MaxCyte, Inc.

Good day, and thank you for standing by. Welcome to the MaxSci First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Sean Menargas. Director of Investor Relations. Please go ahead.

Good afternoon, everyone. My name is Sean Menarges, and I'm the Director of Investor Relations here at MaxSight. Thank you all for participating in today's conference call. On the call from MaxSight, we have Doug Dorfer, President and Chief Executive Officer, and Ron Holtz, Interim Chief Financial Officer. Earlier today, MaxSight released financial results for the first quarter ended March 31, 2022. 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 undertakes no obligation to publicly update any forward-looking statements, whether because of new information, future events, or otherwise. And with that, I'll turn the call over to Doug.

Thank you, Sean, and good afternoon, everyone, and thank you for joining Backsite's first quarter earning call. I'll begin with a discussion of our business and operational headlines during the quarter and follow that detailed financial review from Ron. We will then open the call for questions. We are very pleased with the start to 2022 as our team continued to deliver on all financial and strategic objectives in our plan. MaxSight's expert platform continues to be the premier cell engineering technology, enabling the development of a growing set of advanced cell-based therapeutics. With our additional resources at hand, we continue to invest in our people and capabilities at a measured but healthy rate as we seek to ensure the success of our partners. Ron will provide more details later in the call, but I note that we generated very strong first quarter 2022 results as preannounced last month and outlined in the press release published today. These results are anchored in robust performance in our core industry cell engineering business, which was up 48% year-over-year. We generated significant SPL program-related revenue in the quarter, with revenue timing running a little sooner than our internal plan had forecasted, yielding strong year-over-year growth in the quarter. As you know, we have very limited visibility into the timing of our partners' clinical progress, and as such, it's a challenge for us to provide precise information regarding program-related revenue beyond general expectations for the year. First quarter revenue was a record $11.6 million, up 78% over the first quarter of 2021, with a very strong growth in the core business. Growth in revenue to cell therapy customers was 57% year-over-year, and to drug discovery customers was 23% year-over-year. Cell therapy growth was primarily driven by both instrument and PA sales. We are seeing expansion of our global customer base across all stages of development and encouraged by our traction with civil therapy customers at early development stage, which continues to strengthen our robust SPL pipeline. During the quarter, we recognized $2 million in clinical milestone revenues. As we have previously indicated, our partnership agreements are strictly confidential, and so we will not be answering any specific questions relating to to our SPL partners, their clinical progress or their respective development programs. However, we remain excited about the progress our partners have been making in the clinic. We continue to sign new SPL partners and see additional SPL programs enter trials. Further, we have seen our existing clinical SPL portfolio progress into later stage, including pivotal clinical studies suggesting we may see a partner's first commercial product as early as 2023. Overall, our core business revenue growth and recognition of the SPL program-related revenues are signed above strong execution by our growing commercial team and robust customer demand. This strength seen in new sales and leases of instruments as well as strong PA sales. The timing of customer PA purchases and leased instruments as they prepare for pivotal trials and commercialization can be hard to predict, and we would expect them to remain lumpy until our SPL portfolio and clinical progress of those partners is broad enough to smooth out that lumpiness from individual programs. Given our strong performance, we wanted to highlight that we have not seen any weakness in the demand for our products and associated support from our customers. We have strong relationships with our partners and customers and believe MaxSight's expert platform is a core aspect of their therapeutic development strategy. We continue to meet and exceed our customers' expectations for supply and scientific support, and we continue to have a growing new business development pipeline. Our SPL pipeline remains strong, and we continue to expect additional SPL partnership announcements this year at comparable economics to prior partnerships. In the first quarter, we signed an agreement with Intima Bioscience, which we highlighted on our last call. We now have 16 SPL partners covering more than 95 development programs in the aggregate. of which more than 15% have entered the clinic. In the near term, we are optimistic about the potential for our SPL partners to generate meaningful and growing revenue from both their preclinical research and clinical progress, as well as hopefully commercialization of partner therapeutics over the next 12 to 24 months and beyond. We are making important investments to support our future revenue growth, including investing in our commercial teams, developing and expanding in-house manufacturing and in our in-house bioprocessing and cell therapy applications and process development labs. These investments will advance our ability to take advantage of expanding markets, the emergence of new therapeutic development programs and companies, and support our partners as they move toward and into commercial launch of therapeutic products. This investment will come with continued growth and headcount across most areas of the organization. particularly in R&D and sales and marketing, including alliance management. These kinds of investments have delivered strong growth to date as we support our partners' potential success, and we continue to be upbeat about the value of these investments we're making in 2022 and beyond. In closing, we have had an excellent first quarter for 2022 as we continue to execute on our financial and strategic goals. We're very excited about our opportunity going forward, particularly in the self-therapy market, and are making the right investments to drive growth across the business. I will now turn the call over to Ron to discuss our financial results. Ron?

Thanks, Doug. Hello, everyone. As Doug mentioned, we realized record revenue of $11.6 million in the first quarter compared to $6.5 million in the prior year's quarter based on strong performance in both our core business and through the clinical progress milestones delivered by our SPL partners. Core business revenue was $9.6 million in the first quarter of 2022, compared to $6.5 million in the first quarter of 2021. This includes revenue from cell therapy customers of $7.4 million, growing 57% year-over-year, while revenue from drug discovery customers was $2.2 million, growing 23% year-over-year. We saw broad growth across the business, with particular strength in instrument sales and cell therapy, and in processing assembly sales in both cell therapy and drug discovery during the quarter. We recognized $2 million of SPL program-related revenue in the first quarter of 2022 compared to immaterial program-related revenue in Q1 2021. Moving down the P&L, gross margin was 91% in the quarter versus 89% in the first quarter of the year prior. The increase in gross margin was driven by the higher SPL program-related revenue, alluding that SPL revenue gross margin was relatively unchanged. Total operating expenses for the first quarter of 2022 were $14.7 million, compared to $12.2 million in the first quarter of 2021. And recall that Q1 2021 included $3.9 million of expense from winding down investments in our Karma platforms. As Doug mentioned, our current strategy is to continue to make meaningful investments across the business to take advantage of the opportunities we see to accelerate organic growth over the coming years. The overall increase in operating expenses was primarily driven by increased headcount to support growth in field sales and field science, manufacturing, and lab teams. Growth in public company-related and stock-based compensation expense also contributed to the higher level of expenses compared to the same period a year ago, as our NASDAQ listing did not occur until the third quarter of 2021. We have a very healthy balance sheet with total cash and cash equivalents and short-term investments of $246 million as of the end of the first quarter, and no debt. Note that in Q1, we began to see the first portion of cash investments in construction of our new facility. Total investments this year in our new headquarters is expected to be approximately $12 million in 2022. we are increasing our outlook for 2022. We now expect revenue from our core business, which includes sales and leases of instruments and sales of disposables to cell therapy and drug discovery customers, to grow at least 25% compared to 2021 core business revenue. We saw strong business momentum in the first quarter and remain cautiously optimistic about the balance of 2022. Turning to our SPL program economics, as we have discussed in previous calls, The timing of SPL revenues is predicated on our customers' clinical and regulatory progress, where we have limited visibility. Taking into account the earlier than expected Q1 program-related revenue, we continue to expect 2022 SPL milestone revenue of approximately $4 million. Doug?

Well, thank you, Ron. In summary, we remain excited about the opportunity to lead the industry forward as the premier cell engineering platform technology supporting the development of advanced cell-based therapeutics for patients that may not otherwise have treatment options. As always, we want to take this opportunity to thank our team, board, suppliers, investors, and the amazing industry that we have the honor of serving. We are very pleased to report strong first quarter results, and MaxSight remains well positioned for growth, and we are excited about the opportunities ahead. We are now opening up the line for questions.

Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, please press the pound key. Please stand by while we compile the Q&A roster. And our first question comes from Max Masucci from Cowan. Your line is now open.

Hi, this is Stephanie Ahn from Max Masucci. Thanks for taking the questions and congrats on a great quarter. If you look broadly at some of the more recent therapies your SBO partners have launched in the clinic and compare them to the therapies you supported during the 2017 to 2020 timeframe, what sort of diversity of cell types and molecules are you seeing? Are there any emerging trends to call out?

Good question, Stephanie, and thanks for the question. We are seeing quite a bit of movement since 2017. One of our first deals was with CRISPR, and we're seeing that continuing. We're seeing multiple edits being done to cells. We're seeing companies move from T cells and some T cell subsets into NK cells. A lot of focus now on different sorts of gamma delta T cells and B cells. So the cell population, the subsets are increasing. I think, again, we're seeing more complex edits, which I just mentioned. We're seeing different tools being used. Some of them have been around for quite some time, like zinc finger nucleases and transposon, transposase. And so we're just seeing a lot of difference. We're also seeing movement in some new indication areas. You know, principally it was inherited disease with CRISPR in their single-cell program, obviously into autologous stem cell, also an allogeneic T-cell treatment. And we're also seeing for cancer, we're also seeing movements into autoimmune disease. And some of our earlier stage customers are working in neurodegenerative disease and infectious disease. So we really think this whole field is just beginning to explode as people become much more comfortable with these engineering tools and manufacturing methods.

Got it. That's super helpful. And also with the recent pullback in publicly traded biomanufacturing peers and likely some degree of a pullback in private asset values. Has your approach towards M&A changed at all? Are you leaning more towards tuck-in, complimentary M&A, or are you entertaining some later, more transformational deals?

Yeah, I think, well, you know, we're seeing some movement in the private financing now. It's reflective, I think, of a few months behind the decrease in financings in the public market. I think, just to put an exclamation point, We're not seeing any reduction in demand for our products with our partners, so that's good. We've always thought about expanding our corporate development group. Our targets are confidential, but I think it's fair to say that we have talked about staying very close to our knitting, staying close to the self-engineering space, not moving too far upstream and downstream, and really looking for opportunities where we can solve really big pain points that customers are having in the self-therapy field. How we do that, I think we're open to all the different opportunities, but I think if we do a deal, if we do several deals, they're going to be, again, around solving these engineering problems for our customers.

Got it. That's great. Super helpful. And if I could squeeze in one more. So during the last call, you highlighted that you were working with several beta customers on the expert VLX to build application data. can you provide some more detail on the progression of the beta launch or share any additional milestones on the VLX product roadmap?

Well, sure. So we, you know, we, we, we released that product in the, in the, in the fourth quarter of this year. And, you know, much of the focus at that point was really investing in the business and refining our strategic plan. So we, we did the release in 2020, 2022. We think it's a, it's a, very interesting marketplace, and we think this is a highly disruptive technology in large-scale bioprocessing. So we're working with these customers with the expert VLX to build applications data to support that movement. We think the opportunity is large. It's going to take time to evolve that opportunity with our partners. I think one of the areas that we're very excited about is the the rapid production of monoclonal antibodies. We think there's immediate need for that in the marketplace. I think it's a broad TAM expansion opportunity for the company. And we're doing quite a bit of this in small scale with the STX today, so it's a bit of a natural progression for us to move as our companies, our partners, want to move kind of from the mid-scale, which is the STX, up to larger volumes. And Again, work has to be done in this area in applications. There's a significant amount of work that's done pre- and post-electroporation engineering and process development. That's one of the areas that we focus investments is to ensure that we have the ability to support our customers all the way through their process.

Got it. Thanks so much for that, Collar. Really appreciate it.

You bet. Thank you.

Thank you. And our next question comes from Matt LaRue from William Blair. Your line is now open.

Hey, good afternoon. You hear me loud and clear that no change in terms of demand from customers, but just because it's been such a topic this earnings season. Often you have six to seven programs per customer, and it certainly would make sense that with lead assets there would be no change. But just curious if you've seen any reprioritization or deprioritization of pipelines from customers at all beyond sort of the lead or secondary assets?

Yeah, we're really not seeing it at this point. I mean, I think that our focus is typically on the lead asset or number two of the company, like you suggested. And as far as we can see, these companies aren't pulling back on those. A lot of the work, if they're pulling back, they may be pulling back on some pre- pre-clinical programs, but again, it's usually pretty confidential with our partners that we wouldn't have much vision in that or ability to see what's going on. The other issue is that our business has grown quite a bit. We had a very strong core business growth in the first quarter, so I think that's evidence that things continue to be moving forward at a pretty good rate.

And then just in terms of hiring, just curious what you're seeing out there and if you've been able to hire at pace with what you were expecting. I think that came in a little bit light of what we were thinking, and just curious if that's any sort of efficiencies that you've built in or if you're behind schedule at all on the hiring front.

Well, I'll let Brian talk about the expense side of it, but we have a very active team hiring group, we've expanded our human resources and team building. We're also, you know, being, I think we're being very creative in terms of how people work in the company. You know, over the last couple of years, as many of you know, it's been primarily virtual. We're still seeing that as a primary way of bringing in great people. And of course, that has its own series of leadership and management challenges, but I think if you find the right people, you bring them in and you provide them the tools that they need to work virtually, I think we're going to do pretty well. Ron, would you like to talk at all about the expense changes for the first quarter?

Yeah. So, you know, we're being successful hiring the people that we want. I think it's a more competitive environment that we've seen. in prior years. That means we might be a little bit behind what our plan was for ramping headcount. I don't think it's a material effect, but that competitive environment makes it take a little bit more time to find people. We are being successful hiring the people we want. When we find a candidate, more often than we've seen in the past, they have other offers in hand, but we're winning the people that we want, so I think that's going well.

Okay, thanks, Ron. Last one would just be, just about two months ago, there was a competitive launch in this space. We'd just be curious, over the last couple months, if you've been out and perhaps heard feedback on that device or had it compared to your own technologies. Is there anything you would highlight about what you're hearing or what you see as key differentiators which have been maintained, even relative to this newer launch?

Yeah, so I'll say a couple things, Matt, but I'm obviously not going to give the playbook to the competition. This is a product that they've been talking about. It's an official product for quite some time. They're showing it up. It's showing up in major meetings. We're not seeing it playing any role in the commercial break-offs with customers, so we're not seeing the impact of that. I think the thing that I think differentiates us is performance and flexibility and scale and CGMP and our focus on supporting our customers in the cell engineering space. So we welcome the competition and I think it just brings more validation that this is a pretty interesting area that's going to have a lot of future benefit for our company. All right.

Makes sense. Thanks.

Thanks, Matt.

Thank you. And our next question comes from Dan Arias from Stifel. Your line is now open.

Good afternoon, guys. Thanks for the questions. Doug, you mentioned some lumpiness that can arise with respect to the individual programs that you have and your prepared marks. I'm just kind of curious whether some of your partners have pushed into the later stages. You've gotten comfortable with the purchasing around key milestone events. In other words, how consistent are you finding the spending to be into a scale up to a new trial stage and then maybe out as well? Should we think about there being step-ups ahead of a milestone and step down afterwards? Or is that something to be mindful of, or is it more or less consistent?

I think the lumpiness is really around the milestones themselves, because we have a number of those, but we have 15 in the clinic. I think at some point we're going to need a larger number of them to actually smooth that out. I'm not a mathematician, so I don't know how you're going to do it. get to that number. You know, I think it's still new to us. And so we're seeing, you know, ramp ups, obviously, preclinical into the clinic, we're actually seeing quite a bit of non clinical work that's been going on with some of these products as well. I mean, once they don't, they don't, these companies don't call it all per clinical, they call it non clinical, because they're doing experimentation alongside the product that's been in clinical development. So I think because of the relatively small number of programs, we don't really have a good handle on what demand looks like. I think that's one of the reasons why we've elected to start doing more in-house manufacturing so we have the flexibility to support these customers. And obviously we want more of that once we start moving into a commercial launch of some of these products in the next couple of years. Hopefully that answered your question. You had a couple things.

Yeah, it does. And you're right, and I think some of it just seems like it's naturally TBD on what happens from here. Maybe just on a different topic, new business development and new account wins. If I go back a year ago to when we were talking about the business at the time of the listing, you guys had mentioned share within the clinical non-viral delivery market that was like 40% or so, and then there was another 15% that was in discussion, as you put it, which kind of felt like it had good conversion potential. Are you able to sort of update us on that chunk and how you've converted the business that looked like it was coming your way, you know, call it six to 12 months ago?

Yeah, I can't update it quantitatively, but I can say qualitatively that we're meeting all of our goals and we're winning that business and converting companies to, you know, even in the early stage to our technology. You know, we're also... we've invested in, we've invested a bit in, in working in these translational medical centers, where you have a CGMP manufacturing suite within an academic setting. And, you know, we've begun to have a much more focused marketing effort and sales effort than that. Because at the end of the day, that's where many of these companies are spawned from right there, they're coming out of an academic slab. And once they either get into the clinic, or they're about to go into the clinic, someone's forming a company around them. And so if we can get that technology kind of embedded in that early enough, we think that's going to just feed that SPL pipeline for the future.

Okay. Maybe if I could just sneak one more in here since it feels like we have the time here. On the strategic plan that you were kind of touching on, you had alluded to it I think in your comments with the VLX, but I think part of what you were trying to do this year or into this year was move upstream and downstream of where you are today in self-therapy or at least evaluating how you could do that. Is that something we should keep an eye out for? And if so, would that be an organic effort or more on the inorganic side?

Yeah. So, you know, we're building out a corporate development group. We've been spending a lot of time on strategy and where we want to play. And I think I think we can win around, again, around what I just said with the first caller, around the cell engineering step. Some of these are going to be organic, but we've already identified some opportunities that we can kind of build into what we do. We do believe that there's a real need in the marketplace for product consistency, product characterization, ways of being able to control product potency, which has become more and more of an issue. And, you know, we think there's some analytical techniques that we may be looking to become more basic in. These opportunities will most likely be in the manufacturing area, not in the early stage discovery area. So I think, you know, I think we've got to, if you think about our company, we're on the quadrant, we're up in the, you know, high value proprietary manufacturing enablement. We want to stay up in that sector and really focus our team on that. So there's a, We think there's quite a bit of opportunity there. Technologies are maybe being used in other ancillary industries like in bioprocessing and port over. And there's also a number of technologies and products that are being developed by smaller companies that have to make that decision whether or not they want to make those investments in sales and marketing. And in today's environment where capital markets aren't quite as robust as they were six or nine or 12 months ago, I think there's going to be boards of smaller companies going to be thinking hard about it. They want to make that investment, take that risk, because execution can be very difficult in that marketplace. And I think we've been able to achieve a certain level of success in it.

Okay. Helpful, Doug. Thank you. Thanks, Dan.

Thank you. And our next question comes from Jacob Johnson from Stephens. Your line is now open.

Hi, this is Mack on for Jacob. Just a couple quick ones for me. On the drug development side, can you talk about how much of the investments in R&D and sales and marketing are focused on this side of the business? And how much do you think this could accelerate growth in the segment?

Yeah, so some of the, I think we're starting to see the benefits of some investments we've made over the last couple of years on new processing assembly. So we've had a we continue to have a rather robust voice of customer and voice of customers focused on drug discovery. We've been talking about that for a bit because that market's been, I think, you know, flat, slightly, slightly, slightly growing. And we wanted to really try to accelerate that a bit. And I think we were reasonably successful in the first year of the first quarter of picking that up a bit. We'll continue to do that. And I think the more we can, the more we can focus the use cases and drug discovery, which includes bioprocessing, I think the better off we're going to be in order to be able to build that business. The VLX is that launch, the initial launch, when it happens, will be probably over in the bioprocessing side, not in cell therapy, because in our minds, drug discovery would include the mid- and large-scale production of monoclonal antibodies. So I think you're going to see, hopefully, quite a bit of growth in that sector as we continue to make investments in the drug discovery side.

Thanks. Also, last quarter you commented on that you're seeing interest outside the U.S. How large of an opportunity are the European and Asian Pacific markets for you?

We've been in Europe for quite some time, and there just continues to be strong growth throughout the EU and the U.K. So we're pretty basic in sales and FAS and marketing operations there. So I think we're making the right period of investments to be there. We're seeing growth in cell therapy, certainly in China. We're figuring out the best way of approaching that. It's a tough market to, I think, be successful in. I don't think it's a particularly tough market to get into, but I think it's a tough market to maintain some level of sustainability, and that's what we're really focusing our attention on. We've had some success. I think we've had a lot of success in Japan and, to some extent, Korea. So I think you can continue to see us focusing our interest in Asia and, of course, in Europe. I mean, Europe is one of the backbones now of cell therapy.

Great. Thanks, Doug. Sure.

Thank you.

Thank you. And as a reminder, if you would like to ask a question at this time, you may press star and then the number one key on your touchtone telephone. And our next question comes from Mark Massaro from BTIG. Your line is now open.

Hey, guys. This is Vivian on for Mars. Thanks for taking the question. So for your existing SPL portfolio, can you share any detail on the rough split of your customers that are in the clinic at present or in later stage development? Thanks.

Yeah, so the only what we do share, and we said that there's 16 partners out the end of last year, 2021. And of those 16 partners, 95 programs are associated with those partners and 15% are in the clinic. And then I know there's been quite a bit of, I think, speculation and, and, and views by some analysts in terms of what what products we're supporting. We have probably the scholars that were supporting the CTX001, which is obviously the drug for sickle cell disease. I think we've been a bit less forthright in some of the other programs because all these deals, as we mentioned, are confidential, so we really don't feel comfortable talking about those in any setting.

Okay, gotcha. And can you just touch on the SPL funnel? I think you've previously discussed aiming to sign three to four SPLs per year. Just any updates there and how are the conversations around these progressing?

Yeah, so the pipeline continues to be very robust. It's never been larger. We just signed Intima in the first quarter of this year. We continue to guide to, I think, three or four. I'll let Ron talk about that specifically. and we're building out our business development group and alliance management group, so we think that there's a tremendous amount of opportunity to that. A lot of it has to do more with the progression of our partners, and it does actually in our negotiations, because as they move from kind of preclinical and the enabling studies, that's the turning point where they will want to have access to our patents, our technology, our master plan, those sorts of things.

Okay, great. Thanks for taking the questions. Sure.

Thank you. And I'm showing no further questions at this time. I'd like to turn the conference back over to Doug DeFleur for closing remarks.

Well, great. Well, thank you all for the questions and your interest and your support of Maxite. It's been indeed an amazing 2021 and a great start to 2022, despite obviously the investor sentiment in the industry. And we're We're quite hopeful, and I think we're very confident that we're going to see some really amazing clinical data coming out of our partners over the next several quarters, and I think that's going to pretend well for the cell therapy industry in general and MECC site in particular. So again, thank you all for your support, and I look forward to any subsequent discussions we will have. We will be meeting with investors in the next several days, and if you have any particular questions, you can certainly contact us at ir.maxsite.com. Thank you, Sean. Thank you, Ron. And thank you all for, and Gigi, thank you as the operator for this call. Be safe. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.