Akoya Biosciences, Inc. (NASDAQ:AKYA) Q4 2022 Earnings Call Transcript

Akoya Biosciences, Inc. (NASDAQ:AKYA) Q4 2022 Earnings Call Transcript March 7, 2023

Operator: Thank you for standing by. And welcome to the Akoya Biosciences Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. As a reminder, today’s conference call is being recorded. I will now turn the conference over to your host, Mr. Priyam Shah, Head of Investor Relations. Please go ahead, sir.

Priyam Shah: Thank you, Operator, and thank you to everyone who is joining us today on this call. I’m Priyam Shah, Head of Investor Relations at Akoya Biosciences. On the call today, we have Brian McKelligon, Chief Executive Officer; and Joe Driscoll, Chief Financial Officer. Earlier today Akoya released financial results for the fourth quarter ended December 31, 2022. A copy of the press release is available on the company’s website. Before we begin, I’d like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. 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. For a list and description of the risks and uncertainties associated with the Akoya business, please refer to the Risk Factors section of our Form 10-K filed with the Securities and Exchange Commission today, March 6, 2023. We urge you to consider these factors and you should be aware that these statements are considered estimates only and are not a guarantee of future performance. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, March 6, 2023. Akoya disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise.

The audio portion of this call will be archived on the Investors section of our website later today under the heading Events. We would also like to inform listeners that Akoya will be participating in the Cowen Health Care Conference tomorrow, March 7th. If you’re not planning to attend in person, please see our Investor Relations page for webcast information for this and other recent or upcoming investor events. And with that, I will now turn the call over to Brian.

Brian McKelligon: Thank you, Priyam, and good afternoon and evening to everyone. We appreciate you joining us on the call today. 2022 was an excellent year for Akoya capped off by a strong finish with yet another record-breaking quarter. As an organization, we delivered solid commercial execution and consistently strong revenue growth, installed base growth and publication growth within the spatial biology market. We reported record revenue of $21.2 million in the fourth quarter and $74.9 million for the full year of 2022, a 36% growth over the prior year. We sold a total of 71 instruments in the fourth quarter and 237 instruments for the full year 2022, a 61% growth in placements from the prior year and we ended the year with an installed base of 934 instruments.

Akoya has the largest installed base of spatial instruments in the industry and we are on track to reach 1,000 instruments by early this year, a major milestone for the company. Additionally, the rapidly accelerating publications volume featuring Akoya’s platforms now at 772 publications to-date, is the largest amongst spatial biology providers. Our consistent execution, large and growing installed base and publication growth gives us increasing confidence in the momentum of our business and the spatial biology market in 2023 and beyond. Akoya’s product portfolio is setting the industry standard for next-generation tissue analysis. The company was founded on the vision and fundamental assumption that the market requires rapid imaging-based NC2 technology or comprehensive tissue analysis, enabling the understanding of the molecular and cellular interactions at a single cell level across whole tissue sands.

In 2022, we solidified our instrument portfolio with the launch of the Fusion. We expanded our footprint across all market segments and made significant progress on our long-term clinical goal of impacting patient care. Akoya brings to the spatial biology market a full suite of end-to-end and purpose-built platforms across the discovery, translational and clinical market segments. Our continuity of technology, reagents and methods across our entire portfolio allows us to own the biomarkers journey from discovery to the clinic. At our recent Special Day event in December, we previewed our 2023 priorities and product roadmap and the summary is as follows. First, we are introducing platform and workflow improvements across our entire instrument line that will further advance our leadership position in spatial imaging and drive additional reason pull-through across our nearly 1,000 instruments in the market.

Second, we will build on our commercial and partnership success in the translational clinical markets to further advance our goal of improving patient care. And third, we will focus on driving operational efficiencies, including more targeted investments in 2023. Now let me address each one of these in more detail. Our platform improvements include further simplification and acceleration of our workflows on both the PhenoCycler Fusion and the PhenoImager HT. To take full advantage of these improvements, we are introducing expanded reagent menus of ready-made panels for both the PhenoCycler Fusion for high plex discovery and the PhenoImager HT for high-throughput translational studies. These new biomarker panels will be marketed under the brand name PhenoCode.

PhenoCode discovery panels for the PhenoCycler Fusion and the PhenoCode signature panels for the HT. Our projected reagent pull-through increases will be driven by improved system capacity and throughput, ready-made panels to increase plex and application breadth and an ecosystem of software partners to reduce the time from data to answer. Beginning next quarter, the Fusion 2.0 release will be rolled out. It is the primary system improvement on the PhenoCycler Fusion for 2023 and results in a significant increase in throughput and workflow simplification. This 2.0 release includes a multi-slide carrier for parallel processing and tissue samples and effectively doubles the system throughput up to 20 to 30 samples per week. This upgrade also supports the rollout of Bio-Techne’s RNAscope on the PhenoCycler Fusion.

I’ll remind you, RNAscope is the industry’s gold standard RNA NC2 assay with over 6,000 publications to-date and broad adoption across the life sciences market. RNAscope is an ideal solution to complement protein-based spatial phenotyping in a targeted manner and to validate discoveries made with higher plex spatial transcriptomics approaches. And in parallel, in the second half of 2023, we will introduce Akoya’s proprietary high-plex spatial transcriptomics solution to support RNA and ultimately multiomic spatial studies. On the PhenoImager HT, we are continuing our efforts to simplify and streamline our informatic workflow and post-processing to a true clinical standard. In mid-2023, we will introduce further improvements to the HT that moves the post-processing tissue analysis steps directly onto the HT for on-instrument compute.

The result will be a reduction in data post-processing from hours to minutes and an automated workflow for tissue and cellular annotation. This upgrade supports our translational and clinical customer demands for rapid and standardized analysis to drive throughput, consistency and ultimately adoption. Now to enable our customers to take full advantage of these system improvements on the PhenoCycler Fusion and the PhenoImager HT, we are introducing our new PhenoCode reagent offerings. These PhenoCode panels will deliver a suite of ready-to-use biomarker panels, focused on answering key biological questions with greater efficiency, speed and comprehensiveness. Our PhenoCode discovery panels are designed to run on the PhenoCycler Fusion for discovery-based applications.

The first product launch will be protein-based with RNA solutions coming later in the year. These panels will be — these panels will introduce — will be introduced throughout the year on a quarterly cadence. We will share more details at this year’s AACR meeting in early April, but at a high level, the PhenoCode discovery panels will be launched as modules of 10 to 20 biomarkers, enabling our customers to mix and match modules to quickly build a comprehensive high plex panel. We are focused on core biomarkers and are designed to address key biological questions in oncology, inflammatory disease and neurobiology. At the AGBT conference last month, Akoya and our partners at Stanford each presented PhenoCode discovery panels with simultaneous detection of protein and RNA across large sample cohorts, demonstrating great science at speed and scale.

Throughout this year and next, we will continue to build out these molecules for protein, RNA and multiomic applications, enabling high plex and high throughput discovery across a broad range of applications and customers. For the translational and clinical markets, our PhenoCode signature panels are designed to run on the PhenoImager HT. The initial five panels were created for the rapidly advancing immuno-oncology therapy landscape that includes nearly 6,000 ongoing clinical trials, which demand pre-design validated antibody panels with detection reagents and a ready-to-use format. The PhenoCode signature panels enable fast and scalable spatial signature development and deployment and will deliver higher revenue per sample, accelerated and increased system utilization, reduced assay optimization time and will result in a higher pull-through on the HT.

And now to pivot to software and data analysis, but to remind you, Akoya’s platforms already leveraged on instrument image processing and file compression that reduced file sizes by 30-fold from terabytes to gigabytes. This novel and proprietary technology enables ease of data transfer and analysis via our standardized file format called QPTIFF. This standardized format also simplifies and accelerates the development of third-party software solutions. Rather than develop and deploy a singular monolithic solution, Akoya strategy is to partner with a rapidly growing ecosystem of spatial biology software providers. Similar to the dynamics seen in other markets like microarrays and flow cytometry and NGS, rapidly adopted new technologies spur parallel development of supportive solutions.

This is especially true of software and is certainly happening now in the spatial biology market. We already have a full range of software partners to support the unique customer needs across all of our platforms and market segments. We have both commercial and free open source partners, we have cloud-based solutions and others that rely on local compute. The growing list of partners include established industry leaders like VisioPharm, Indica Labs and PathAI, new and rapidly emerging providers like OracleBio and Enable Medicine and open source software and the open source software QPS. In addition to this rich product roadmap, we are progressing several initiatives in the downstream translational and clinical markets, leveraging the PhenoImager HT and our Advanced BioPharma Solutions CLIA Lab or ABS at Marlborough.

We recently announced a partnership with Agilent to make possible a seamless end-to-end clinical workflow for multi-plex assay use in clinical trials. Akoya will leverage Agilent’s expertise and their clinical grade Omnis autostainer to support a full spectrum of multi-plex assays for biopharma. With Agilent’s Omnis, clinical antibodies and CDX expertise, and Akoya’s HT platform, CLIA Lab and technical leadership in clinical grade multi-plexing, we can together support clinical assay development, validation and use in clinical trials, creating a one-stop shop for our shared biopharma parts. The combined strength of Agilent and Akoya, two leaders in our respective fields, accelerates multi-plex companion diagnostic development programs and provides a global channel for subsequent commercialization.

Our agreement with Acrivon Therapeutics to exclusively co-develop and commercialize a first-of-its-kind spatial signature companion diagnostic for their targeted oncology aging continues to advance with a clinical trial ongoing and is yet another important milestone in furthering our clinical menu offering. In parallel, ABS continues to see robust growth and expansion of existing and new pharma partners. We made significant progress in 2022, pursuing the large spatial biology clinical TAM with key partnerships and developments that will continue to gain traction in 2023. To summarize our fourth quarter and full year 2022, we are very pleased with our strong financial and commercial performance this year as we continue to expand our leadership position in the spatial biology market.

As we outlined, we’re focused on the following initiatives in 2023. First, drive the continued adoption and improvements. PhenoCycler Fusion as a best-in-class NC2 imaging platform for Discovery spatial biology. Second, continue to deliver new applications and drive further workflow and speed improvements across the full instrument portfolio to drive an increase in pull-through. And third, we’ll continue to partner with leading biopharma, medical centers, CROs and diagnostic leaders to drive the adoption of the PhenoImager HT, translational research and clinical diagnostics. And lastly, we’ll drive operational efficiencies and more targeted personnel investments on our path to achieve profitability. And with that, I will now turn the call over to Joe to discuss our financial results.

Joe?

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Joe Driscoll: Thanks, Brian, and hello, everyone. As Brian highlighted, the total revenue for the fourth quarter of 2022 was a record $21.2 million, 31% growth over Q4 2021 and full year revenue was $74.9 million, 36% growth over full year 2021. Our extremely strong performance in 2022 despite a challenging macro environment gives us increasing confidence that we are in a high growth market with a strong portfolio that meets the needs of a broad customer base across multiple verticals and revenue categories. Product revenue, which includes instruments, reagents and software was $15.7 million for the fourth quarter and $57.7 million for the full year, representing 30% growth over full year 2021. Instrument revenue was $11.1 million for the fourth quarter and $38.6 million for the full year, representing 35% growth over full year 2021.

We had another strong quarter with 71 total instruments sold, of which 25 were PhenoCyclers and 46 were from the PhenoImagers portfolio. We sold 237 instruments for the full year and ended 2022 with a total installed base of 934 instruments, which includes 254 PhenoCyclers and 680 PhenoImagers. As of yearend 2022, a total of 120 Fusion instruments have been shipped since the full commercial launch at the start of the year and we now have a total installed base of 105 for the combined PhenoCycler Fusion system sold either directly as a combined system or upgraded from a previous standalone PhenoCycler instrument. The number of combined units is an important metric, because this combination is projected to drive significant increase in reagent pull-through over the next few years.

Reagent revenue was $4.5 million for the fourth quarter and $18.4 million for the full year, representing 29% growth over full year 2021. In 2022, we experienced some FX headwinds in Europe and COVID lockdowns in China, which impacted our reagent revenue. With an annualized pull-through in the mid-$30,000 range per instrument for the PhenoCycler and the PhenoImager HT, we project the pull-through to increase significantly by as much as 2 times to 3 times over the next several years as more PhenoCycler Fusion are up and running, along with our rollout of new consumable offerings and instrument field upgrades. With the PhenoCycler Fusions shipped during the early phase of the launch for which researchers have been trained and are now actively using for projects, we are already noticing significant increases in pull-through compared to PhenoCycler’s with third-party microscopes.

As researchers continue to become fully trained and the installed base of PhenoCycler Fusion is continue to expand, we expect the further acceleration in throughput and application expansion to impact reagent pull-through even more. The new highly optimized PhenoCode signature panels and higher plex PhenoCode discovery panels, which will be rolled out throughout 2023, will not only contribute meaningfully to pull-through and accelerate time to answer, but we’ll also increase our share of reagent revenue as the panels are wholly offered through Akoya as ready-to-use. We continue to target annual reagent revenue growth of approximately 40% per year for the next several years as the new innovations hit a commercial stride and our installed base continues to rapidly expand.

Services and other revenue totaled $5.5 million for the quarter and $17.2 million for the full year, representing an increase of 65% over full year 2021. Our Advanced BioPharma Solutions, CLIA Lab, continues to gain significant traction with large pharma and we also signed other meaningful clinical partnerships throughout 2022, such as Acrivon Therapeutics and Agilent. Gross profit was $12 million in the fourth quarter and $43.4 million for the full year, representing full year gross margin of 58%. We continue to make investments in the CLIA Service Lab to support clinical trial enrollment, which has a near-term impact on margins as we build out these clinical grade capabilities. We have also experienced some impact on margin from inflationary cost pressures, consistent with what most other companies are experiencing.

Operating expenses for the quarter totaled $29.6 million and $109.5 million for the full year. With significant investments on business expansion efforts throughout 2022, we have laid the groundwork for the commercial rollout of the PhenoCode panels throughout the year, field upgrades for the PhenoCycler Fusion, partnered software expansion and a full end-to-end discovery to clinical workflow. Our plan for 2023 includes making more targeted investments in areas that will generate the highest returns as we create a path to profitability over the next several years. We ended the quarter with approximately $81 million of cash and marketable securities and $11 million in additional debt capacity. We continue to take a balanced approach to accessing capital as needed to ensure we maintain our exceptional growth throughout 2023.

Common shares outstanding are $38.3 million as of December 31st and fully diluted shares, including the impact of outstanding options and unvested restricted stock awards totals $38.9 million. To summarize, we had another record-breaking quarter with $21.2 million in revenue and $74.9 million for full year 2022, 36% growth over the prior year. We sold 71 instruments across the product portfolio this quarter, 237 instruments throughout 2022 and now have a total installed base of 934 instruments, the largest in the industry. The shipment of 120 Fusions in the first year since the launch demonstrates the robust demand for our new instrument offering. Now with 772 publications featuring Akoya’s platform as of year-end 2022, we remain very confident in our ability to deliver continued growth in 2023 with the adoption of our current platform and new commercial product rollouts.

At this time, we are providing a preliminary revenue guidance range of $95 million to $98 million for 2023 as we continue to see tailwinds for our business and the spatial biology market. We project that seasonality will be consistent with prior years with Q1 having the lowest quarterly revenue and Q4 having the highest. Now I’ll turn it back over to Brian for closing remarks.

Brian McKelligon: Thank you, Joe. We’re pleased to report a strong quarter and full year performance. We announced multiple exciting new partnerships and developments across the portfolio and we’ll look forward to executing them throughout the year. We’re thankful for the hard work of our fellow dedicated Akoyans, as well as for the support of our customers and shareholders. Akoya remains very well positioned for growth and we’re excited about the opportunities that lie ahead as we deliver new spatial solutions from the discovery to the clinical markets. And at this point, we will open up the call for questions. Operator?

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Q&A Session

Operator: Thank you. Our first question comes from the of John Sourbeer of UBS. Your line is open.

John Sourbeer: Hi. Congrats on the finish for the year and thanks for taking the question.

Brian McKelligon: Thanks, John.

John Sourbeer: Just on the 2023 guidance, any color just on how to think about instrument pull-through and consumable mix through the year and what’s really embedded in guidance there? And then if you look back at the customers that adopted the Fusion in the first half of 2020, 2022, do you think that most of these customers have now started to hit that full utilization or just how do we think about those dynamics and what’s embedded?

Brian McKelligon: Just to clarify the second part of your question, you’re referencing those customers that have the new PhenoCycler Fusion?

John Sourbeer: Yeah. That’s correct.

Brian McKelligon: Yeah. Let me take that second part and Joe can give qualitatively on the 2023 with the caveat that to-date we’ve only really guided on the number. I guess what I would say in terms of the aggregate PhenoCycler user base, recognizing that we launched in March, we really started shipping in bulk a year ago with really strong performance throughout the year. So if you sort of average in assume it takes a quarter, sometimes too for people to get up and running, I would say we probably don’t have the majority of those PhenoCycler Fusion user customers at full stride just yet given how long it takes. And given that if you sort of average in that total number that we’ve sold, we’re probably less than halfway there in terms of full system utilization and then the aggregate impact that those higher throughput users have on the total resin number, but also on the average pull-through. Does that makes sense.

John Sourbeer: All right. That makes sense.

Brian McKelligon: Yeah.

John Sourbeer: And I guess just a follow-up. You ended the year with $81 million in cash on hand. Any just color around the cash burn and then any potential financing plans?

Brian McKelligon: Yeah. Let me talk on that, and then, Joe, I didn’t give Joe a chance to talk a little bit about the first part of your question on 2023. Yeah, $81 million cash on hand with $11 million additional debt capacity, and again, as Joe noted, a more targeted investments this year with higher revenues to less burn. So we’re in a really solid cash position right now. But Joe, you can add a little bit more color there, if you’d like, but also address John’s question around 2023 and any additional color.

Joe Driscoll: Yeah. I think your answer on cash is spot on. In terms of the guidance for next year, the $95 million to $98 million, we don’t break down the guidance by individual categories. But the way we think about reagents, for example, is that there will be a build throughout the year as we roll out new products, as more and more customers get up and running on the PhenoCycler Fusion. So I think you could think about pull-through as being a gradual increase quarter-after-quarter, that combined with the increase in the number of instruments that we sell, that’s what hopefully will get us to that 40% growth number for reagents. That’s our internal target anyways.

John Sourbeer: Got it. Thanks for taking the questions.

Brian McKelligon: Thanks, John.

Operator: Thank you. One moment, please. Our next question comes from the line of Kyle Mikson of Canaccord. Your line is open.

Kyle Mikson: Hey. Thanks guys for the questions. Yeah. Congrats on the year. Great outlook as well. Maybe look a multipart financial question to start then a follow-up question. So on pull-through, actually, just on your last point, Joe. I mean it sounds like it’s going to continue to increase. I mean, you said 30,000 though, still, I mean, I’ve heard that for a few years, I feel like, I mean, what’s stopping customers from really using the boxes more. Okay, just — I think that would have increased or at least accelerated kind of recently. And then you just mentioned, Joe, this 40% growth rate going forward and I think like over 50-50 mix with consumables and instruments would be good as well. I mean can you kind of do that if pull-through remains in this 30%, 40% kind of range? Thanks.