Quanterix Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Conterix Corporation Q3 2021 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 keypad. And if you require any further assistance, just press star 0. I would now like to turn the call over to Conterix Chief Financial Officer, Michael Doyle, please go ahead.

Thanks very much. Good afternoon, everyone, and thanks for joining us today. With me on today's call is Kevin Rosovsky, our Chairman and CEO. Before we begin, I would like to remind you about a few things. The call will be recorded and will be available on the Investor Resources section of our website. Today's call will contain forward-looking statements that are based on management's beliefs and assumptions and and on information available as of the date of this call. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties, assumptions, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. The risks and uncertainties that we face are described in our most recent filings with the Securities and Exchange Commission. During today's conference call, we will discuss some financial measures that are not presented in accordance with U.S. generally accepted accounting principles or non-GAAP financial measures. In the Q3 earnings release and in the appendix of our presentation, which are available on our website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to comparative GAAP measures. We believe that these non-GAAP financial measures provide investors with relevant period-to-period comparisons of our operations. These financial measures are not recognized under GAAP and should not be considered in isolation or as a substitute for a measure of financial performance prepared in accordance with GAAP. With that, I will turn the call over to Kevin.

Thank you very much, Mike. On slide three, you see the agenda. I'm going to talk about our accelerated growth opportunity and also what I consider to be some of the transformation around utilizing our Samoa franchise to enable therapeutic drugs. Mike will then do some financial results summaries, and I'll then close the meeting with an update to the objectives that I updated after our last earnings call so that you could see some of the advances that we're working towards between now and year end. So to start, we showed this slide last time. Blood-based biomarkers are fast becoming a gold standard surrogate for traditional TAL and ALBEDA PET imaging. And you may have been reading that ever since the FDA approved Biogen's drug in e-size, they basically have become a buzzword. The biomarker has become a buzzword as a way to help evidence efficacy and also evidence, in some cases, safety. So I'd like to start off on slide five by showcasing the fact that we received at a record pace a breakthrough device designation from the FDA for a PTAL 181 blood-based assay which will be utilized primarily with other modes of diagnostics, including imaging, to help triage patients is the intent for this application that we've been given the breakthrough designation, which gives us a priority with the FDA. There also was some really important publications, namely in the Lancet, the Samoa Diagnostic Accuracy data were published. Also, PTAL 217, which is a next-generation phosphorylated towel that we're also working on. Lilly showcased that they used it in Trailblazer 2, and they have also been given accelerated pathway for their drug. And they actually showed that it correlates PTAL 217 both with the images, the PET images, as well as clinical benefit, which is a pretty significant advance. On the financial results, On a non-GAAP basis, we grew it nearly 50 percent. And year to date, we've been growing actually a little greater than 60 percent on a non-GAAP basis. Basically, the difference between GAAP and non-GAAP is removing all of the one-time items from GAAP to give us the non-GAAP. And in 2021, our utilization of consumables has actually been increasing fairly formidably. been running at least a 60% level, which is significantly beyond our expectations going into the year. And we do have $411 million of cash balance at the end of Q3. Our value creation chain reaction has really been kicked off by utilizing biomarkers in trials and then getting them validated, particularly for Alzheimer trials, And then the utility being an opportunity for us to transition over into diagnostics where there's a need for scalable blood-based testing of Alzheimer's to be able to really, at a full-scale level, be able to move patients into the drug and then monitor for drug performance. And this is an area of opportunity. We also, interestingly, were able to get very good progress on our EUAs in the COVID landscape, and that's how we really got to know the FDA pretty well by being able to get an asymptomatic reading on COVID saliva test for the Delta variant for antigen. And this is a pretty significant breakthrough. And there's also been a couple major webinars that further reference cell, especially the University of Emory, showcasing how they've deployed four of our HDXs and measured over 120 thousand saliva points for COVID. So this is the kind of advance that we are continuing to try to pursue. When you look at our financials on slide six, you can see that we had the 46% growth, very good movement on the non-GAAP basis. And what's also really impressive is the product growth, both instruments and consumables in Q3. Consumables particularly almost 100% growth and Lab services, which we had projected, would be down this year compared to at least last year. We had very significant one-time events of COVID. We knew for the full year we would probably be about the same level of lab services as 2020, but on a two-year category from 19 to 21, we are continuing to progress at an 18% level, so we are still seeing nice growth. Overall, I would say the RADx and the ABIT licenses, both from last year and then this year, having RADx, those being removed from our DAP performance to create non-DAP allows you to see the real growth of 46 percent in Q3. On a margin basis, on slide 6-2, you can see that our Q3 delivered almost 55 percent gross margin up from 51.5 last year. On a near-to-date same type of performance, interestingly, consumables is actually over 100% growth, and instruments is over 70% growth. And the lab services is basically flat with last year for the first three-quarters of the year, but on a CAGR basis, it's up 24%, the two-year CAGR from 19 to 21. And then once again, you can see that our gross margin is for the three quarters have gone from 48.4% up to 56%. When you look at the demographics on slide eight, you'll see that geography, we continue to be very strong in North America, but also evolving very nicely in Europe and Asia. Primarily, we see a lot of our position increasing in pharma CROs, but we continue to get a lot of publication pull through through our academics. You can see we've had very strong growth in academics so far in the last 12 months as well. And then in neurology, you can see we are up over 100% in the last 12 months, and that is really the area that we're honed in on. And you can also see in consumables over the last 12 months, we're up nearly 100%. Accelerated down slightly over that 12-month period, primarily due to the one-time effect in the previous year. Instruments, you know, greater than 50%, which is a very strong indicator for future consumable pull-through growth. On slide 9, you can see that the publications, which is the way we validate, third-party validation of our technology, and that continues to accelerate, and we're nearly 1,500 third-party peer-reviewed publications now, and we have over 650 instruments now installed around the world. And you can see in the accelerator bar, Even though we do know our growth this year is not going to be like it's been the last 12 months due to COVID, we still have up to 160 phase 1 through 3 trials that have been run in our laboratory. On slide 10, I'd just like to showcase that we started out in research. We really started this company in research in neuro, and then we've moved very productively into antigen serology for COVID and research, and then we've utilized the technologies that we've got COVID and creating the diagnostics, and that's how we got the two EUAs, one for serology, one for antigen. We're now taking those advances that we showcased at Emory, working with the NIH, who gave us 20 million to scale up, given our capabilities, that we're now moving that down into Alzheimer's, and that's where we got the breakthrough designation for phosphorylated TALs. And as I think you'll see in the updated objectives, we also plan to And we updated these objectives at the end of Q2, but we said at that time we would also submit by year end the MSNFL for breakthrough designation. So that's another key advance for us in our overall objectives for the second half. You can also see on slide 13 that we continue to have really strong growth catalysts in our research business. And this breakthrough designation for 181 is causing many customers to want to utilize our technology for their drug trials given our access and our direction moving into the clinic. And this has also further represented the drug trials being revitalized using biomarkers given the success finally of Aduhelm being approved by the FDA with the accelerated growth path for Lilly's Anatomab. So we're pretty excited that the whole industry is now revitalized on Alzheimer trials. And that puts a lot of pressure on us scaling our company and also making sure the HDX is ready for clinical use, expanding our accelerator. And we think seeing Alzheimer's even earlier before cognitive impairment is benefited by the 100X. And so you're going to see that we are planning to accelerate a lot of our investments to really bring these four items into a very sharp focus of opportunity in 22 and 23. So you'll see us making additional OpEx investments, particularly around these four items in fourth quarter in 2022. Also on the right-hand side, you can see that this is the diagnostic where we I do believe the TAM is about 10 times the size of the research TAM, and we see mounting evidence of these plasma phosphorylated tau biomarkers for Alzheimer's, creating a significant opportunity on the diagnostic side. It's a much sharper focus. We see a lot more value and potential, maybe with greater risk, but if we can get an Alzheimer's plasma test into the market via the breakthrough designation, It represents a way to triage, screen, and diagnostically improve the scaling and even monitoring of patients with Alzheimer's with our biomarkers. For that reason, we're accelerating our LDT footprint in our accelerator and believe that we will be able to run LDT, and you'll see a later slide in 2023 at the latest. Pay or leapfrog for Alzheimer's. health screens, we also think is a big growth catalyst longer term for our diagnostics business opportunity. Slide 11, we've shown over the years, it basically shows that by increasing the sensitivity, it's a significant opportunity to take the IBD proteins today that are measured by Abbott, Roach, and Siemens, there's about 200 of them, collecting about 25 billion, almost all of that being single plex, and a large proportion of it being after patients have symptoms, by being able to move earlier before symptoms and to even create multiplex for greater disease specificity, we think we can move the number of IBD proteins over the next 20 years from 200 proteins to as many as 1,000, significantly ramping up the opportunity for diagnostics of protein measurement. And to do that noninvasively before symptoms, which we think creates a chance to revolutionize healthcare, And we think that the fueling of that will come via the research products, where today there's 1,300 proteins that are being analyzed. But we think with a lot of new entrants into the industry, there's going to be a chance to significantly ramp up the number of proteins that are tested from a research standpoint. Slides 16 and 17 basically show you that the sensitivity is what really is enabling in the area of neuro and cancer patients the ability to see the disease before symptoms present and to do it noninvasively in blood, saliva, and urine. And our goal would be to truly get utility from this technology in a diagnostic setting with this noninvasive, sometimes home care sampling for testing that is very much noninvasive for even if there's infectious disease that might plague society. If you can give home care testing and or at least sampling, and then seed disease before symptoms, it has a profound effect on the overall opportunity. In slide 19, we are simply showing that traditionally the diagnostic industry is $30 billion in revenue roughly, and the pharma industry is more like $300 billion, 10 times the size. And you can see that many of the pharma and diagnostics do a lot of research on antibodies and proteins and that lead to this incredible two markets for life sciences. And inside of this, we're showing the brain and all the different biomarkers that we now can see in blood. Some of them we're actually multiplexing and advancing the field for both diagnostics and pharmaceuticals. And we think there's a whole new category, neurodiagnostic therapies. It's really about getting the therapy into the patient before symptoms. We think that the earlier you can get these diagnostics to teach you when a patient has the pathology and you can then deploy the drug, you can do it safer and with greater efficacy, is a lot of what we're seeing drug companies now attempting to achieve with our technologies. And so on slide 20, you can see that the TAM over on the left-hand side, when it's simply a research biomarker for Alzheimer's, is really only like a half a billion dollars for the drug trials And we do have the probability, we think, of significantly increasing the probability of a drug getting approved by using these biomarkers for earlier phase disease. In the center you can see one of the game-changing publications that came out where it showed that you could actually create correlations by measuring in blood our biomarkers with what you used to see in a spinal tap sample result as well as a PET image or an MRI. And that breakthrough, that correlation, we think has allowed a much lesser invasive, high-throughput approach to move into utility and diagnostics, which we think the TAM could be as much as $11 billion versus the original $0.5 billion. And that's a lot of what we're focused on is trying to capture 10% of those TAMs someday. On slide 21, Lilly has gotten the accelerated pathway for TAMs. their drug and they are utilizing our technologies as they've stated in their press releases. So we're really excited to see if we can continue to evolve it. Slide 22 just shows that the area under the curve for our phosphorylated PTAL 181 where we got the breakthrough designation, third-party peer-reviewed pubs show that the area under the curve is 80% roughly if it's before cognitive impairment. But it's as high as 90% after you start to see cognitive impairment. That's why we want to continue to advance our sensitivity, because on slide 23, you can see there's different biomarkers that can measure pathology, disease pathology, sometimes as early as 10 to 15 years before dementia starts. And the earlier you can see this pathology, the better chance drugs have of being approved using these biomarkers, as well as longer-term moving patients into these drugs utilizing these same biomarkers. And so on slide 24, we just want to show that today there's 55 million people that have Alzheimer's with dementia. And it's projected by 2050 to be 152 million, three times the level. And if you just assume that 10% of the world has access to diagnostics and that those that actually get diagnosed with Alzheimer's would utilize our technology four times a year to make sure that the biomarkers are progressing, It would suggest that a TAM could be as large as $7.5 billion today and someday as large as $22.5 billion with the emergence of greater levels of age and population around the world and the greater population of Alzheimer's. So on slide 25, we just show that our overall approach is to start out with an LDT, which we're saying conservatively we feel like by the end of 2023, there's an opportunity to be an LDT for Alzheimer's using our phosphorylated tau-181 and or even beyond that in a multiplex for even greater specificity. We think there's an investment of $10 million to $15 million to achieve that. And then to get a single site IVD or a laboratory IVD which has FDA approval that gives you the dual source of reimbursement of Medicare with the actual regulatory approval, we think it's more like 40 to 60 million and we feel like by 2024 this is achievable if we can continue advancing the way we are. And then ultimately, we do think distributed IVD would be beneficial for the Alzheimer landscape their new platform would be required, and we have relationships, as you know already, with Abbott, and we also have an NFL relationship with Siemens. Maybe this is done via partner, but there's probably as much as $100 million required to achieve those TAMs that you see on the right-hand side. So up above at the title, we basically say, you know, partnering this could be further de-risk and accelerate our ability to get into the diagnostic landscape, initially as triage, but ultimately as a screen. So we're pretty excited that we are making these advances, and we would like to increase our investment given that the certainty has been improved. And what we don't know right now is from a clinical perspective, we'll rule out the way in which many neurologists want to use the test which would need to maximize sensitivity or would ruin saying that for sure this patient has Alzheimer's, which would require maximum specificity. We think that both of these are achievable with different cutoffs with our technology, and that's a lot of what we're trying to deploy right now. Finally, I would say that we did say that we would plan specifically Sometime, as I said in the update of the second quarter objectives, we would plan sometime in 2022 to file for MS the breakthrough designation. So that remains our goal for the second half and to make sure that that's done completely in the second half. And so with that, Mike, I turn it back over to you for some financial reviews.