This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk10: Good day, everyone, and welcome to the MaxSight Third Quarter 2023 Preliminary Financial Results Conference Call. Today's call is being recorded, and I would now like to turn the call over to Shawn Menarges, Head of Investor Relations. Please go ahead, sir.
spk06: Thank you, Lisa, and good afternoon, everyone. My name is Shawn Menarges. I'm the Head of Investor Relations at MaxSight. Thank you all for participating in today's conference call. On the call for MaxSight, we have Doug Dorfler, President and Chief Executive Officer, and Douglas J. Swirsky, Chief Financial Officer. During the call, management will review the preliminary third quarter 2023 revenue results and updated full year 2023 revenue guidance that we released at the close of the market today. After our prepared remarks, we will take questions. We plan to report our full financial results in the third quarter on November 8th. 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 prediction 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'll turn the call over to Doug.
spk02: Thank you, Sean, and good afternoon, everyone, and thank you for joining us. This afternoon, we announced preliminary third quarter total revenues expected to be in the range of $7.8 to $8 million. Preliminary core business revenues for the third quarter is expected to be $6.4 to $6.6 million, which is well below our prior expectations. SBL program-related revenue is expected to be approximately $1.4 million in line with prior expectations. Based on our preliminary third quarter revenue results and due to the ongoing broader operating and research environment, we have reassessed our outlook for the remainder of the year. We now expect total revenues for 2023 to be in the $34 to $36 million range. This includes core revenue guidance in the range of $28 to $30 million compared to our previous guidance of roughly flat versus 2022. We are reiterating our SBL program-related revenue guidance of approximately $6 million for the full year. Our enthusiasm for expected milestone payments and commercial relative revenue to become a meaningful contributor in the coming years is unchanged. We believe the development outlook for our SBL partners remain intact. As you are likely aware, later this month, Vertex and CRISPR-XSL will have an FDA advisory committee meeting. We are looking forward to the potential regulatory approval of this important therapy, which we view as necessary for patients. More specifically, we believe it's a welcome opportunity to discuss the clinical impact of CRISPR technology and non-viral delivery. And as previously discussed, we believe we have made the necessary and significant investments in manufacturing, regulatory, quality, and alliance management to support the commercial launch of XSL. We scheduled today's call due to the high level of volatility in our operating environment for biotech companies in general and cell therapy companies in particular, and in order to update our shareholders on the current trends that are impacting our core business. The main driver of the revenue shortfall in the quarter and for the balance of the year in each case compared to our prior expectations is lower than expected processing assembly disposable sales. We believe that the weakness in processing assembly, or PAs, can be attributed primarily to early-stage customers conserving spend due to the current challenging funding environment for them. This has led to lengthening timelines for preclinical and early clinical activities as customers reevaluate their pipeline portfolio and R&D initiatives and focus on their primary assets in order to extend their cash runways. PA sales weakness is evident in early stage customers across cell therapy and drug discovery. Additionally, we believe that the continued PA softness is a result of customers drawing down on their inventory from prior year more than we originally anticipated. We saw a buildup of inventory in 2022, and some of our customers and partners may have anticipated a different operating environment in 2023. or had concerns about overall supply chain constraints that they saw across the market in 2022. Throughout this year, we have seen customers and partners change the way they handle their own inventory as they are focusing on short-term inventory needs to preserve cash, as opposed to long-term, long-range planning we saw in the past. PEA sales have been soft among our clinical SBL partners compared to earlier in the year, This has been the result of delayed clinical timelines due to challenges in obtaining additional funding for their clinical operations. Some SBL partners continue to fund development programs, while others require significant additional capital to complete the development, the full development of their pipeline assets. Companies have been more conservative with their PA usage as a result of heightened capital cautiousness on early stage programs, as they await clinical development milestones from their lead assets to potentially support their fundraising activity. We are actively working to increase our visibility into customer PA patterns and inventory levels. However, this is a challenge because customer activity can change fairly quickly, especially in this funding environment. In addition, when speaking with early stage commercial customers, we have learned that they have become incrementally more conservative on large capital expenditures as the year has progressed, which has impacted our instrument sales. While some SPL partners have become more cautious with their capital, our lease revenues has remained fairly stable year over year, which points to less spending friction among customers that are active in the clinic. A number of our customers have important clinical milestones over the next 12 to 18 months, which we believe will continue to demonstrate the value of the MaxLight platform and our business model. Overall, we are disappointed in our core business performance year to date. The overall macro environment has been unfavorable, and as a result, we have less visibility than we would like. We believe it is imperative to drive commercial execution to improve performance at all stages of our business. The global commercial organization at MaxSight is actively working to increase and expand revenue opportunities for the balance of 2023 and into 2024. Despite our lower-than-expected revenue, our balance sheet remains strong. We believe our cash position is a competitive differentiator in the market, as we have flexibility to continue to invest in our growth. Given the challenging operating environment, we have been prudent with respect to our own expenses in 2023 and still expect to end the year with approximately $200 million in cash. Our year-end cash balance outlook has not changed throughout the year despite the expected decline in core revenues. We believe our adaptability with respect to our cost management reflects our commitment to shareholder value created over the long term. In closing, we remain confident in our ability to support our current SBL partners and to further expand our portfolio of partnerships. We firmly believe in MaxSight's business model and the value proposition that we deliver to cell and gene therapy innovators as the non-viral cell engineering technology of choice. Looking out over the next several years, we anticipate multiple waves of therapies will enter the market, which we believe will ultimately drive value for MaxSight. Now I'd like to open the call for questions.
spk10: Thank you. If you would like to ask a question on the phone lines today, you can press star 1 on your telephone keypad. If you would like to remove yourself from the queue, that is star 1 again. And we'll pause for a moment to allow everyone a chance to assemble. We'll take our first question from Julie Simmons with Panmure. Please go ahead.
spk07: Good afternoon, guys. slightly disappointing in terms of where you are. In terms of sort of the PA revenue, the PA utilization, I know you say you're sort of trying to get a better feel for what's going on within customers. In terms of sort of the larger customers that you have, has it changed across all of them or is it Is it sort of one or two where you're seeing an issue, or is this generally across everybody that the variation is occurring?
spk08: Hi, Julie. Thanks for the question. This is DJ.
spk03: So the PA cell weaknesses, we've seen it a lot in the early stage preclinical customers. They've got the most funding constraints right now. So I think the weakness is a little bit sort of you know, wide amongst the customer base, but I'd say it was predominantly or disproportionately would impact the earlier stage companies that have, again, more funding challenges.
spk07: Thank you. And is pricing any part of this fall-off in revenue, or is this purely volume-related?
spk08: It's not pricing. It's volume-related, absolutely.
spk07: Lovely. Thank you. I'll let somebody else begin.
spk08: Thanks, Julie.
spk10: We'll take our next question from Dan Arias with Steeple.
spk01: Good afternoon, guys. Thanks for the questions. Doug, can you just maybe give some granularity to project cancellation activity versus purchase delays and the extent that one or two of those is accelerating? And then, you know, as a follow-up, the natural next question for DJ would be, you know, three cuts and three quarters, not all of which were in your hands, but for the company, how confident are you that you've left yourself room in 4Q, just given that the situation here is clearly tough to characterize?
spk08: Yeah, thanks, Dan.
spk02: We're seeing a slowdown in purchases. We've mentioned that we have a couple customers, some of our customers in the SBL clients that had built up inventory and they're depleting that inventory. We've got one customer, one program that is on a pause right now as they look for partners. But generally, it's across the board, as DJ said earlier.
spk03: In terms of our competence level in this revised projection for a full year, I think there's a high degree of competence. We're a lot further along in the year. We are not making any assumptions about, you know, turnaround in the market in terms of, you know, the rate of PA sales and whether or not, you know, things are going to accelerate as we have seen typically in some fourth quarters. So I think we're taking a fairly conservative view here, and there's a lot less variables from this point forward that are going to impact whether or not that we can achieve the range we've set for ourselves.
spk01: Okay, and maybe as a follow-up, Doug, can you just talk a little bit about what it is that you are able to do to increase that visibility into the customer activities that you referenced there?
spk02: Yeah, good question. So, obviously, all hands on deck, all focus on getting back to a growth scenario. We just hired a head of bioprocessing who has quite a bit of good strategic marketing experience. We brought Ali in about a month ago. We've been focusing... some of our team in certain of the market segments so we can better understand how we can be more, you know, get back to growth. We're looking at expanding some of our geography reach. So I think all the typical things one would expect when you're trying to get back to a growth scenario. And just also really just getting much, much closer to our partners. You know, I just have to, and I think you're gonna appreciate this because you've been concerned about the markets for quite some time. And I've said it this morning that when you're in a rising tide, the boats all kind of float. But when the tide's falling, it's much more difficult to figure out what's going on with customers. Their behavior changes from maybe greed to fear. They become a bit more close in terms of information. So I think we're just trying to navigate through all those changes, too. It's a different environment, as you well know, and it's really impacting, I think, a lot of buyer behavior and just overall the attitude of our customers and clients. That said, we still see quite a bit of good progress with a number of our SPL partners. You look at Caribou and EDI-301, VOR-33, those are all progressing toward phase two right now. So we're seeing good uptake with partners that are in the clinic moving toward clinical milestones, which they need to raise more money. Hopefully that gives you a little bit more color to how we're thinking about this.
spk08: Yeah, it does. Thanks, Doug.
spk10: We'll take our next question from Matt LaRue with William Blair.
spk09: Hi, this is actually Madeline on for Matt. Just thinking about sort of the stocking impact and customers working down their inventory, how much of that do you think is from customers having overbought or stocked up during 2022? And how much of that is from customers maybe buying appropriately and now having fewer programs or less use cases for the inventory they purchased?
spk03: I don't think we can parse that out specifically. I think you've identified two of the main reasons that are probably bringing down the level of PA sales that we expected. But in terms of parsing that out specifically, I think it's challenging to do that.
spk09: Got it. And then sort of following up on the Q4 question, I know you said you feel a great deal of confidence in your ability to hit that, but it does look like there's going to be a bit of a ramp between Q3 and Q4. Just wondering what you anticipate is going to be driving that.
spk03: No, I mean, I think to do the math here on where we are after three quarters, and you'll see that we're not expecting a significant ramp here for the fourth quarter. So that's one of the reasons we feel relatively confident here. There were a lot of challenges in terms of how these numbers came together for Q3, and we're saying, you know, PA sales continue at the rate that they're doing it. This is the number we would expect to hit. So there's not a real ramp baked in there for Q4. So the bar is at an appropriate level given where the markets are. We also obviously have had pretty stable lease revenue throughout the year. That gives us a little bit of a base of support in terms of towards that fourth quarter number we need to hit. So I think for a lot of reasons, we feel comfortable that We're not baking in any market recovery. We're not baking in any changes in customer behavior that would be positive for us. There are things that could have us exceed this range, but I think based on everything we know and assuming that the market doesn't improve and assuming that our customer behavior patterns will be consistent between Q3 and Q4, we think the target for Q4 is appropriate and it's conservative.
spk09: Great. Thank you.
spk08: Thanks, Natalie.
spk10: We'll take our next question from Mark Massaro with BTIG.
spk00: Hey, guys. This is Vivian. I'm for Mark. Thanks for taking the question. So maybe just at a high level, I'm curious if you're seeing any changes in biopharma preference away from non-viral small engineering approaches or any change to competitive environment? Thanks.
spk02: Yeah, so two parts to that question. We're not seeing any change we're seeing to non-viral is actually acceleration. So we continue to see, certainly in the LO space and the autologous space, movement toward non-viral. There's no doubt about that. Competitively, we're not seeing anything that's out of the ordinary. We always have competition in the field. We're not seeing anything that would indicate that there's anything that is elongating or causing us to not be able to be effective.
spk00: Okay, great. Thanks for taking the questions.
spk10: We'll take our next question from Steven Ma with TD Cowen.
spk04: Thank you for taking the questions. A lot of ground already covered, so just do some incremental questions here. I know you guys mentioned the prior 2022 PA orders. Is there any way you can get any granularity on companies, again, that they you know, are they really just delaying or have they actually dropped programs? Because, you know, some other drug discovery companies have actually announced that they're actually dropping programs. I'm just wondering if you guys have any visibility on companies actually dropping programs and if that was really driving the reset on the diet.
spk02: Thanks, Steve. I mean, as we mentioned before, most of the weakness that we saw and are seeing is really with these early stage preclinical customers. You know, we signed five SBLs this year, and they're all preclinical. And so what you're seeing there is they're having funding challenges. We're seeing slower progression from customers in the clinic. But there's very few programs that have been stopped with our portfolio. I did mention one on PAWS, which was one partner that's looking to do some business development, partnering around that one asset. But other than that, no.
spk04: Okay, I appreciate that. And then last question for me. You know, it seems like you're maintaining the 6 million SPL revenue guide. You know, again, you know, just your level of confidence on hitting that 6 million. Thanks.
spk03: Sure. So, you know, we're pleased where we are year to date in terms of milestone program-related revenue. We do have a large item baked into Q4, which we have weighted appropriately to come up with scenarios that would generate that $6 million. I think we've said before that we will not reach it if that program does not get approved. And there are opportunities to exceed that number. So on a probability weighted average, we came down to $6 million. But again, to be consistent with what we said before, we won't hit that number if there's not an approval.
spk08: Great, thank you. Thank you.
spk10: We'll take our next question from Jacob Johnson with Stevens.
spk05: Hey, thanks. Good evening. Maybe just two follow-ups. One, just on the 4Q outlook, does that assume any... I know, DJ, you just talked about the program revenue from the large customer with potential commercial approval. Does the 4Q revenue assume any pickup in PA demand associated with that launch, or is it kind of similar backdrop as 3Q?
spk03: No, we've basically held the run rate, you know, sort of the daily rate sort of orders for PAs. We've just held constant. We looked at our Q3 experience. We didn't make any assumptions that things would improve from here. We think that that's the right assumption to make. So we're not making any additional for any large customer to come in and do things. Things could come in and certainly improve the situation. We think we've appropriately covered the downside.
spk05: Got it. Thanks, CJ. And then just on the PA stocking dynamics, Is there any way to think about the shelf life of those products? If this persists, like how long until somebody would have to reorder if things remain muted? And I'm just curious, you know, obviously you're assuming things are weak again in 4Q. I know it's too early to think about 2024, but kind of what are you looking for in terms of customers for PA orders to maybe pick up?
spk02: When could that happen and what needs to happen? Because this product is a room-stable product, there isn't any concern about shelf life, so that's not an issue. Again, I think we're just pointing to some of our partners' programs in the clinic that we believe are progressing toward good clinical data. That should improve our PA uptake after the fourth quarter. I really don't want to spend too much time on the 24 until we really get 23 under our belt right now, figure out what we're going to do about repositioning what we need to do for the company.
spk08: Got it. Thanks, Doug. Thank you.
spk10: And that does conclude today's presentation and the end of the question and answer session. Thank you for your participation today, and you may now disconnect.
Disclaimer