MaxCyte, Inc. (NASDAQ:MXCT) Q1 2023 Earnings Call Transcript May 12, 2023

Operator: Good day, and thank you for standing by and welcome to MaxCyte’s First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Sean Menarguez. Please go ahead.

Sean Menarguez: Good afternoon, everyone. My name is Sean Menarguez and I am the Head of Investor Relations here at MaxCyte. Thank you all for participating in today’s conference call. On the call from MaxCyte is Doug Doerfler, President and Chief Executive Officer and Douglas Swirsky, Chief Financial Office. Earlier today, MaxCyte released financial results for the first quarter ended March 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 maybe 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 undertakes no obligation to publicly update any forward-looking statements, whether because of new information, future events or otherwise. Now with that, I will turn the call over to Doug.

Doug Doerfler: Thank you, Sean. Good afternoon everyone and thank you for joining MaxCyte’s first quarter 2023 earnings call. I will begin with a discussion of our business and operational highlights during the quarter, followed by a detailed financial review from Douglas Swirsky, known as DJ at MaxCyte, our recently appointed CFO. We will then open the call for questions. I would like to start off by extending a warm welcome to DJ, who joined MaxCyte’s leadership team as our Chief Financial Officer in March. He is a seasoned financial leader with over two decades of experience in the healthcare sector. He brings financial, strategic and operational expertise across multiple life science companies, including NASDAQ-listed public organizations.

We look forward to the pivotal role he will play a MaxCyte continued growth as an industry-leading cell engineering company. I also thank Ron Holtz, who served as our interim CFO for the past year, as well as MaxCyte’s CFO from 2005 to September 2020 for his dedication and contributions to MaxCyte. Ron is supporting DJ’s transition as CFO, as he moves into a new role as EVP of Administration for the company. MaxCyte began 2023 with the first quarter financial results were in line with our expectations. Although given some of the challenges in the cell therapy industry that I will discuss, we have determined that it is appropriate to lower our revenue expectations for the remainder of the year. DJ will talk more about this in his results. Despite those challenges, I remain extremely excited about the prospects for MaxCyte’s platform, as the premier cell engineering technology for the industry, enabling the development of a growing set of advanced cell-based therapeutics and I am confident in our team’s ability to deliver against our long-term strategic plan.

You’ll note that our first quarter revenues including our core business revenues are down from the same quarter last year. As discussed on last quarter’s call, we are expecting a return to more typical seasonality in our financial performance in 2023, than we had in 2022. It’s important to note that in the first half of 2022, laboratories came back to near full capacity following COVID-19-related disruptions which resulted in elevated spending on instruments and PAs in that six-month period and has created a more difficult year-over-year comparison for the first half of 2023. With regard to PA purchasing among customers with advanced clinical programs, we believe some purchases were accelerated into 2022 in anticipation of potential product approvals, which is resulting in lower levels of PA purchases in 2023.

Outside of our core business, we generated $800,000 in milestone revenue during the first quarter. Our partners continue to make progress in their development programs with several progressing into and through clinical development over the course of the year. As discussed on last quarter’s call, 2023 shows signs of being a challenging year for the industry. In the face of a challenging capital markets environment, companies are prioritizing pipeline assets for research and development, which is having some impact on the timing of projects in 2023, especially for smaller cell therapy biotech companies with late-stage preclinical and early-stage clinical programs. We also have seen numerous restructurings and expense cutting measures being undertaking at cell therapy companies in recent months, including several such announcements coming within our customer base.

Within this environment, we are also seeing increased hesitancy and therefore extended timelines for capital investments from our customers. We felt the impact of that macro environment impacting the timing of instruments and PA purchases as 2023 has progressed, increasing the caution we discussed in March and as DJ will describe in more detail. Despite those evolving headwinds, in the near term, our opportunity pipeline remains healthy and our confidence in the value of our offerings remain strong for the longer term. Cell therapy companies continue to move toward nonviral approaches and or focus and invest in more complex engineered cell therapies, including multiple molecules and editing formats across a variety of disease types that play to the strengths of our platform.

Our customers are narrowing and focusing their investments, but we do not see weakness in our core clinical SPL partners as they continue to focus development on their lead aspects. As a reminder, most of MaxCyte’s partner programs are tied to the partner’s lead and/or second clinical program asset, where investment is continuing and progress through the clinic remains well funded. Importantly, even in this challenging near-term environment our non-SPL customers continue to progress toward SPL partnerships. We have signed two partnerships so far in 2023, and we anticipate continued momentum toward announcing more this year. In January, we announced a partnership with Catamaran Bio to support its CAR-NK cell therapy programs to treat a variety of solid tumor types.

Just last week, we were excited to announce a partnership with Walking Fish Therapeutics, to support its innovative B-cell platform. The partnership with Walking Fish further expands our SPL program portfolio into B cells and rare diseases. Additionally, this partnership expands the application of the MaxCyte platform as Walking Fish is developing an innovative B-cell platform to serve as in vivo protein factories that produce the deficient enzyme in Fabry disease. The additions of Catamaran Bio and Walking Fish Therapeutics bring the total number of our partnerships to 20 and with continued high level of engagement with potential partners, we remain confident in MaxCyte’s position as a partner of choice to sell in gene innovators. We look forward to a potentially first commercially approved product enabled by our platform Vertex and CRISPR XL program, which recently announced completion of the rolling biologics license application BLA to the US Food and Drug Administration for sickle cell disease and transfusion-dependent beta thalassemia, with request for priority review.

This application approval would be the first non-viral engineered cell therapy product granted by the FDA, and would further validate the utility of MaxCyte’s platform technology as the premier enabler of non-viral cell therapies. So far in 2023, we continue to position ourselves strongly with targeted investments to support our future growth, as well as our customers and partners’ success. We are focusing on growing our commercial teams, implementing automation in our recently expanded manufacturing capabilities, enhancing our process development capabilities and ongoing product and technology development. In addition, we continue to make investments in our applications lab, which will enhance our ability to support next-generation cell therapy innovators.

We believe these are the right investments to ensure long-term success for MaxCyte and the cell therapy sector. Late last year, we took key steps to formalize our approach to environmental social and governance disclosures. Earlier this week, we issued our inaugural ESG report, which can be found on our Investor Relations website. In this report, we highlight our ongoing efforts in all areas of ESG, including our value for patient initiative launched in 2021 which establishes our efforts to better understand the differential challenges that discrete patient populations face. In the time since launching this initiative, we are developing an understanding of the potential social racial economic and bioethical challenges relating to developing gene and cell therapies.

We have taken these findings and partnered with key opinion leaders proactively participate in efforts that support the novel treatments we enable as they move toward reaching the patients who need them the most. We are pleased to share this first ESG report with our shareholders, and to share our commitment to understanding managing and monitoring our businesses support for sustainability of responsibilities, as a corporate citizen and our role in creating value for patient communities more broadly. In summary, we expect a more challenging operating environment in 2023, which will impact the timing of our customers’ development programs and capital investments. However, we see these developments as short term in the therapeutic space, with great promise over the long term.

Importantly, we continue to have confidence in the value our enablement provides to our industry and in the strength of our SPL partnerships and pipeline opportunities, which remains as robust as ever. We have made critical strategic investments positioning MaxCyte to execute on long-term goals. We are honored to support our partners and believe we remain the partner of choice for non-viral cell engineering technology to support critical programs through development to commercialization. The cell and gene therapy industry is in the early innings of a significant global opportunity to deliver therapies to patients and we remain very optimistic about the medium- to long-term growth for MaxCyte. With that, I will now turn the call over to DJ to discuss our financial results.

DJ?

Douglas Swirsky: Thanks, Doug. Hello, everyone. I’m very excited to have joined the MaxCyte team. I appreciate the opportunity to support our mission for having the next generation of cell-based therapies. During my short time with the company, I continue to be impressed by the quality of our team at all levels in the organization. It is an honor to work with all of them as we support our partners, as they develop innovative therapies for patients who need them most. I will now discuss MaxCyte’s financial results for the first quarter. Total revenue in the first quarter of 2023 was $8.6 million compared to $11.6 million in the first quarter of 2022 representing a 26% decline. In the first quarter, we reported core revenue of $7.8 million compared to $9.6 million in the comparable prior year quarter representing a 19% decline.

This includes revenue from cell therapeutic companies of $6 million, which declined 19% year-over-year and revenue from drug discovery customers of $1.8 million, which declined 17% year-over-year. The year-over-year decrease in revenues were driven by an unusually strong first half of 2022, which did not see our typical seasonality and was strongly impacted by the purchasing patterns of late-stage pre-approval programs and laboratories tied back to near full capacity following COVID-19-related disruptions. As discussed on last quarter’s call, we expect about 40% of 2023 core revenue to occur in the first half of this year consistent with our historical experience outside of last year’s less typical seasonality. We recognized $0.8 million of SPL program-related revenue in the first quarter of 2023 compared to $2 million in the first quarter of 2022.

We will not be able to discuss further details on our SPL program-related revenue or our partner’s progress due to confidentiality agreements. Moving down the P&L. Gross margin was 88% in the first quarter of 2023 compared to 91% in the first quarter of the prior year. Margins were influenced by highly variable milestone revenues as well as the mix of products and customer types and we saw those effects in the first quarter. Total operating expenses for the first quarter of 2023 were $20.8 million compared to $14.7 million in the first quarter of 2022. The overall increase in operating expenses was primarily driven by increases in R&D, sales and marketing, headcount and strategic consulting expenses as the company continues to invest in the expansion of commercial sales and marketing as well as in business, and corporate development and innovation and product offerings for long-term growth.

We finished the first quarter with combined total cash and cash equivalents and short-term investments of $224.7 million as of March 31, 2023 and of course no debt. Moving to our updated full year 2023 guidance. We now expect total revenue for 2023 to grow between 8% and 12% compared to 2022, including core revenue growth of between 5% and 10% and SPL program-related revenue expectations remaining unchanged at approximately $6 million for the year. Our updated guidance incorporates the challenging macro environment and the timing of purchasing patterns from our customers and partners, which Doug discussed. As we have discussed previously the timing of partnership revenue is predicated on our customers’ clinical and regulatory progress and therefore it’s fundamentally more difficult to predict than core revenues.

Our program-related revenue expectation is a risk-adjusted forecast achievable under various potential outcomes across our 20 announced partnerships and their planned clinical progress. As I mentioned, we continue to expect a back half weighted seasonality split of roughly 40% to 60% first half and second half core revenues in 2023 which would be consistent with our historical experience before 2022. And finally, I want to note our strong financial position as we expect to end this year with approximately $200 million in cash, cash equivalents and short-term investments and no debt. Our cash position allows us to focus on realizing the long-term potential of our business model. Let me close by saying that overall we are confident in our updated 2023 revenue outlook and we believe that our modest cash burn and debt-free balance sheet will support our future plans for profitable growth.

Now I’ll turn the call back over to Doug.

Doug Doerfler: Thank you, DJ. In summary, we’re optimistic about the long-term outlook of MaxCyte and the depth of our partnership pipeline. We’re committed to strengthening our opportunity to lead the industry as the premier cell engineering platform technology supporting the development of advanced cell-based therapeutics for patients who may not otherwise have treatment options. As always we thank our MaxCyte team as well as our board, suppliers, investors, partners and the amazing industry that we have the honor of serving to enable the development and commercialization of therapies for patients and their families. With that, I will turn the call back over to the operator for the Q&A. Operator?

Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from Julie Simmonds with Panmure Gordon. Your line is open.

Operator: One moment for our next question. Our next question comes from Dan Arias with Stifel. Your line is open.

Operator: One moment for our next question. Our next question comes from Jacob Johnson, Stephens…

Operator: One moment for our next question. Our next question comes from Steven Mah with TD Cowen.

Operator: One moment for our next question. Our next question comes from Matt Larew with William Blair. Your line is open.

Operator: One moment for our next question. Our next question comes from Mark Massaro with BTIG. Your line is open.

Operator: Ladies and gentlemen, this does conclude the Q&A portion of today’s conference. I’d like to turn the call back over to Doug for any closing remarks.

Doug Doerfler: Well, thanks operator and thanks everyone for joining today’s call. And this is our first quarter 2023 earnings call and I’d like to thank DJ for joining the team and supporting the great work we’re doing and look forward to providing an update on the second quarter later this year. So thank you all very much.

Operator: Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect and have a wonderful day.