MaxCyte, Inc. (MXCT) Earnings Call Transcript & Summary

Good afternoon, everybody. My name is Valerie Dixon. I'm the Managing Director that covers the life sciences tools and diagnostics space at Morgan Stanley's Healthcare Investment Banking division. We're very excited to host Doug Doerfler from MaxCyte. And before I get started, I have to do the obligatory research disclaimer. So bear with me. For important disclosures, please view the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales rep. And with that out of the way, we can get started. So first, Doug, would love to give you the opportunity to just spend a few minutes for those who are not familiar with the story to give us a bit of an introduction.

Sure. Well, thanks, Valerie, and thanks for having MaxCyte at your conference. Really appreciate it. So the MaxCyte is really focused on enabling the engineering of cells for therapeutic purposes. We're the first company in the field. We've been doing this for close to 20 years. And since we formed the company, we formed the company to do exactly what we're doing today, which is engineering T cells and B cells and stem cells to treat patients. We now have 17 partners, nonexclusive partners, which include companies like Gilead and CRISPR, Vertex and Allogene. I'm going to miss a few, but Editas, you get the names, they're on our website. And each of these relationships include us providing them with our technology, a technology that we've been -- the suite of technologies, we've been developing over the last, I say, 2 decades to turn blood cells basically into therapeutic products. The company has been growing at about 25% per year. In the last 2 years, we've been growing the company. Last year, we grew at 30%. We've guided to grow this year at 30%. We have 90% gross margins. We manufacture everything that we sell and in license. This is not a services business. It's a products business, which we believe can provide better leverage from a capital perspective. And we've been quite -- I think, quite successful in helping to lead the development of some of these novel complex cell therapies. And the team is about 120 people now. We're located in Rockville, Maryland, and we're really preparing now for our next step, which will be supporting the commercialization of some really interesting new therapeutic products.

Excellent. Look, you've posted some pretty impressive results. Love to recap for the audience. Second quarter, almost $10 million in revenue, growing 35% year-over-year, partly any companies in your peer group put up results like that and your increased guidance. So tell me what's driving that outperformance? What are some highlights for the year-to-date? And what are you looking forward to for things to come in 2023?

Yes. So just another way of cutting at the first half, we grew the business 44% over the same period last year. And the cell therapy part of our business grew at 60%, which is kind of the leading part of what we do. And that's been driven by several things. One is our partners, the licensees that we have, companies like CRISPR, that are developing their product, and we have a licensing model where we receive milestones. And we also received annual license fees for our instruments. And then when a product gets approved, eventually, we will participate in that revenue through the license of the platform, but also the single-use disposal and also either a sales-based payment or royalty. And so we're seeing a lot of great progress being made in the field -- in the cell therapy field. The CRISPR product is for sickle cell disease and beta thalassemia. It looks like it's going to be put in for approval at least in EMEA in the -- by the end of this year. And then it looks like perhaps U.S. maybe by the first part of next year. So we're excited about that, and we're preparing ourselves for that. We also have been really building out our pipeline of new potential licenses. We have a very robust group of companies that we've been working with. We're also seeing quite a bit of Series A investment into more novel complex cell therapies, and that's really what we do best. That's our -- that's kind of our wheelhouse, if you will. And so that's also helped to really drive the growth.

Good. Help us break down. You talked about the cell therapy product versus the other part of your business in drug discovery. Like how those business models different? Can you talk a little bit about this licensing strategy as part of your business model as well? Like what happens? Is there a multiplier effect when some of these drugs get commercialized? And given how early you start in working with some of these companies that are earlier stage. Walk us through kind of the progression of that revenue stream to MaxCyte.

So on the drug discovery side, this is where we sell an instrument. It's a non-cGMP system into companies, big pharma companies doing small molecule discovery or they're doing large-scale assays, and they're also using the technology for the production of monoclonal antibodies and proteins, mostly preclinically. That's the existing product we have. We have a new product, which I'll talk about in a few minutes. The VLx that we think will expand that quite dramatically. And that's a product -- that's a business where we sell an instrument and then there's a single-use disposable. That business -- we sell the instruments for about $120,000 in single-use disposables for between $200 and $1,500. So kind of a traditional, if you will, razor/razor blade model in the tools business. On the cell therapy side, it's significantly different. This is where we really partner with our partner -- license with our partners. The last one we just signed was LG Chem in the South Korea, and these deals are all pretty much the same. They -- we provide them our intellectual property, indemnity. We provide them long-term view of the economic relationships any improvements in technology we provide them. In return for that, we receive an annual license fee for every instrument that we place and as they move through the clinic, they need more instruments, and those instruments in the clinic typically go from about $250,000 per instrument per year plus a single-use disposable. And then we've aligned ourselves with our partners around value-generating events. So as our partners move through the clinic -- dose to 10 patients, allogeneic, they move into pivotal, we receive milestones. And those milestones at the end of last year totaled about $1.25 billion for the 15 deals we had at the time. And then again, as I mentioned, we have the royalty or sales-base payment at the end. So it's an interesting model, a bit different. But it's really worked well for us, and it's really worked well for our partners because they know that we're a long-term partner for them.

And assuming these drugs work out, you're at tip of the spear for a very long runway of clear visibility into revenue stream. Now there's -- and I think you quote this also "anybody who's following regenerative medicine, there's 2,200 clinical trials ongoing right now." How do you exactly estimate what your total addressable market is for these SPLs?

Yes. So we -- when we went public about this time last year, we estimated it to be about [ 50 ] and that would be non-viral engineered cell therapies. We -- the only thing we've said since then is that number has increased rather dramatically. So increased -- and so our pipeline of new potential partners has increased substantially as well. So we're -- I think we're really quite well positioned for that.

Are you able to guide how many of these new SPLs you'll be able to sign up on an annual basis on a consistent basis?

Yes. So a couple of other data points. When we had 15, which we update that number every year, we had 95 programs on their license. Every one of these licenses is not exclusive. And about half of the products are named products, which are 2 of the typical ones. The other ones are not named, but they're within a relatively specific field of use. And then about 15 or so of those products at that time were actually in the clinic with the potential to earn milestones for the company and are potentially on the way to become commercial. It's really difficult to try to size this market because I think that the market is really still in its infancy, right? I mean, I tell people, I'm not sure if we're in the first inning or the third inning, but we're pretty early in the game. And so kind of trying to size the market. I think what's also happened is we're seeing a rather strong Series A funding environment for these early-stage companies, as I talked about. We've also -- since we were able to gain more resources began working more closely with these academic translational medical centers, where we can provide that center with a clinical noncommercial license so that their principal investigators can use our technology begin to dose patients. And then when it becomes a commercial product and then we talk to that commercial entity to take a license for our technology.

Great. I want to go back to your financial profile because I think it's worth emphasizing here -- at the time you went public or since the time you got public last summer, sentiment has definitely changed around growth at all costs versus now growth and profitability. And I think you're pretty unique among your peer group in terms of the growth, the path to profitability, balance sheet strength that you have. How have you guys as an organization kind of adjusted your financial models to kind of satisfy that desire from the investor community or have you?

Yes. So I mean we never subscribe to the idea that growth at all costs that wasn't something we ever thought about. And we have a -- I think we have a very open culture in the organization. We try to build the organization based on what we're seeing in the field, new application to the technology, new centers that are being developed. So it's really kind of a ground-up view. And we're -- I think we're very disciplined. We've been building -- we've been building resources in sales and marketing and process development. A lot of work in manufacturing, so we can support the potential launch of our commercial products. There are some costs that we had to take on for SEC reporting, for instance, but it's pretty much across the board and careful alliance management. So there's a lot of things we're working on right now to kind of build the company. The only guidance that we have provided is we'll continue to invest in our business, and these are all organic investments. I mean we -- we know what our customers want us to do. We know what we have to do in order to make that happen, and we're investing in that. So these are, I would call them relatively low-risk organic investments that we want to make to really build out the business. And I think that eventually, those 2 lines will cross when the commercial revenue start to hit the company.

Got it. One of those investments is you've recently built a new manufacturing facility in headquarters in Maryland. Can you talk about how this is going to set you up to better satisfy customer needs?

Yes. So it's in Rockville, Maryland, it's about 2 miles from where we are today. And it's -- we're refitting an existing facility, significantly improving our footprint in terms of manufacturing. We are basic manufacturers of the instruments. We're basic manufacturers now the disposables. So we're down to the component level, not the resistor level, but down to the board level, building these instruments, and we have a -- we have an engineering team that did the design, development and manufacturing. And so we also want to have more control over our supply and source of supply that's become more and more of an issue. And we also want to make sure we have flexibility in order to support our partners because, as we know, sometimes these forecasts for new commercial products can be a little challenging. And so we want to make sure we can support that. And with a 90% gross margin, I think we have every reason to make sure that we don't miss out on that. We've never had a back order, we never had a sales backlog. So it's -- we are sitting as a manufacturing company supporting a really exciting part of the industry right now.

Yes. And with all that, do you expect to return to cash flow breakeven anytime soon?

I think when we start to see the income from the commercial partners, I think that's what it's going to be. But until we do that, I think there's still some great opportunities that we see. I mean, this field is really doing well in the applications. And we also have the VLx, which we should touch upon to.

Yes, I was going to go there, next. You beat me to it, but pretty exciting. You're in beta mode now. Can you talk about the applications for monoclonal antibodies? When are you going to have like a full formal launch of this product, what is some early feedback from customers?

Yes, let me put my geek out on for a little second. The current system runs about 20 billion cells the STx and the GTx in about 20 or 30 minutes. That's the -- that's 100 milliliters of cells. It's in a huge amount of cells at nearly 90% efficiency and 90% viability. It also is a sterile cGMP system that's guided by a master file. The VLx is a system that we began in development quite some time, but we waited to have the resources to actually begin to launch it. And so again, when we get more resources, we then put that up, may expertised it. It does 200 billion cells in about 20 minutes, exactly the same performance characteristics. It scales from a single drop of cells all the way up to a liter of cells. So it's really easy to scale, which is a really important part of process development and manufacture. And we released it in December '21. We have it now in a handful of beta testers under [ CDA ]. These are companies that most of them, you would know. And they're helping us to work out the -- or got the process development for manufacturing the first test cases for monoclonal antibody production where you can now produce gram quantities and monoclonals under cGMP conditions in a matter of weeks or months versus having to wait 6 months or a year to do. The 2 -- there's kind of 2 test cases for this, we believe, use cases. One is for the rapid production of antibodies once the sequence is identified to the antibody, that's for public health reasons. The other one is big pharma, big biotech want to fail fast. They want to get these molecules into humans as soon as possible. So if we can reduce that dwell time that adds value. The other big subsegment that we're also looking at would be those companies that are maybe earlier in their development, this might be their lead asset, they would rather not spend the $20 million, $30 million to get that molecule produced to get into a clinical trial spend 1.5 years' worth of burn, hopefully use our technology and really accelerate the development of that program for that company. And I think that will be highly valuable for a lot of early-stage companies.

Yes. That's great. A lot of exciting new catalysts of coming in your story, we can't wait to watch. Let's talk about the growth of non-viral cell therapy versus the viral vector approach. Can you talk about the dynamics there and what we're seeing in clinical publications that support either approach and how you're responding as a company?

Yes. So I mean, viral vectors were used for the last 20 years because that's pretty much what everyone had to use them. And they're quite effective as we know viruses what they're supposed to do. They infect stuff and they do with the hundred millions of years of evolution, right? They're not always adequate for some of the newer therapies. They're potentially a problem if you're trying to engineer a stem cell because of potential safety issues. They also are typically limited in terms of the construct they can put into a cell, and they usually can only be used for a single edit, a single add. What we're seeing now in the field, certainly in allogeneic, we're seeing multiple edits, 2, 3, 4 edits at a time. We have one partner who's published a 10 edit cell. So these are becoming more complex. You can't do that with viruses you could do it with our technology. And as those new areas are being pursued by -- in development, they're moving toward more complex therapies, and that's where we really see our where we really see our -- kind of our strong spot. There's been a rather dramatic increase in the number of preclinical programs associated with nonviral versus virus, probably 2x in the last several years because of allogeneic because of stem cell-based treatments and also moving into solid tumors with cell therapy, where you definitely need to be putting in the [ car ], you also probably need to do something to knock out a checkpoint inhibitor, maybe do something that would make that allogeneic, sell more transmissible to a patient without an immune response. So there's some real strong reasons to want to do these more complex edits to solve some really intractable diseases, and our technology can allow those developers to do that.

And just thinking about competitors that might be bigger and more capitalized -- better capitalized than you are today? What creates that competitive mode and why do customers continue to utilize your technologies and solutions?

Yes. Well, we are focused maniacally on this one thing, which is non-viral cell engineering, which I think is really important. And it's part of what we do as a company. That's our purpose to move these new therapies into the clinic and through the clinic. That's what we think about, we dream about and that's what we're pursuing. So what -- I kind of missed your question, sorry.

How are you able to stave off these...

Yes, sorry, sorry about that. So because of that focus and also by virtue of the fact that we have the highest performance of any system that's out there, in terms of efficiency and viability, safety. All these things, we do the best in any classes for these areas, performance, flexibility, safety and then the -- and quality. We excel at all for those. No one else can do any of those 4. So I think that we've got a pretty high moat. We also have a Master File with U.S. FDA that Master File allows our partners to access our technology, and it allows, I think, a quicker way to get their IND cleared. That Master File has been referenced over 40 times. So it's a very well kind of on-ramp to companies that want to move into a clinical development path.

Got it. And as you think about expanded use applications of the current technology or other areas that could fuel enduring growth for a foreseeable future besides the fact that these drugs are moving through the clinic. What about new geographies, new use cases, new applications? How are you thinking about prioritizing those? Where do you see gaps if there are any?

Yes. So it seems like every day, there's someone thinking about some new way to use of the cell and are a different kind of cell. And so we've moved to B cells and NK cells and dendritic cells and gamma delta cells, and it just seems like there's all the letters there, the endless supply. And then you're seeing these different CRISPR strategies. And what we do is we look to ensure that we can -- we can provide that application, we can provide that solution to that problem for the product developer. We're also seeing a pretty dramatic expansion of the number of indications that these companies are going after. It's not just heme malignancies and solid tumors in inherited genetic diseases, which I think we've only really scratched the surface in that area. But we're seeing a lot of work in neurodegenerative disease. We're seeing it in stroke. We're seeing it in autoimmune disease, infectious disease. And so there's a cardiac disease. We're seeing a lot of new applications for cells. And again, more complex cellular therapies will -- I think MaxCyte will benefit by enabling those.

A lot of companies, particularly at this conference this week have been talking about macro challenges increasing labor costs, situation, supply chain challenges, kind of COVID lockdown policies.

It's like half of them.

European energy crisis, I mean, I'm sure there are others that keep you up at night. But what's top of mind for you? How have you kind of been able to manage the company through some of those and how are you thinking about navigating some of these near-term challenges?

Well, the #1 thing that keeps me up at night are people, people and culture. And it doesn't matter what your technology looks like or -- it's all about the people you bring and the culture you provide. And so what we try to build is a curious culture, scientific-based culture, one where -- because we're working in this really exciting new area -- the entire team is now is looking outward and saying, what's new, what's next?" And we don't do a lot of prioritization. We bring that information in. We try to solve the problem. We have a team of people that really inside Gaithersburg -- Rockville and outside of headquarters that can process this information quickly solve the problem, turn into a product and provide it to a partner. And so that's the joy of what we do. And I think that ability to have scientists be able to be on that cutting edge or whatever you call it the bleeding edge, I think that attracts good scientists and keeps them engaged. And because this is a -- it's a multidisciplinary problem. We've got biology and immunology. We've got molecular biology. We've got engineering in thermodynamics and physics. And these folks are all talking to one another. And I got to tell you, that's the exciting part of this. When you see a room full of these people from very diverse economic -- not economic, but economic educational backgrounds, geographic backgrounds, get involved and try to solve problems. It's really pretty exciting. And I think we need to really keep that as a cornerstone of what we do because that's going to be important. I think that's a competitive advantage.

I've got one more question, but I want to see if anyone has questions from the audience. If you do, just raise your hand, so the mic can get to you. Okay. Hearing none. There's a lot to appreciate about the story, cutting-edge science and research, financial profile, steady leadership -- from your perspective, what do you think is the most underappreciated aspect of your story that you want to convey to investors as we wrap up here.

Yes. These relationships we have are very stable. They're very vibrant. They will provide both us and our partners with a long advantage to treat patients and to hopefully cure patients. I mean that's what we're all here for. And it's -- I think it's difficult to get because we're sitting between kind of the nexus of a tools company and a therapeutics company. And you really have to understand both of those lenses in order to understand the value of what we bring. And that takes time. And we've been fortunate that many of the investors that are on our docket today have spent the time to understand that. And that's really helped, I think, to help with providing a more -- just a better valuation for the company. Right now, we have a considerable amount of capital in the company. So we're okay with I think there's a great opportunity for investors. But -- and I also don't think that what's really been appreciated is the long-term economics of this business. So...

All right. We'll leave it at that. Thank you so much.

Thanks, Valerie. Thanks, everybody.