Quanterix Corporation

Good day and thank you for standing by. Welcome to the Quantx Corporation Q4 2023 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 this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Vandana Sriram, CFO. Please go ahead.

Thank you and good afternoon. With me on today's call is Mathod Chaloo, President and CEO of Quantelis. Before we begin, I would like to remind you of a few things. This call will be recorded and a replay will be available on the investor relations section of our website. Today's call will contain forward-looking statements within the meaning of the US Private Securities Litigation Reform Act. These forward-looking statements are based on management beliefs and assumptions, 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. To supplement the company's financial statements presented on a GAAP basis, the company has provided certain non-GAAP financial measures. Management uses these non-GAAP measures to evaluate operating performance in a manner that allows for meaningful -to-period comparison and analysis of trends in its business. The company believes that such measures are important in comparing current results with other period results and are useful in assessing the company's operating performance. The non-GAAP financial information presented here should be considered in conjunction with, and not as a substitute for, the financial information presented in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures set forth in the appendix of the presentation posted to our website and in the earnings release issued today. I will now turn the call over to Masood.

Thank you, Vandana. Starting with Q4 of 2023, we hit record consumables production, delivering $17.5 million in revenue, contributing to $31.5 million of total revenue. Non-GAAP gross margins improved 515 basis points versus fourth quarter prior year, and cash use was $6.4 million, leaving us with over $320 million of liquidity on our balance sheet and in a strong position to deploy capital for growth investment. As a reminder, we began a corporate transformation process six quarters ago with a focus on three core principles, quality, innovation, and positioning quantarics to unlock the value of the transitional markets. In 23, we built newly formulated assays, improving margins and manufacturability, testing capacity in our accelerator and manufacturing output improved by 50 and 300 percent respectively, each with new capacity to grow threefold from where they are today. New assays rolling off production lines are now getting into the hands of our first customers. These accomplishments over six quarters are the result of our team's focus, determination, and strong operating discipline. The efforts have positioned us for better quality, higher throughput, faster innovation, and are reflected in our financial performance for 23. With revenue growing 16 percent, non-GAAP gross margin improving over 1300 basis points, all while we reduced cash burn by 40 million in 23 as compared to 22. In 2024, our three strategic objectives are growth and menu, new innovation in tech, and Alzheimer's disease diagnostics. Starting with the first objective, we intend to leverage our newly built product development engine by introducing approximately 20 new assays by the end of this year. This is not a small feat. Second, we're allocating resources to expand our technology platform. While four to five PLEX satisfies the vast majority of neuro programs today, our goal is to have Samoa not just in specialty neuro labs, but Samoa in all labs. We're working on multi-channel lossless resolution, which means no loss measurement of the lowest quantity of protein that can be distinguished from the absence of that protein across multiple channels. Developing this would be a significant breakthrough. Expanding PLEX, maintaining sensitivity, improving footprint, and reducing cost will enable research and clinical work in immunology and oncology laboratories. I expect we'll discuss more toward the end of the year. Finally, on diagnostics, our stated goal is to build the global testing infrastructure for Alzheimer's disease. Identifying patients by invasive methods, including PET and Lumbar and Puncture, is not scalable and limits access to newly available Alzheimer's disease therapies. There's now abundant evidence showing non-invasive testing methods using blood-based biomarkers are equal to or better than invasive methods, and we believe they will be the best solution for broadening access of therapies to patients. It has also become clear that identifying patients early in a disease cascade results in better patient outcomes, and this is where we will play a critical role. I want to make an important point here. Samoa digitally interrogates proteins in femtolidder wells, providing exquisite signal to noise separation and amplitudes a couple orders of magnitude beyond noise floor where other technologies reside. The combination of ultra sensitivity and precision enables much lower limits of detection and quantitation than other technologies. So, as part of a diagnostic follow-up, if a Samoa PTAO-217 test is used throughout the diagnostic workup, a physician can track at patient's levels if symptoms progress or if they undergo treatment. Other tech may not have the sensitivity or precision to do this across the full range of PTAO-217 concentrations that are diagnostically relevant. Precision at the very low concentration levels that PTAO-217 is present in blood allows Samoa assays to provide high diagnostic accuracy given the need to resolve small changes around cutoffs corresponding to low and high likelihood of amyloid pathology. Our test uses a two-cutoff design as recommended by the NIAAA and other expert groups providing a high confidence result extending to both ruling in and ruling out amyloid pathology. This has the potential to reduce approximately 70 to 80 percent of PET scans and lumbar punctures during the Alzheimer's diagnostic process. Over the next two years, we will allocate 20 million a capital to advance the access of our diagnostic tests. We will also focus our clinical studies for diagnostics in two main areas. One, development and validation of a multi-marker blood test and prospective studies with health systems to establish blood-based biomarkers as part of a routine Alzheimer's diagnosis and treatment. For the multi-marker test development and validation, we're wrapping up the first two phases of two important studies, biohermes and cantade. Biohermes is a prospective study that enrolled individuals from 17 sites across the U.S. including significant numbers of underrepresented populations and collected blood samples as well as PET images. Phase one of the study is now complete and with publications expected later this year. Cantade is our ongoing collaboration with researchers at the Amsterdam Medical Center where blood is being collected as well as CSF with corresponding biomarker measurements to assess amyloid. We expect to announce results from phase one of these studies later this year. Quantarix is also sponsoring and taking part in several new studies to establish blood biomarkers as part of routine Alzheimer's diagnosis and treatment. In addition to helping expand the adoption of laboratory-developed tests based on Samoa technology such as plasma 217 and our planned future multi-marker test offering, these studies are expected to provide clinical validation data support and FDA submission for an Alzheimer's blood biomarker diagnostic. In 2024, we will focus our efforts on building out our commercial capabilities to support diagnosis of Alzheimer's disease and what we would expect to be a corresponding uptick in the adoption of new therapies. We've already onboarded a dedicated commercial team and they've hit the ground running. We're pleased to announce that we're now working with five leading health networks in the U.S. An important step as we build out the infrastructure that supports testing for this disease. Each will have access to the LUCIN-AD test at our CLIA-certified lab or our instruments and assays to develop and validate their own laboratory-developed tests. These networks will provide reach to over 140 hospitals caring for approximately 21 million patients. I will now turn the call over to Vandana to cover our financial results.

Thank you, Masood. I will now cover additional details of our fourth quarter and full year performance and will provide guidance for 2024. As Masood mentioned, the 2023 year and kept our corporate transformation and we've made significant execution progress over the sixth quarter program. Our total revenue for the fourth quarter 2023 was 31.5 million, an increase of 22% from the fourth quarter of 2022. Our consumables revenue increased to 17.5 million or 56% compared to the fourth quarter of last year. This was a record quarter and we noted continued strong demand for our consumables offerings coming from high interest in supporting neurology. Instruments revenue was 3.3 million, a decline of 39% over the fourth quarter of 2022, similar to other tools companies and continuing the trends we saw in the second half of 2023. We added net 20 instruments to our install base in the fourth quarter of 2023. Fourth quarter revenue from our accelerator lab was 5.6 million, an increase of 71% over the fourth quarter of 2022. We continue to observe strong demand for our accelerator services and this has been especially valuable to us in the current environment where tools have been constrained. We're unique in our industry in that CAPEX pressure has not limited customer access to our similar technology. When the budget environment changes to be more favorable to capital purchases, we expect some rebalancing of instrument and service mix. Moving on to gross margin for the quarter, our gap gross profit and margin was 16.8 million and .2% respectively for the quarter of 2023, compared to 12.6 million and .8% respectively in the fourth quarter of 2022. Non-gap gross profit and margin was 14.7 million and .5% respectively in the fourth quarter, as compared to 10.7 million and .3% respectively in the fourth quarter of last year. The -over-year margin expansion reflects the impact of our transformation efforts and favorable mix from increased sales of higher margin consumables and accelerator services. Our fourth quarter 2023 gap operating expenses were 33.7 million, compared to 34.5 million in fourth quarter of 2022. The fourth quarter of 2023 included one-time impairment and restructuring charges of 1.6 million, primarily from a lease impairment, as compared with similar charges of 9 million in the corresponding prior period. Excluding the impact of impairments, gap operating expenses increased 6.6 million and non-gap operating expenses increased 6.4 million, due to higher R&D and personnel related costs. Our operating loss declined from 22 million in the fourth quarter of 2022 to 17 million in the fourth quarter of 2023, due to higher consumables and accelerator sales and improved gross margins. For the full year, these results bring us to 122.4 million of revenue, delivering 16% growth. Now I will provide some additional context on full year revenue. 62% of our revenue came from North America, 26% from Europe, and 12% from Asia-Pacific, with mid-teens growth across all geographies. Over 80% of our revenue came from the United States, from New York, and from the United States. We have a very high revenue margin from neurology, where we continue to have a highly differentiated position. Moving on to liquidity, we ended the fourth quarter with 323.9 million in total cash, cash equivalents, marketable securities and restricted cash, a net usage of 6.4 million during the quarter, as compared to cash usage of 5 million in the fourth quarter of 2022. For the full year, our cash usage was 17.4 million, a reduction in cash usage of 40.3 million. We continue to have a strong balance sheet with ample cash to fund growth. Let's turn to guidance for 2024. We expect full year revenue in 2024 to be in the range of 139 to 144 million. This guide is for our research-only business and does not include revenues from diagnostics testing, which to date have not been material. Diagnostics is a nascent area, closely correlated to therapy adoption, and at this time it is premature to provide guidance. However, with the commercial team that is now in regular contact with neurology centers and hospital systems, we are in a unique position to measure blood testing uptake and we will provide quarterly updates on our progress. For the full year, we expect gap growth margin to be in the 57 to 61 percent range and non-gap growth margin to be approximately 51 to 55 percent. As with revenue, this guide excludes margins from diagnostics testing. Lastly, onto capital allocation and cash usage. We expect our cash usage for the full year to be in the range of 25 to 30 million and increase in cash usage of approximately 10 million at the midpoint. As Masood mentioned, our priorities in 2024 will be growth in menu, innovation in tech, and ramping up diagnostics. We will spend approximately 5 to 10 million on the first initiatives and approximately 10 to 15 million on diagnostics with additional spend on diagnostics expected in 2025. This approximately 20 million investment in our strategic initiative will be offset by approximately 10 million of reduced cash burn from revenue and margin growth. We will continue to drive our REO business to reduce cash burn and still expect to achieve cash flow break even on this business at approximately 170 to 190 million of revenue. This guide includes the incremental investment in menu and innovation. At the same time, we will invest capital to grow diagnostics and consistent with our comments on revenue, it is premature to provide a cash flow break even point for diagnostics. In summary, we are aligning our capital allocation priorities to our areas of opportunity and we will put our capital to work to drive growth in these exciting areas. I will now turn it back over to Masood before we take your questions.

Thank you Vandana. Now I want to say we're very proud of the talent density at Quantarix. It's the super team who has made difficult and painful changes in the company. This would not have been started or completed if we did not believe in the output of work. Our mission is to provide the tools to enable discovery and improve patient outcomes. This is not just a statement that goes on a webpage or wall. It is very real and tangible and our team is in active delivery mode. Now we can take some questions.

Thank you. As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment while we compile our Q&A roster. And our first question is going to come from the line of Matt Sykes with Goldman Sachs. Your line is open. Please go ahead.

Hi, good afternoon. Thanks for taking my questions and congrats on Q4. Maybe just starting out, I want to go back to the announcement you guys made on Monday about the health systems. And just a couple things. One, is that included in the guide? I'm assuming that's the diagnostics portion that you're not including. And two, how do you think about, one, sort of the timing of that revenue coming through? And the other point is in terms of the mix, I know you had said it could be instruments, assays, lab, accelerator lab. How are you thinking about the potential mix of that partnership over time? And I've got a follow up.

Hey Matt. So, yeah, I think the partnership announcements we had a couple days ago was super exciting. And, you know, it did two things. One, you know, the versatility of our offering is First, we're able to offer the platform and the testing, the 217 test, and enable hospitals to do their own testing. But at the same time, we're also enabling access to our accelerator lab, where, you know, hospitals or physicians can send samples to the Lucent lab and we're able to offer services there. So it's a really unique offering. And we're able to keep in touch with neurologists and really stay up to date on the latest of what's happening. You're right in that this is diagnostics revenue that's not imputed in the guide or not put into the guide. Right now, we're not including guidance for diagnostics. And then from a, I mean, mixed perspective, are you referring to the mix on test send out versus enablement or some other?

Yeah, yeah, that mix, but sort of, you know, how many do you expect to buy instruments to it themselves? How many do you think will send out to you? Where do you think the bulk of the revenues could come from for this partnership?

Yeah, that's a good question. I mean, the five that we listed, there's different, you know, ranges. So some of them are going to start as test send out as they're putting together a platform and getting their tests up and ready at their own laboratory. And then, you know, some want to offer testing right off the bat with our platform. So it's a little bit of a mix and it's still early to get a good sense of how that's going to shake up for the year.

Got it. And then maybe for Vandana, just the, maybe some color on the balance of sort of consumable versus instrument versus lab services within that 2024 guide. How do you see that kind of shaking out? I know you made some comments on the capital equipment environment, which we're all very well aware of, but just any color on what you perceive to be that makeshift over the course of the year.

Yeah. So at this point, we're really looking at 2024, you know, at least in the first half, being very similar to the mix that we saw in 2023. So still expecting to start the year with some amount of constraints on the instrument side, but again, seeing really, really good demand on the accelerator side, we have a lot of interest and a lot of, I say, quoting activity going on right now for accelerators. So we continue to see accelerators be really strong and commutables also come out pretty strong. Now, consumables, you know, the initial part of the year will be all about converting customers to the new assets. So we expect there to be some transition period there where we will have to support customers on the older assets and then eventually bring them onto the new assets. So there might be some amount of shoppiness in that first quarter as we get through that. But from that point onwards, we expect consumables growth to be really steady.

Got it. Thank you very much.

Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Punit Soda with Lerink Partners. Your line is open. Please go ahead.

Hi, I'm Masood. Thanks for taking the questions. So a couple of questions here. Maybe first on, you know, just FDA submission. What does that look like and the timing of approval? PTAW 217, what sort of traction you're seeing there? And should we assume that will be as, you know, one of the standalone tests or would be a multi-marker test that comes out of, you know, FDA? I recognize it's 217 at the LDT already. So just want to understand how you're contemplating, you know, FDA approval for the product. And then I have a follow-up.

Yeah, hey, Punit. Thanks for the question. So 217, as you said, it's already in the LDT. We've committed to submitting the 217 biomarker to the FDA this year. We've begun some discussions. All of our clinical trials or the prospective trials that we're running are designed to, you know, get additional data and validation for an IVD submission on 217. And that's something we're going to do this year. And from a multi-marker standpoint, we've also said that in 24, we'd release a multi-marker LDT as well as then, you know, in the future do something on IVD for a multi-marker. But from a sequencing standpoint, you know, we have the 217 LDT today, FDA, you know, IVD submission, multi-marker, LDT, and then subsequent submission for that. And so the biohermies, the Cantade, and then a couple of the new collaborations we're working with now all provide clinical evidence development for not just IVD but reimbursement in the future.

Okay, that's helpful. And then maybe, you know, a bigger question here is based on the feedback that you're getting from the field already, can you talk a little bit about, you know, how do you see the adoption of for the 217 LDT? I know you have commercial folks out there already and collaborations with some of the larger centers. I think the bigger question here is, you know, with Likimbi and DynamoMap, expectations for the street have, you know, some of this have come down, they have settled. But should, I'm just trying to get a view as to what you're hearing versus should we look to the drug adoption to see how things trend?

Yeah, I think drug adoption is, you know, it's hard to say, you know, exactly how this correlates. But I think drug adoption is probably a decent proxy for just testing patients. Now that being said, there's, you know, when we are speaking to neurologists and these hospitals, one of the main things that comes across is just the demand and need for additional tools. And there, it's incredibly clear that, I mean, the data speaks for itself that the 217 test is superior to any other other bar markers out there. And if you're doing a study, and you want to look at a patient at the very early stages and monitor them over a period of time, you need a solution that's going to be able to look at levels that are fairly low and require high sensitivity, all the way, you know, in the life cycle as blood levels of this 217 increase. And so that's clear, and that's what we're hearing. There's also, you know, recall that, you know, a good part of our business is clinical trial work, you know, doing additional, having additional efforts with pharma companies that are looking at combinatorial therapies, other Alzheimer's therapies, and we expect, you know, that to have a research tailwind, as well as, you know, more and more clinical trials. So from a patient measurement perspective, I think drugs are a decent proxy. We'll follow that and we'll have more information as the year goes. But we think that with these new therapies, it's just the start for Alzheimer's.

And then this is my last one on the RU technology that you talked about, the multi-channel lossless resolution. You know, can you just remind us what PLEX you're targeting for that?

Yeah, you know, we, I would say mid to low PLEX. I mean, one of the key guiding principles at Quantarix is that we're very translational. So we, you know, we're involved in identifying these markers and the translation of them, support of these markers for therapies, and then eventually testing and diagnostics. And so, you know, when you look at what or how you do that, it's usually anywhere from where we are today, you know, one to four or five PLEX to, you know, two, three times more than that. And anything more than that really becomes a discovery application. And we're more on the translation side. So that's where we're focusing when we look at future technology. Okay, I'll hop back

into the queue. Thanks. Thanks, Benid.

Thank you. And one moment for our next question, please. And our next question is going to come from the line of Kyle Meixon with Accord Genuity. Your line is open. Please go ahead.

Hey, thanks for the questions. Congrats on the year. I want to ask a longer term question for you, Masoud. And that is the path to reimbursement for the neurology test portfolio. I guess this is a multi-part question. So what's the current plan, you know, plan to this point, including the CBT that's expected in this year? Second, there's other companies with protein-based tests with Medicare coverage, but how does the recent MaldiX -silce-AD kind of impact Quantarix possibly? And third, and finally, you're not trying to get approval for Lusin-AD, PTA-181, but are you still trying to get reimbursement for that test? Like how would all this work for that particularly? Because that's more of a near-term thing. Thanks. Thanks, Kyle.

Yeah, so from a reimbursement standpoint, as you stated, we're going to, we're seeking a CPT for our Alzheimer's blood biomarker, specifically the 217 protein. It's now really abundantly clear that 217 is a superior marker versus 181. So a lot of our focus has shifted on 217 when it comes to testing. That being said, 181 is still available on the LDT, and there's a lot of interest in clinical trial work for 181, and so that's still there. But from a reimbursement standpoint, we've put some of our focus on 217. Now, that's the first step. And then, you know, as we're doing all this work with this prospective study and our collaboration with the VUMC on Cantare, the goal there is a multi-marker algorithm, so several markers together that could provide a differential diagnosis and maybe potentially sensitivities that could be greater than any single biomarker. And then that's its own reimbursement schedule. Okay. Yep, from your question, MoldyX, we were super pleased that these multi-marker algorithms are picked up. MoldyX is obviously well respected, and that read through was very important. We think it's important for the field and validates the path around.

Perfect. Thanks a bunch. Just actually another one on, I guess, I guess, diagnostics. Just confirm, first just confirm please if the 217 test has enough data for, you know, for the approval and for reimbursement. I know you got the Cantare and BiHermes. Is that enough, do you think? And one for Vondenaar. We are

very

confident

with the 217 results. We've published a white paper with a lot of the some results that we have on BiHermes and the Amsterdam cohort together. And so when you combine those two cohorts, we looked at something over 850 patients. And, you know, we had some spec above 90% across the board with accuracy that rounded up to around 91%. So we think the data for 217 is solid.

Great. And final one for Vondenaar. I think that, I think the guidance is something like maybe 10 to 15 or so million for assumed for diagnostic spending for investment in 24. That means like I think it's about 5 million for 25. If you could just walk through, you know, how you're allocating diagnostic investments specifically, that'd be interesting to hear for the next, I guess, two years. And then secondly, you know, if you get, just hypothetically, if you get any diagnostic revenue this year, would that come in at a negative gross margin? Thanks.

Yeah. So on diagnostics, you know, we had signaled earlier that we would spend a total of approximately 20 million between 24 and 25. For 2024, most of that spend is on the commercial side. So we've already on boarded our team that happened very late last year. So we'll have full year of costs for that team, as well as everything that's needed to really get the message out and to get the right traction around the commercial team. So there's some amount of infrastructure costs, you know, to get billing ready and all those kinds of things. But it's primarily, you know, getting feet on the street and getting that going. And then, you know, similarly for 2025, we expect the cost to be along those lines really more to support what it takes to get the reach of the test out. We think we have enough capacity accelerators. We don't think that much more needed from a footprint perspective. Having said that, you know, one thing I do want to add is we're somewhat fortunate that they have a strong balance sheet. So we're going to pace the diagnostics opportunity as it develops. You know, if it moves faster and it's worthwhile to spend more money on it, we'll move a lever. If it's moving slower and we need to pull back, we can do that as well. So we will continue to pace this, but this is kind of our broad framework for now. And then to your question on margin and diagnostics, we don't expect margin at this stage to be negative or overly dilutive to our portfolio. But we just don't know enough about it right now. So as we gather more information and as we start to see more tests come back in, we'll have a better sense of what it looks like.

Okay, that's awesome. Thanks, guys. Thank

you. And one moment as we move on to our next question. And our next question is going to come from the line of Sungji Nam with Scotiabank. Your line is one. Please go ahead.

Hi, thanks for taking the questions. So just on the Kuntathe and Bioharmese studies, you touched on it a little bit, but could you kind of elaborate on what are the endpoints being measured or what questions are being asked for the phase one of the trial? And then what are the next steps for both trials?

Hey, Sungji. So the clinical sample sets that we look at include patients with MCI and AD dementia. And that's, you know, through the Amsterdam dementia cohort. And then we recruited, there was recruitment of individuals with MCI and mild AD in the bioharmese trial. So the ADC or the Amsterdam cohort, you know, our memory clinics, where they looked at CSF, and then the bioharmese, they had PET for amyloid status. So each of those patients received CSF or PET, and they were compared to our test from a diagnostic standpoint. And then using those, we established clinical thresholds and came up with the specs of our platform of our test. And so that's phase one. And then what we're doing is on the second phase before Cantade, we're enrolling patients for memory centers, perspective patients for memory centers to be able to look at this on a multi-marker setting. So that's going beyond just single marker, but testing four markers or to five markers at once.

Gotcha. Thank you. And then just was curious, I mentioned in the press release that Eli Lilly launching their PETA-217 blood-based diagnostics on the Plantarix platform. Are they using other platforms as well, or are they pretty much just solely using the Simoa platform for now?

Yeah, we're only aware of the Simoa platform for their 217 diagnostic tests. And I published some very interesting data at the last conference. It was the next poster presentation that they had. So that's all we're aware of.

Got it. And then just lastly, on the new platform under development, the increases of plexity, is that based on the Simoa platform or the Plantar array platform, or is it something totally different?

Yes, it's based on the Simoa technology and the Simoa platform. So it's the single molecule resolution, but lossless sensitivity across multiple channels. So typically when people look at things and you start to multiplex, you lose resolution as you add plexes. And so our goal with high sensitivity and precision for these key biomarkers is to make it lossless. And so it's based on that platform, the original technology which was invented in the WALT lab.

Got it.

Thank you

so much.

Thanks, Angie.

Thank you. And as a reminder, if you would like to ask a question at this time, please press star 1-1 on your telephone. One moment. I'm showing no further questions. This is going to conclude today's question and answer session. This is also going to conclude today's conference call.