed to leading our organization with a high level of focus along with disciplined expense management and capital deployment. 2022 was a challenging but exciting year for MaxCyte. We faced a difficult operating environment along with many others in the industry as our customer base saw conservatism in capital spending, lower-than-expected activity levels and prioritization of programs. Despite these challenges, 2023 was a transformative year for MaxCyte. Our technology supports the approval of CASGEVY, the first nonviral cell therapy product approved by the FDA, developed by SPL clients, CRISPR Therapeutics and Vertex Pharmaceuticals. MaxCyte's ExPERT platform is now the only electroporation platform to have supported a nonviral therapy through FDA approval and is now the only electroporation platform supporting commercial therapy. We believe this is just the first of many potential approvals by MaxCyte SPL clients over the coming years and we are working hard to remain the platform of choice when it comes to electroporation. MaxCyte reported $41.3 million of total revenue for the full year of 2023, at the high end of the revenue range we preannounced in January 2024. Core business revenue was $29.8 million, also at the high end of our preannounced range. We were pleased to see our business stabilize in the fourth quarter and with the strong execution of our team in a challenging environment. In 2023, we grew our instrument installed base to 683 as compared to an installed base of 616 at the end of 2022. While our instrument installed base expanded this year, both instrument sales and PA sales declined in 2023 compared to 2022 across cell therapy and drug discovery customers. As I mentioned, we are operating in a challenging environment, where early-stage customers in cell therapy and drug discovery have limited access to capital. And some clinical customers have adjusted their spending and extended project timelines. This environment remained largely unchanged in the fourth quarter, though we are optimistic that the financing market for the cell therapy industry will improve over time. Nonviral cell therapy market trends continue to bode well for MaxCyte's platform. Customers at various stages of development are pursuing different approaches and indications. Developers continue to move towards nonviral cell engineering approaches that encompass multiple steps and complexity of edits. Innovation and complexity in cell therapy development drives demand for MaxCyte's electroporation technology. While we are cautiously optimistic about near-term market factors impacting our customers, the nonviral cell therapy opportunity and regulatory backdrop for cell therapies continues to improve. Outside core business, we generated $11.5 million of SPL program-related revenue for the full year of 2023 and $8.5 million during the fourth quarter. Both our full year 2023 and fourth quarter 2023 SPL program-related revenue came in at the high end of our preannounced range driven primarily by BLA approval milestones from our clients in the fourth quarter of 2023. As a reminder, SPL program-related revenue includes development and approval milestone payments as well as sales-based payments and/or royalties from commercial clients. Across our 26 SPLs to date, there are many nuances to the SPL contracts. And the revenues associated with commercial products can vary. Generally, we receive 1% of product sales through either royalty or sales-based payments in addition to receiving revenue from leased instruments and PA sales to SPL customers which is included in core revenue. As stated by Vertex in their fourth quarter 2023 earnings call, the commercial launch of CASGEVY has commenced. As patients are screened and identified for treatment, they will enter the program at authorized treating centers in which they will undergo pretreatment, cell collection, manufacturing, and finally, treatment infusion. MaxCyte will only recognize revenue once the patient has been infused, which can take a number of months from the time that patient enrolls in therapy. Our visibility into the timing of patient dosing is quite limited. And we will rely on Vertex to provide us and the markets with updates on patient enrollment status as they come. At this time, we do not have enough information on timing of patient dosing to forecast expected commercial royalty revenue from the sale of CASGEVY for 2024. As we move throughout the course of the year, we hope to have better insight into the patient journey and dosing timelines. We remain very optimistic about the long-term prospect for CASGEVY and look forward to many patients receiving the treatment in years to come. As I mentioned earlier, we continue to lay the groundwork for long-term growth at MaxCyte, just as we did several years ago with CRISPR to support what is now CASGEVY. In 2023, we signed 5 new SPL clients, bringing the total number of SPLs to 23 as of December 31, 2023. These 23 SPLs represent over 160 programs, of which 16 are programs in clinical development along with one commercial program. The total precommercial revenue potential for our SPL programs is now greater than $1.95 billion, up from $1.55 billion at the end of 2022, an increase of over $400 million in potential milestone payments. As you've probably already seen thus far in 2024, we have signed 3 additional SPLs, bringing our total assigned SPLs to 26 as of today. We believe the breadth of our expanding SPL portfolio continues to demonstrate the unique and valuable technology that MaxCyte uses across cell types and editing tools. By way of example, Lion TCR, one of our SPL customers which we announced this year, is a Singapore-based clinical-stage biotechnology company focused on the development of T-cell receptor therapies for solid tumors and life-threatening viral infections. Our SPL Lion TCR has allowed us to expand our global presence into Asia to support the development of new therapies for patients with solid tumors. We also signed an SPL with Imugene, a clinical stage immuno-oncology company that is developing a range of new treatments that seek to activate the immune system of cancer patients to identify and eradicate tumors. Our platform technology was efficiently transferred from Precision Biosciences when global rights for azer-cel were obtained by Imugene in August of last year. And we look forward to supporting Imugene as they move towards a potential Phase II registrational trial for azer-cel in cancer, an allogeneic CAR-T candidate. Our most recent signed SPL client is with Wugen, a clinical stage biotechnology company developing allogeneic off-the-shelf cell therapies to treat a broad range of hematological and solid tumor malignancies. Importantly, their WU-CART-007 lead asset is currently in a global Phase I/II clinical trial for the treatment of relapsed or refractory T-cell acute lymphoblastic leukemia, lymphoblastic lymphoma in adolescent and adult patients and has received Orphan Drug, Fast Track and Rare Pediatric Disease Designations from the FDA for the treatment of such conditions. We are encouraged by these recent SPLs and are excited to witness the clinical progress that we believe our clients may make in the upcoming months and years with the support of our platform. The SPL agreements that were signed earlier this year have been many months or even years in the making. Our team works very hard with customers to understand and optimize their research and development processes objectives. This relationship often starts in research, where customers utilize our ExPERT ATx and then seamlessly scale to the GTx prior to entering the clinic. As companies make progress towards entering clinical development, there is a dynamic discussion around the SPL relationship that takes quarters to negotiate and arrive at the final agreement. Following the success of our ability to enter into new SPLs over the past couple of years, we are continuing to build and expand the SPL pipeline. As time progresses, we believe that having the only commercial nonviral therapy which utilizes our platform to engineer the cells will generate additional interest in filing a number of new SPL agreements which have been in discussion for some time and then new discussions can begin to support continued SPL signings in the years to come. We believe that there is opportunity for substantial clinical milestone and commercial revenue as our SPL clients' programs move towards late-stage clinical development and commercialization. As we look ahead in 2024, we have a robust SPL pipeline which we will continue to execute on. Over the past 2 years, MaxCyte has strategically invested to support the growth opportunity ahead of us. Notably, we have made investments to ensure that we have the strongest manufacturing, regulatory and quality capabilities to support our customers throughout development and commercialization. We have added to our teams across the organization in order to scale the business. And we have made targeted product development enhancements, including development of the VLx. We have developed a disruptive technology in the VLx that will enable rapid production of transiently expressed proteins at large scale for preclinical and early clinical use that we believe will offer a much more efficient manner for research. We believe the commercial opportunity in the bioprocessing market is large but will take some time to develop. Following feedback from industry and a more detailed evaluation and opportunity for the VLx, we are taking a more measured approach to developing applications and understanding customer needs before launching a robust commercial offering for the VLx. We remain committed to taking the time necessary to deliver the most efficient platform for our customers, starting with the evaluation of our beta customer feedback throughout 2024. In 2024, we will be measured in our investments and focus on areas that we believe will deliver significant returns to our customers and MaxCyte in the long term. The key areas of moderate investment may include improvements to our best-in-class electroporation systems, building additional application know-how, building capabilities to work with customers early in the continuum of development, and selling into new applications for electroporation. In summary, we have entered 2024 well positioned to deliver on our financial and strategic goals. This year, MaxCyte continues to navigate the operating environment methodically, recognizing that the challenges we experienced in 2023 were felt industry-wide and staying vigilant on changing dynamics in our industry. I firmly believe in the long-term opportunity for MaxCyte as the premier enabler of nonviral cell therapies. With that, I will now turn the call over to Doug to discuss our financial results.

Thank you, Maher. Total revenue for the full year was $41.3 million compared to $44.3 million in 2022, representing a 7% decline. Total revenue in the fourth quarter of 2023 was $15.7 million compared to $12.4 million in the fourth quarter of 2022, representing an increase of 26%. In the fourth quarter, we reported core revenue of $7.2 million compared to $10.6 million in the comparable prior year quarter, representing a 32% decline. This includes revenue from cell therapy customers of $5.5 million, revenue from drug discovery customers of $1.6 million which declined 27% and 46% year-over-year, respectively. Within core revenue, instrument revenue was $2.3 million compared to $3.7 million in the fourth quarter of 2022. Lease revenue was $2.4 million compared to $2.8 million in the fourth quarter of 2022. And processing assembly for PA revenue was $2.2 million compared to $3.7 million in the fourth quarter of 2022. We saw sequential improvement in instrument revenue and stabilization in PA revenue compared to the third quarter of 2023. The year-over-year declines in revenue were due to the challenging market for our customers which resulted in conservatism of spend and pipeline prioritization. For the full year of 2023, we reported core revenue of $29.8 million compared to $39.6 million in 2022, representing a 25% decline. This includes revenue from cell therapy customers declining 25% year-over-year and drug discovery revenue declining 23% year-over-year. Within our core revenue, instrument revenue was $8.3 million compared to $11.7 million in 2022. Lease revenue totaled $10.3 million compared to $10.9 million in 2022. And PA revenue totaled $10.3 million compared to $16 million in 2022. Of note, 48% of our core business revenue was derived from SPL clients in 2023 which compares to 42% and 40% in 2022 and 2021, respectively. The increase in revenue from SPLs as a percentage of total core revenue highlights the challenges that early-stage preclinical customers faced during the course of 2023 which we have spoken to throughout the year. While our SPL clients were not immune to funding constraints and pipeline prioritization, the magnitude of the decrease in core revenue from SPL clients was less substantial compared to our earlier-stage customers. We recognized $8.5 million of SPL program-related revenue in the fourth quarter of 2023 compared to $1.9 million of SPL program-related revenue in the fourth quarter of 2022. For the full year, we recognized $11.5 million in milestone revenues as compared to $4.6 million in 2022. We exceeded our initial milestone guidance for 2023 which was a risk-adjusted forecast for the year. The approval milestones from our SPL clients in multiple geographies drove the upside to our initial guidance. Moving down to P&L. Gross margin was 90% in the fourth quarter of 2023 compared to 88% in the fourth quarter of the prior year driven by our mix between core and SPL program-related revenue. Total operating expenses for the fourth quarter of 2023 were $22.2 million compared to $17.6 million in the fourth quarter of 2022. The overall increase in operating expenses was primarily driven by compensation expenses related to headcount, professional fees and lab and new product development expenses. Moving forward, the company plans to continue to make strategic, targeted investments while moderating our rate of OpEx growth. In 2024, we will be disciplined in our spending, evaluating investments in business and corporate development, commercial sales and marketing operations and field application scientists to drive long-term growth. We finished the fourth quarter with combined total cash, cash equivalents and investments of $211 million and no debt. Moving to our full year 2024 guidance, we provided initial guidance last week and we are reiterating that outlook today. We expect core revenue of flat to 5% growth as compared to 2023. The components of our core business are anchored in lease revenue, clinical and commercial instruments, new instrument placements and the sale of processing assemblies, the consumables used by our customers. We are confident in our ability to grow the core business in 2024. We are not forecasting any substantial positive or negative change in the macroeconomic environment for our customers, though I will note that the capital-raising activity by the industry and some of our customers has started off better than we expected. Time will tell whether that capital finds its way to R&D programs that will drive demand for MaxCyte products. But we are keeping an open ear to customers and the potential for updated plans as market conditions evolve. We adapted to the difficult environment we saw in 2023 and are confident in our ability to execute through a stabilizing environment in 2024. SPL program-related revenue is expected to be approximately $3 million in 2024. This is a risk-adjusted forecast that is achievable under a variety of potential outcomes across our SPLs and our planned clinical progress. At the end of 2023, we recognized milestone revenue from one of our clients which we had initially anticipated in 2024. Our expectations for SPL program-related revenue for 2024 reflect the timing of this milestone and the resulting difficult year-over-year comparison. While we do not have visibility on the timing of CASGEVY patient infusions, we expect to begin to recognize royalty revenue from Vertex later in the year. However, we have not included royalty revenue from CASGEVY in our initial 2024 outlook. Finally, MaxCyte remains in a strong financial position and continues to expect to end 2024 with approximately $175 million in cash, cash equivalents and investments and no debt on our balance sheet. I would like to close by stating that we are confident in our 2024 revenue outlook and believe that our modest cash burn and strong balance sheet will serve to support MaxCyte's long-term growth. Now, I'll turn the call back over to Maher.

Thank you, Doug. Overall, we believe our accomplishments in 2023 have further validated the endpoints of our ExPERT electroporation platform and the long-term growth potential for MaxCyte. We look forward to supporting our customers through their development stages and commercial activities to deliver new cell-based therapies to patients and their needs. MaxCyte remains excited about the potential of our clients' assets as they progress through clinical development. And we are committed to expanding our SPL portfolio in 2024 and beyond. I'd like to thank the MaxCyte team for their dedicated work which has helped solidify MaxCyte's position as a premier enabler of nonviral cell therapies. With that, I will turn the call back over to the operator for the Q&A.

Our first question will come from Jacob Johnson from Stephens.

Maybe, Doug, first on the guidance. I have two questions. First, it seems like you're not expecting any improvement in the end market. Can you discuss whether you've noticed any signs of increased positivity from your customer base due to the recent funding? Second, I understand that we're not including CASGEVY royalty in the program revenues. Is any of that reflected in the core revenue guidance or in any PA sales?

Thank you, Jacob. I'll address those questions one at a time. First, regarding the guidance we're providing and our perspective on the macro environment, we have aimed to be realistic and set conservative, achievable goals for this year. We believe we may be nearing the lowest point in the overall market for cell therapy and our other end markets. While we are cautiously optimistic that conditions could improve this year, our guidance does not reflect an anticipated improvement in the environment. There is potential upside if the market does improve, as we have seen some early encouraging signs, including significant financings. We will observe how the additional capital flowing into the sector may benefit us, but we are taking a conservative approach. Our revenue projections are based on specific identified opportunities for instrument placements, utilizing a performance-adjusted run rate as of the end of last year rather than expecting improvements to build into our forecast. Thus, our forecast remains conservative and realistic. If the market improves and we have reasons to be optimistic, we will benefit from that, but it is not factored into the forecast. Regarding CASGEVY, we are not including any revenue from the SPL program in our guidance as it is difficult to predict, and we want to avoid outpacing our partner in forecasting sales. We project core revenue growth to be flat or possibly slight growth, which might include some additional uptake from CASGEVY.

Got it. And then maybe, Maher, you mentioned how important the support of a commercial therapy is and that maybe it will help you close some additional SPLs. I'm just curious, it's been a couple of months since the approval of CASGEVY. Just curious kind of what your business development teams heard in those last couple of months and this year, if you're getting more inbounds now that you support a commercial therapy?

Thank you, Jacob. It's great to receive a question from you, as always. I want to take a moment to reflect. Clearly, CASGEVY has been validating for our company and the nonviral SPL space. So far this year, we've signed three SPLs, which certainly enhances our discussions with current SPL partners who are in negotiations and with customers preparing to move into the clinic. Looking at how we've built our business development team over the past several years, especially the last six to seven years, we're seeing more traction now. Our relationships with customers begin with early research, where we typically collaborate for nine months to a year and a half, optimizing processes. When they're prepared to enter the clinic, we begin negotiations. CASGEVY enables us to continue these discussions and supports our growing pipeline for SPLs. These relationships rely not only on our approval of commercial products but also on the team we've developed and the scientific connections we've forged with customers throughout research, development, and into the clinic. I hope that answers your question, Jacob.

Our next question comes from the line of Dan Arias from Stifel.

Maher, I just wanted to ask a follow-up question on CASGEVY. And then doing so, I think I'm probably just asking a broader question about the way that these commercialization events that your SPLs benefit you now that we're in the early days of seeing that play out. I mean, obviously, you have the royalty revenues on the sales of the drug. And I know you've said you don't have enough information there to make a call which seems fair. But to Jacob's point, I mean, I'm just curious about the general ramp-up in instrument utilization and activity that takes place at Vertex or CRISPR or wherever once they move into patient treatment mode. I mean, it seems like that should go up as they make more product post-approval. But is that true? Is there a way of thinking about that? It would just be kind of helpful to understand the way that the model could be impacted when we think about these approval successes.

Yes. Yes. So Dan, thanks for that question. Great point. So obviously, we don't want to speak ahead of Vertex but as the patient enrollment increases, as more patients are screened and then eventually treated, absolutely, right? So we'll see that trajectory that what we hope is the hockey stick for CASGEVY which increases the revenue that we have on the back end as well. So obviously, our net sales, our percentage of the back end is based on the net sales of CASGEVY. And that would be for any commercial product that's approved to utilize our system. So yes, you can expect that ramp. We can't speak to the numbers as to what the ramp is because we'll let Vertex speak to what they anticipate being the forecast for CASGEVY sales. But that's correct. I mean as we have more patient adoption, you'll have more utilization of consumables, more utilization of our instruments which adds to the recurring instrument license fees that we have on an annual basis. So I hope that was helpful, Dan.

Yes, it is. Okay. And then just as a follow-up, where do you think we are when it comes to the drawdown on the PA inventory levels? That's obviously been a factor. It seems like there could maybe be a little bit more visibility there than just, say, capital raise activity or pipeline progression. So just curious if you think that there is more visibility there and is that an element that maybe is looking a little bit better as we think about the next couple of quarters.

Thanks, Dan. This is Doug. Regarding the inventory drawdown, most of that was completed last year. I don't want to get ahead of myself when discussing Q1, but I believe we are starting this year on a reasonable note. We are noticing some good activity, especially from SPL partners on pull-through. Therefore, I don't anticipate facing the same inventory issues that we encountered last year with people working through excess stock accumulated from previous years.

Our next question comes from the line of Matt Larew from William Blair.

Sort of just following up on Dan's question there, I'm thinking about the cadence throughout the year, most companies in this space have pointed to a much more back half-loaded year. You typically have done about, I think, 43% of total revenue in the first half of the year. So just wondering if the split you're anticipating is any different than your historical level? And then if there's any discrepancies from an instrument versus a PA utilization perspective, particularly early on in the year that we should be thinking about?

Thanks for the question. This is Doug. So the way we've set our forecast for the year, we're not expecting any significant seasonality here. So in terms of back weighting versus the front of the year, we're not expecting any major seasonality here, if you will. Typically, there have been reasons why Q4 usually is a little stronger. We have people getting to the end of the year, maybe to deploy budget. But what's clear for us and maybe this speaks to the conservative nature of how we set guidance this year, there's absolutely no sort of recovery built into our forecast, right? This is the current market conditions. We're basing PA utilization for our guidance here based on where we sort of came out in 2023. So I can't speak to how other companies set their guidance but we certainly have not baked in any component that requires the industry to significantly improve the macro environment for our client base this year. If it does happen, that represents some upside.

Okay. And then just on VLx. Obviously, that product was launched in fall 2022 sort of on a beta basis that's been out there in the market with select customers for some time at this point. You're sort of referencing does not like going back to the drawing board or at least sort of re-evaluating applications and commercial approaches. Just wondering what in particular you think needs to be tweaked or added or subtracted to make that product find the right market fit?

Yes, this is Maher. We're not making minor adjustments. Instead, we are taking a comprehensive approach similar to what we did in the cell therapy field. When we entered that market, we dedicated time to fully understand the application needs of all our customers. We are applying the same philosophy in the bioprocessing area. We are collaborating with a few early adopters to gain insight into where the VLx will be most effective in terms of applications, which cell lines will be utilized, and the production requirements necessary for the VLx. It's not about making tweaks. The engineering behind the VLx is solid; when we launched it at the end of last year, we demonstrated significant protein production capabilities. Our focus now is on certain early adopters who can help us understand the applications that will facilitate a larger market launch. So, it's not about tweaking. It’s about learning from our customers as we did with cell therapy and gaining a deeper understanding of the market so that when we do a broader launch, we can engage a wider range of customers rather than just early adopters. It's really about deepening our market understanding.

Our next question comes from the line of Mark Massaro from BTIG.

Congrats on a good start to the year with the new SPLs added. I wanted to start on guidance. And Doug, I know you mentioned that your guide does not assume any improvement or any end market improvement. I just want to double check that you're likely referring to improvement in the capital-raising environment. And then related to that, I believe you guys indicated that the capital-raising environment is starting the year a little bit better than you expected. Could you please elaborate on that? And maybe any comments on public companies versus private companies? Anything that you're seeing would be helpful.

Sure. In terms of capital markets, when I mentioned improvement in the macro, I was referring to the availability of capital for our customers. We are closely tied to the market we serve and the technology we enable. As access to capital strengthens, it will benefit us. Last year, capital wasn't flowing as freely, and companies were reevaluating their pipelines and pausing some initiatives. However, we've noticed some signs of recovery. We've observed specific financing activities, primarily among public companies. While private companies will also find capital, it's generally the better performance of public companies that leads to financing successes, which can then influence private companies. At the start of the year, we've seen significant financing announcements within the public sector. However, we have not factored an improvement in market conditions into our forecast. Despite being cautiously optimistic based on trends we've noted, it's still early to determine how the year will unfold. Thus, we've adopted a conservative approach, setting realistic goals in our guidance, ensuring we don't predict outcomes based on last year's performance.

Okay. Great. And then, maybe just another guidance clarification question. Obviously, 2023 was a tough year. For the full year, your core biz was down 25%. It was a little worse than that in Q4, down 32%. So for 2024 for you to guide flat to plus 5 obviously does imply an improvement in trends. So I guess what I'm trying to get at is what informs your assumption that you can come in flat to up this year? Can you just give us a sense of if you think a lot of the business will come in through PAs versus placements? Related to that, I think you placed 67 new systems last year versus 114 in the prior year. So just give us a sense for how much of this growth or flat to slightly up will come from PA consumption versus new system placements.

We usually do not break down our guidance into specific components, but I want to explain how we developed our outlook, as it may provide you with insight into our market thinking and its potential impact on our platform utilization. The three main components of core revenue consist of leases for instruments under the SPL arrangements, instrument sales to other markets we serve, and PA revenue, which is influenced by our analysis of where we ended the year. We are examining the rate of PAs we were selling at the close of the year and taking a conservative approach by projecting that forward into 2024. For instrument placements in 2024, we are basing our projections on specifically identified opportunities from our commercial team, assessing the likelihood of each opportunity materializing while applying our improving assumptions about what will come to fruition. Therefore, while I cannot quantify how much of this growth will come from PA utilization, I can confirm that the PA utilization we’re considering is grounded in our performance at the end of the year. I acknowledge that Q4 faced challenges compared to the previous year, although it showed improvements in several aspects compared to the end of Q3.

Our next question comes from Steven Mah from TD Cowen.

On the SPL numbers in 2024, I don't think you guys are guiding to a number but how should we think about new SPLs in the year, given your historic 3 to 5 per year, especially that you're kind of already in that range with 3 already year-to-date? And then also given your comments that the SPL pipeline is robust.

Yes, Steve. We've signed deals throughout this year and are confident in our past performance, which typically ranges from 3 to 4 or 3 to 5. The 3 this year doesn't imply that we are signing 3 each quarter. Usually, our SPL relationships last 9 to 18 months with a customer. Occasionally, we might see a situation where multiple customers are ready to enter SPL negotiations around the same time after completing their development work. However, we are confident in the pipeline we've established, allowing us to maintain our historical trend of achieving 3 to 4-plus on an annual basis. This is the target we are currently guiding to. So, the 3 number shouldn't be interpreted as a consistent 3 for each quarter, but it is still a strong number that we feel good about.

No, no, I understood. And then maybe, Maher, you talked about $1.9 billion of potential value from the SPL partnerships in your portfolio, up from $1.5 billion last year. Has there been any internal changes to your NPV calculations? I know interest rates are trending down. Maybe there's a better approval and regulatory environment which might improve probably success and therefore, your discount rate. How should we think about have there been any changes? Or are you guys being conservative in your calculations?

So to be clear, the number that you referenced is not a risk-adjusted number. So it's not discounted. It's not risk adjusted in any way. How we think about NPV of our programs would you factor in those factors but the metric that you're mentioning, Steve, does not include any discounting or risk adjustment. It's strictly what is available to us under the SPL agreements should every item be hit.

Our next question comes from the line of Matt Hewitt from Craig-Hallum.

Maybe to follow on one of the questions a couple of ago. I think you were acknowledging Q4 was tough. Everybody knows that it was tough. But what are you seeing so far in the first quarter? Obviously, the funding seems to be improving a little bit but are you seeing that slight improvement in funding translate into some slight improvement in the PA utilization in the discussions you're having with potential SPL customers?

Yes. Matt, let me take that. So we are seeing that stabilization that we saw in Q4 really materialized in Q1 as well, right? And that's kind of the funding environment that's also been from our SPL customers that we believe will begin to trickle down into non-SPL customers. You saw a few of our customers raising over $1 million recently in public offerings. So we're seeing that stabilization. In terms of the PA utilization, I'll let Doug speak to that. But obviously, with the stabilization, we're hoping that, that continues throughout the year. Doug, did you want to comment on that?

Sure. I mean let's just talk about where we are in Q1. First off, just to recall what we were talking about in response to your previous question is we're not really anticipating any seasonality in the cadence of the business. So there's nothing built in here that says, "Hey, as long as we have a big second half of the year, we're going to be able to achieve what we set out to do here." So given that we are sitting here a couple of weeks out from the end of the first quarter, we feel good about where we are today. We think we're on track.

Got it. I have a separate question. Your partners mentioned that there is a multistep process with CASGEVY, including patient enrollment and cell recovery. Each of these steps takes several months. This reflects the need to be conservative in the first year. Do you expect that as your partners become more comfortable with the process, the timeline will shorten? Will there be a more normalized pattern of patient enrollment to treatment, particularly in 2025 and beyond?

Yes. Let me take that one, Matt. So the timeline won't shrink because that's the patient journey whether it's now or in '25 or '26. But what will happen is as you have more patients that are having infusions, it will normalize in the sense of you have more patients now that are in any given month being treated with CASGEVY. So it's not necessarily a crunch of the timeline. It's more of a normalization in terms of the usage, the pay usage for us based on how many patients are being dosed which we are hopeful that over the next year and then a few years that you'll have more adoption of CASGEVY, where you have more patients being treated on a monthly basis. So I hope that answers your question, Matt.

That's all the time we have for questions today. I would now like to turn the call back over to Maher Masoud, CEO, for closing remarks.

Yes. No, thank you, everyone, for participating. We look forward to speaking with everyone on our Q1 call.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.