Maxcyte, Inc. Q2 FY2024 Earnings Call

Ladies and gentlemen, thank you for standing by. Welcome to MaxCyte Second Quarter Earnings Conference Call. Please be advised that today’s conference is being recorded. I would like now to turn the conference over to Scott Feinberg, Finance and Investor Relations Associate. Please go ahead.

Good afternoon, everyone. My name is Scott Feinberg and I am responsible for Investor Relations here at MaxCyte. Thank you for participating in today’s conference call. Joining me on the call from MaxCyte we have Maher Masoud, President and Chief Executive Officer; and Doug Swirsky, Chief Financial Officer. Earlier today, MaxCyte released financial results for the second quarter ended June 30, 2024. 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 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. And with that, I will turn the call over to Maher.

Thank you, Scott. Good afternoon, everyone, and thank you for joining MaxCyte second quarter 2024 earnings call. MaxCyte reported $10.4 million of total revenue in the second quarter, including core revenue of $7.6 million and SPL Program-related revenue of $2.9 million. We are excited about the progress that we have made so far in 2024, driven by our commercial execution, the continued demand for our ExPERT Electroporation platform and the efforts we have made to continue to provide differentiated end-to-end support to our customers. We are also encouraged by the five new SPLs that we have signed this year, which includes the most recently signed Legend Biotech. Our core business performance was solid in the second quarter with the results in cell therapy and drug discovery that were in line with our expectations. Our performance remains tied to the funding environment for cell therapy developers, which remained stable in the second quarter, but has not significantly changed or improved since the first quarter or the time at which we provided initial guidance for 2024. Amidst this current backdrop, we continue to see our customers operate with a cautious capital spending mindset. Despite this, the overall market optimism in cell therapy and general scientific evolution in the space leaves us incredibly optimistic about MaxCyte’s long-term opportunities. We continue to believe cell therapy will change the paradigm in medicine over the years and we are in the early stages of the future growth of cell therapy. The non-viral cell therapy market continues to move towards engineering approaches that involve more complex therapies across an expanding variety of cell and disease types. This bodes well for MaxCyte given that our technology can support the complexity of new cell therapies to be developed by current and prospective SPL customers in autologous and allogeneic settings. We remain in a strong position to meet our outlook for 2024, and are very optimistic about the future of our business and the cell therapy industry as a whole. To provide some context on our core revenue performance in the second quarter, which Doug will cover in more detail, we grew our instrument installed base to 723 as of June 30th. Instrument revenue continues to be impacted by customer caution on capital equipment purchases. However, we were pleased with PA revenue of $3 million and lease revenue of $2.6 million. Both declined slightly year-over-year, but remained stable from the first quarter of 2024. 51% of our core revenue in the second quarter of 2024 was derived from SPL clients, speaking to contribution from both early stage customers and customers in the clinic. As I mentioned before, we reported $2.9 million of SPL Program-related revenue in the second quarter, putting us at $6 million in the first half of the year. We are encouraged by SPL clients’ continued progress through the clinic, resulting in milestone revenue for MaxCyte. We are also continuing to expand our SPL portfolio as evidenced by two new SPLs signed in the second quarter, BE Biopharma and Legend Biotech, bringing our total signed SPLs so far in 2024 to five. Our most recently signed SPL that we announced in May, Legend Biotech, is a global leader in the cell therapy industry, developing new cell therapies to target life-threatening diseases. They currently have one commercial asset and eight pipeline programs, with revenue from marketed products, partnerships and licensing. MaxCyte’s platform provides Legend Biotech with technical, scientific and regulatory expertise to support the development of the company’s therapies across a variety of cell types and modalities. The addition of Legend Biotech brings our total number of signed SPLs in our portfolio to 28. It is important to remember, these SPL relationships provide us with the opportunity to participate in the success of our customers’ programs. With unparalleled access to our electroporation technology, trained field sales and application scientist support and our FDA Master File and regulatory know-how, we firmly believe that MaxCyte remains the platform-of-choice within our industry. We have strong relationships with our current SPL clients and a robust pipeline of prospective SPL clients, all of which are working vigorously to develop innovative cell and gene therapies for patients in need. As you likely know, MaxCyte supported its SPL customer, Vertex, in the FDA approval of CASGEVY, the first non-viral cell therapy approved in the U.S. Now, midway through 2024, we are confident that commercial opportunity for CASGEVY remains strong. With approval in the United States, Great Britain, European Union, Saudi Arabia and Bahrain, CASGEVY has the capability to enable life-changing treatment to patients worldwide. We are encouraged by the recently presented long-term data for CASGEVY from global clinical trials for over 100 patients with transfusion-dependent beta-thalassemia. The efficacy demonstrated consistency with primary and secondary endpoints from prior XSL studies. Vertex recently reported they continue to see a growing number of patients begin the treatment journey and approximately 20 patients have already had cells collected, with patients initiating the treatment journey in every region where CASGEVY is approved, the US, Europe and the Middle East. There are now 35 activated centers and Vertex continues to expect to activate approximately 75 total centers globally, with the view that CASGEVY represents a multi-billion dollar opportunity. Currently and as previously communicated, we do not have visibility into the timing of patient dosing or completion of infusion, given the lengthy process associated once patient enrollment begins. As such, we continue to exclude CASGEVY-related commercial milestone revenue from our 2024 outlook and plan to provide you with updates as they come from Vertex. We remain very excited by the potential of CASGEVY to benefit patients as the first and only approved CRISPR gene editing therapy. Over the near, medium and long-term, we see significant revenue opportunity from our SPL clients as they progress through the clinic and reach commercialization. The next wave of potential commercial opportunities includes approximately five programs across five SPLs, with launch potential in 2027. These therapies have the potential to address solid tumors, lymphoma, leukemia, sickle cell disease and beta-thalassemia. Beyond this, we see opportunity for 10 approved programs across additional indications of multiple myeloma and autoimmune disease between 2028 and 2030. As we continue to sign new SPLs and our existing SPLs grow and expand, the basket of commercial opportunities in the future grows larger. For the remainder of 2024, we will remain focused on investing in areas of high growth that align with MaxCyte’s core competency, advancing cell therapy innovations. Over the first half of this year, we have reviewed our portfolio of opportunities and investments and reallocated resources towards high impact projects that promise the best return on investment and long-term growth. Commensurate with our realignment we are reducing our investment in and moderating our expectations for the VLX. We will maximize investments previously made in the VLX, continuing to work with early adopters and future customers. Our portfolio realignment focuses on prioritizing operational efficiencies and sales and marketing reach in cell therapy, which continues to be a large and sustainable growth opportunity for MaxCyte. To wrap up, we are pleased with our solid second quarter results and believe that we remain on track to deliver on our goals for 2024. MaxCyte’s value proposition and the support that we provide to our customers and clients is truly differentiated and I continue to believe that we are the premier cell engineering platform-of-choice within the cell and gene therapy industry. With that, I will now turn the call over to Doug to discuss our financial results. Doug?

Thank you, Maher. Total revenue in the second quarter of 2024 was $10.4 million compared to $9 million in the second quarter of 2023, representing an increase of 15%. We reported core revenue of $7.6 million compared to $8.3 million in the comparable prior year quarter, representing a decline of 9%. This includes revenue from cell therapy customers of $6.2 million, which declined 6% year-over-year, and revenue from drug discovery customers of $1.4 million, which declined 18% year-over-year. Within core revenue, instrument revenue was $1.8 million compared to $2.1 million in the second quarter of 2023. Lease revenue was $2.6 million compared to $2.7 million in the second quarter of 2023, and processing assembly or PA revenue was $3 million compared to $3.3 million in the comparable prior year quarter. As Maher mentioned, instrument revenue continues to be most impacted by the cautious capital spending environment for our customers. At the same time, lease revenue has remained stable, indicating strength in our revenue from clinical SPL partners. PA revenue remained solid in both year-over-year and sequential performance, which we were pleased to see. We recognized $2.9 million of SPL Program-related revenue in the second quarter of 2024 compared to $0.8 million of SPL Program-related revenue in the second quarter of 2023. Year-to-date, we have achieved $6 million in SPL Program-related revenue. Moving down the P&L, gross margin was 86% in the second quarter of 2024, slightly higher than 85% in the second quarter of 2023. Total operating expenses for the second quarter of 2024 were $20.9 million compared to $20.7 million in the second quarter of 2023. The overall increase in operating expenses was primarily driven by growth in sales and marketing expenses. Going forward, the company continues to be disciplined, making moderate and targeted investments in high growth areas that offer long-term returns. We finished the second quarter with combined total cash, cash equivalents and investments of $199.8 million and no debt. We are increasing our expectations for year-end cash equivalents and investments and now expect to end the year with $180 million, up from our previous estimate of $175 million. This is a result of greater than expected SPL Program-related revenue in the first half of 2024 as well as disciplined expense management, including the realignment of resources that Maher discussed. Continuing with our full year 2024 revenue guidance, we are reiterating our core revenue guidance and updating our SPL Program-related revenue outlook. We continue to expect core revenue to be flat to 5% growth compared to 2023. We now expect SPL Program-related revenue to be approximately $6 million in 2024. Our SPL Program-related revenue is difficult to predict and subject to the timing of partner development programs. Our base case expectation for the year indicates we will not receive additional milestones in 2024. As a reminder, our 2024 outlook also does not include royalty revenue from CASGEVY. To close, MaxCyte remains in a great position to execute on our 2024 outlook with a continued focus on exercising disciplined spend to deliver long-term growth. Now, I’ll turn the call back over to Maher.

Thank you, Doug. We are proud of our progress thus far in 2024 and look forward to supporting our customers as they progress through the clinic. I would like to thank our MaxCyte team for their dedicated work to our company and customers each and every day. With that, I will turn the call back over to the operator for the Q&A. Operator?

Thank you. And the first question comes from Jacob Johnson with Stephens. Your line is now open.

Hey, it’s actually Hannah on for Jacob. Thanks for taking my questions. Have you seen any benefit from commercial volumes on the PA or leased revenue, lease instrument side of things?

Hannah, this is Maher.

I’m sorry.

Yes. I apologize. Can you repeat the question again? It broke up there for a second.

Yes. As it relates to the base business, have you seen any benefit from commercial volumes on the PA or leased instrument side of things?

So, you’re asking about whether or not CASGEVY is having a material impact on our core revenue?

Yes.

Yes. So, we don’t break that out separately. I think keep in mind that the components that we get from participating in the commercialization of that product do include potentially incremental lease revenue and, obviously, the PAs that are used in a commercial setting. We do not really break that up. The best I can direct you to is customer concentration information that’s in the 10-Q. But unfortunately, we’re really not in a position for a variety of reasons, including maintaining confidentiality since we only have one commercial stage partner at this point, to break it out or talk about how many PAs we’re using or the commercial settings. That is probably not something that we are going to do at this point.

Okay, thanks. And then one more follow-up. It looks like cell therapy and drug discovery both declined a little bit sequentially. Was this just seasonality? Is there anything else you would call out about that?

Do you want me to take that one, Doug? Let me take that one, Hannah. So, obviously, it declined year-over-year. But over the course of the year, it’s been very consistent. From Q1 to Q2, very consistent sales for both drug discovery and cell therapy. Drug discovery itself is a smaller revenue line for us. It’s tied a bit more to a few customers that can create lumpiness with orders in certain quarters versus other quarters. But overall, we’re very happy with the solid quarter that we have, consistent with our Q1 as well and not really comparing it to Q2 of last year, which is a bit of an abnormality.

I think the one thing that we tried to make a point of earlier this year is we talked about sort of a lack of seasonality in our business going forward. We are going to see occasional lumpiness. That’s just the nature of the business. You occasionally see customers put in a big order and influence things. But, in general, we feel pleased where we are at this point on both drug discovery and cell therapy.

Alright, thanks. I’ll leave it there.

Thank you, Hannah.

And our next question comes from Julie Simmonds with Panmure Liberum. Your line is now open.

Hi. Thanks very much for taking the question. A couple of things; firstly, just in terms of SPL agreements—clearly you did five last year and you’ve done five this year already. I notice no more guidance on what you might do for the rest of this year. Are we really going to have to wait more than six months for another one?

Good question, Julie. Good to hear from you again. Obviously, three to five has been historically what we feel comfortable we can sign on a regular basis. The sales cycle for signing an SPL can take anywhere from three months to 12 months, sometimes a little longer depending on the relationship. We don’t speak to when those can happen. Obviously, if there’s another one that happens, we have to update then we will. We can’t comment until the SPL is signed. But I will say this: we have a healthy SPL funnel and a healthy opportunity list of SPL customers that will sign over the years. Our focus is more on ensuring that we’re signing those three to five on a regular basis and not necessarily the timing of whether it happens over the next six months or a few months thereafter. So, I guess that’s a long way, Julie, of saying we can’t promise this year, but we have a healthy three to five on a regular basis that we feel very confident in, especially given the funnel that we have and the opportunity list that we have, and we can continue to grow our SPLs from 28 to a much larger amount over the years to come.

Thank you. Didn’t think you’d say anything, but I had to try. Then just on the gross margin, if you look at that on a core business basis it’s still a little bit lower than where it’s been historically. Is that because you’re now doing the manufacturing in-house and you’ve yet to get the volumes up to the point where it sort of starts to rebalance a little bit or should we be looking at this sort of level going forwards?

That’s certainly a big part of it, Julie. What we’ve established here is a manufacturing facility that can support multiple commercial stage customers. With that much capacity ready to go to support our customer base, we do have some excess capacity. It changes some of the absorption rates and it impacts our margins to have that. We also were manufacturing quite a bit last year. As a result, during a down year we had last year, we definitely manufactured more than we needed. We want to make sure that we maintain appropriate levels of inventory. I think these are margins that have the potential to go back to prior levels. But, again, we’ve said it before, we feel really good about the margins we’re delivering even as they back down to this level because they’re still very substantial and somewhat industry-leading at this point and continue to be so.

Can I add something there as well, Doug. Julie, when we brought manufacturing in-house, we knew that we could potentially take a short-term hit on margins. But that was a positive in our view because we can start controlling the quality and the capacity of how much we can produce on an annual basis. So, in our mind, the short-term hit that we’re taking is well worth the long-term benefit that we’re getting out of bringing manufacturing in-house both for us and also for our customers and partners that we support, especially as our customers get through the clinic, go through pivotal stages and they get commercialization. That quality and capacity that we’re going to have in-house will be crucial for our success as well.

Excellent. Thank you. And just one final one from me. On the VLX, where you’re sort of clearly pulling back a little bit from some of the additional spending that was going there, is it going to be that all comes off the cost line? I noticed there is a slightly lower expense than maybe we’ve seen in the previous quarter. I’m just wondering whether that continues or whether there’s a sort of reallocation back to the more traditional cell therapy spend?

Yes. Obviously, we’re always looking at our expenses and where we can reallocate to areas that we believe have the most growth potential right now, which is in cell therapy. Julie, we see cell therapy as a long-term sustainable business for us. We have minimized spend on the VLX, but let me speak to the VLX itself a bit more. The VLX does have a use case for us as the cell therapy market grows and allogeneic therapies gain traction. The scale and the transfection that we can provide with the VLX is unmatched by other current electroporation platforms. For us, it’s refocusing the VLX on where the use case is best. We’re continuing to work with the VLX in the bioprocessing space with early adopters and future customers where there is a need for the scale it provides for transient protein production. But we’ve minimized spend there because there is not a need for us to continue to spend as much as we have in the past to support those early or future customers. We will continue to reallocate spending where we can have the greatest return on investment and where we believe that we have the greatest future growth potential. What that means for the bottom line, I’ll let Doug speak to that.

I mean, I think Maher said it perfectly. The only thing I’d add is just to emphasize what we’ve already said: we’ve raised our expectations for how much cash equivalents and investments we’ll end the year with to reflect the fact that we’ve had some unexpected milestone revenue come in, as we discussed on the last earnings call, as well as the fact that we’re being more prudent with our expenditures, both in terms of VLX and reprioritizing some of that spending in other areas as well.

Lovely. Thank you very much.

Thank you, Julie.

Thank you.

And our next question comes from Steven Mah with TD Cowen. Your line is now open.

Great. Thanks for taking the questions. Maybe just a couple of follow-up questions on SPLs. I notice that the five SPLs signed this year tend to be mid to smaller-size companies. Maybe if you could give us a little bit of color on how business development discussions with larger players are going and any color on how BD discussions are evolving between smaller, mid-sized and larger companies, and your thoughts on how that mix might change.

Good questions, Steven. Let me give you some color. Legend is a larger company that we signed, and they are taking a non-viral approach where they might have traditionally pursued viral approaches. That said, our focus is not so much on company size. We want to work with as many cell therapy companies as possible, whether they are small or big. We’ve worked with companies that were small early on that became large. The cell therapy space is evolving and a small company now can become a big company later. We want to make sure we’re working with all of them. That’s our goal.

Yes. That makes sense, I appreciate the color.

I was going to add, Steven: this is a portfolio strategy. We’re just trying to build a portfolio of quality clients that use the platform in a clinical setting with potential to generate development milestones and ultimately commercialize a product. We’re spreading our bets and selling to all companies that we believe are quality companies in this space. Some of them won’t succeed and we want to support as many as possible so that many of them can.

Understood. And then if I can squeeze one more in, on your instrument side of the business, could you give us some color on what you’re seeing in the marketplace? It sounds like sales cycles are lengthening. Maybe provide color on how things are looking from the instrument side given that some companies in the cell and gene therapy and bioprocessing space have indicated signs of improvement, and how discussions differ between larger customers and early-stage customers on instrument sales or leasing?

Thank you, Steve. Regarding instruments, the capital that has flowed into the industry has been more focused on larger, public companies, so some of those sales cycles have elongated. For us, instrumentation is an area where we can build forecasts from the ground up on an opportunity-by-opportunity basis and track those through our system. We’ve tightened our forecasting, tracking probabilities and conversion likelihoods closely with the sales team and field application scientists. That’s why today we’re comfortable with our guidance and our expectation to be in the zero to up 5% range for core revenue. There is occasional lumpiness; last year we saw a big second quarter that created variance. This year we are more consistent and on track to meet our goals. Maher, want to add anything?

We’re one month into the third quarter and still feel very confident in what we guided previously for the year. We’re seeing consistent performance throughout the year and into the third quarter. We feel very confident in our guidance and we are evaluating each opportunity on an individual basis to forecast appropriately.

And just one thing we do want to say is our guidance continues to not be based on improvement in the overall market conditions. That represents upside if market conditions improve, but we are being conservative in our planning.

Okay, great. Thanks for that.

Thank you, Steve.

And the next question comes from Matt Larew with William Blair. Your line is open.

Hi. With VLX being de-prioritized, I wanted to ask about future areas of priority for R&D and business development. Your core technology has had a significant lead in the field, but you are one part of a broader process. Most of the R&D in recent years has been iterative and PA-focused. What are the things you can do, if not VLX, to become a bigger company in this space? Does that revolve around system improvements, consumables, or creating or acquiring new technologies?

Good question, Matt. We have been working on product development internally and have hired a new Head of Engineering, Jeremy Kolenbrander, who joins us from over 25 years at Terumo and then Cellares. Our focus is on developing complementary products that provide complementary workflows and address tangential needs in the cell therapy workflow for our customers. Without getting into competitive specifics, R&D focus is a priority and we are taking a focused approach to run the organization in a financially sustainable way while investing in R&D. The main focus will be cell therapy, which we see as a long-term driver for MaxCyte. We want to provide complementary workflows and solutions for tangential needs of our customers.

Okay. Thank you. And then you have the manufacturing capacity to support multiple commercial therapies. In terms of pursuing broader placements and penetration of the total addressable market, do you have the organizational infrastructure—sales and marketing, field application specialists—to support multiple commercial therapies and achieve the penetration you want?

Yes, that’s one of our strengths. We have a well-built sales and marketing organization with sales reps and field application scientists, many with PhDs and years of experience. We feel our current organization can be leveraged for the growth we expect over the next three to five years and beyond. That allows us to penetrate the current addressable market more effectively than competitors that lack similar infrastructure and scientific or regulatory support.

Okay. Thank you.

Absolutely. Thanks Matt.

And the next question comes from Paul Cuddon with Deutsche Numis. Your line is open.

Yes. Good afternoon, guys. Can you hear me okay this time? Just a quick question: PA is a step up on Q4 gains. Are you seeing any areas of particularly high consumption, such as non-T-cell cell types, different targets, or shifts in your new customers?

Our customer base includes a variety of cell types and modalities; that hasn’t changed. If you are asking whether there is concentration towards a particular modality, we are seeing activity across the range—T-cells, TILs, TCRs, and multiple targets. We are seeing more complexity in the cell therapy space, with customers implementing multiple edits to reduce T-cell exhaustion or create persistence. So the market is evolving and we are not seeing it tied to one particular cell type or target.

Thank you. Secondly, on the drug discovery side and a fairly weak quarter, is this the level you can sustain now or should we anticipate further step downs with VLX being deprioritized?

We don’t guide by line item in that way. We saw a dip in Q2, and when we forecast the rest of the year we consider PA run rates, instrument opportunities and lease renewals. Regardless of how cell therapy and drug discovery individually evolve, we feel confident about the guidance we have set for ourselves. There is always quarter-to-quarter noise, but we are not panicking. We believe applications for our technology remain strong in both areas, and the company’s focus on downstream economic participation is on cell therapy.

That’s right, Doug.

Thank you very much.

Thank you.

And our next question comes from Mark Massaro with BTIG. Your line is open.

Hey guys. Thank you for taking the questions and congrats on the strong quarter. You came in above my estimates on both core and SPL. Can you talk about the types of things that might have been pulled forward into Q2 on the SPL side? It’s surprising there is nothing in the back half; should we treat that as upside? Also walk me through potential opportunity for 2025.

Thank you. We are not in a position to provide guidance for 2025. We did have some items occur earlier in the year than expected. This underscores the lumpiness and difficulty in predicting milestones. One benefit of a growing roster of SPL customers is that the lumpiness can smooth out over time, but it’s very difficult to predict exactly when a particular milestone will be achieved. We are taking a conservative view and assuming we have received what we will in 2024. If something else gets pulled into 2024, that would be upside, but we are not counting on it and it’s not impacting how we think about the business for the rest of the year.

Okay. You mentioned five programs with launch potential in 2027 and 10 approved programs between 2028 and 2030 across indications including multiple myeloma and autoimmune disease. Can you walk me through assumptions, probability of success, and whether you mean regulatory approval or full commercial launch globally?

Yes. We mean regulatory approvals, whether in the U.S. or Europe. For the near-term, we have three programs about to enter pivotal starts in 2025 and almost four programs that will be pivotal starting in 2025, with one program currently in Phase 3. If you look at timelines, conservatively some of these could be approved in 2027. There are additional programs entering pivotal stages in 2026 or 2027, which could lead to approvals in later years. In terms of probability of success, it’s very difficult for us to quantify. The cell therapy market does give earlier signals of efficacy with fewer patients in some cases, which can provide earlier clarity when pivotal programs begin in 2025. But broadly, that’s why we estimate the timing you mentioned.

Excellent. Thanks guys.

Absolutely.

I show no further questions at this time in the queue. I would now like to turn the call back to Maher for closing remarks.

Yes. Thank you, operator, and thank you everyone for joining us on today’s call. We look forward to speaking to everyone again during the next earnings call in a few months.

This concludes today’s conference call. Thank you for participating. You may now disconnect.