Quanterix Corporation (QTRX) Earnings Call Transcript & Summary

Good morning, everybody. I'm Doug Schenkel from Cowen's Life Science & Diagnostic Tools team. It's my pleasure to welcome Kevin Hrusovsky, Chairman, President and Chief Executive Officer of Quanterix, to the 41st Annual Cowen and Company Health Care Conference. Kevin, thanks for being here. It's a pleasure to have you.

It's great to be here, Doug. Thank you.

So Kevin, I want to start off with a high-level but I think an important question. Many in the investment community are positioning today as a new era of next-gen proteomics. Folks are getting increasingly excited about some of the new technologies that are in development. I sometimes can't help but think that in the midst of this excitement that Quanterix and what you and the team have built is getting overwhelmed a little bit. Like I sort of feel like you built the first house in a new neighborhood or a new development. And all of a sudden, all these other houses are getting built around you, and there's a lot of excitement there. And I'm guessing, on one hand, you're trying to balance the excitement and enthusiasm about -- finally, the neighborhood is getting built out and people get it. But at the same time, I wouldn't be surprised if there was maybe a little bit of frustration that you still feel like you've got the best house on the block. So how do you balance those things, enthusiasm about what's going on in the space with, I'm sure, what your belief is about Quanterix being extremely well positioned here?

Yes. First of all, Doug, a great question. And I think that I personally retired about 7 years ago after running Caliper and then PerkinElmer's life science, but spent a lot of time in genomics and clearly got a vision around where we would go with proteomics. And you might recall, we have this ecosystem that we built out independent of the public companies that we've run, I used to call, Revolutionaries for Global Health, now it's called Powering Precision Health. And that's all with thought leaders from around the world. And in there, we really do have a think tank of being able to sort out precision medicine and precision health and where is it going. And so we actually are wearing those lenses in order to go into companies that we feel have the proteomics capability. And that ecosystem led me into going into Quanterix. I'm also the Chairman of 908 Devices as well as went into a lot of antibody company, technologies and some others that we felt were the companies that the killer apps were defined in Powering Precision Health. So unlike most companies that had come up with a technology and they go try to find a killer app, we know what those killer apps are with the precision health lenses. And so we went into those companies. And so we actually think Quanterix does have an incredible house on the block. But we're also executionists. So over the years, we've been very good at really ensuring that we always achieve expectations. And so achieving expectations has got 2 sides to it. One of them is delivering with a lot of execution capability. And we've got about 100 people from our old companies in the current Quanterix and 908 Devices. But the second part is managing expectations. And so in a lot of ways, I don't mind people not knowing we've got the best house in the block. In fact, I think it's an advantage to not be viewed as the best house in the block by investors. I think it's really important, however, for the customers to understand and for them to understand the applications that we're able to get to. And I think that you're going to find out that we've been at this for 7 years building the proteomics landscape. I've been in Quanterix now for 6, 908 Devices for 7. And we have a view and a vision of why we think proteomics is really going through its rebirth in a very productive way. And it starts with this slide, Doug, where we've shown before that the current technologies have the ability to measure proteins. And if you look at really Siemens, Roche and Abbott, they've got about $22 billion of protein detection, all single-plex, and that's a big piece of today's proteomics TAM. But they only can really see these diseases after symptoms when the protein levels are elevated. And so traditional technologies don't see cancers, don't see Alzheimer's at a time long before symptoms. And so when you bring sensitivity on to the table, you can get to these answers of seeing disease long before symptoms, but to see it noninvasively. And with COVID pushing everyone into kind of home care and being able to take samples from home like blood -- dry blood spots or saliva or urine, we actually think that the combination of less invasive testing on proteins and seeing them very early is key to us moving cancer, neuro and COVID into what we call the asymptomatic region. And this is almost perfectly aligned with what the payer groups have been trying to do for years, and that is get to diseases at a time when they're much more treatable. And that's the key, we think, to the future of diagnostics. And so we're building, again, the proteomics cascade from the vision of what it's going to take for precision health. And we know that the proteome has got a lot of content that hasn't been discovered, unlike the genome where it's pretty much all discovered now. But the proteome has got so much more phenotypic capability, I can tell you if the disease cascade is actually triggered where genomics is telling you more about that it's coming or you have a probability of it coming, so the identical twins was a key for us is that some were up to get cancer, some were up to get heart disease, and it's the protein that differentiates. So that is the real driver for us on why the protein is so important. And if you look at the companies in this landscape, you'll see some of them, as we mentioned on the right, have clinical protein detection. Then on the left, you've got a lot of research companies that are driving that research. We bring the sensitivity to be able to see this research in a less invasive way and see all the way the continuum from health to disease, see troponin at baseline levels long before the heart attack occurs. And so when that troponin starts to creep up, you'll be able to see it long before the heart attack. And so this is the game-changing pathways that we've created that we think we've watched genomics take the same road as the computer industry and its revolution of being able to get to sequencing. We think proteomics now is ready to explode, and we've built a kind of a pipeline analysis of what it looks like. We start with Illumina and what happened in genomics, they were very successful at kind of building tools for the downstream companies that created 3x the market cap of the upstream company. They spun out GRAIL. Then they bought GRAIL back to try to get into some of that. When we look at our technologies, it's clear that the sensitivity that we just described on proteins with the lenses of precision health enabled the home care, enabled the early detection, enabled disease progression monitoring in a way no other technology can do it. So we look at Quanterix. The reason we went into it was, it was at the last part of that continuum of the pipeline when trials were getting started. They weren't upstream like Solexa was for Illumina. We're downstream translating into single-plex, multiplex up to maybe 10-plex, the most important proteins that have the most TAM. And that's the key to this is most of the TAM is to the right. And now with COVID and our new EUAs and the neurology with MS and Alzheimer's we see ourselves crossing over into the right with real application capability, and we're bringing the noninvasive component. Liquid biopsies is very important. And so we're going to support that through partnerships. We're not going to try to have -- enter a crowded field. We're going to allow our technology to be played out in there. And then we think the real disruption comes with the health screens from the payer groups that are going to shift what you see on the right from a lot of the traditional diagnostics backwards into asymptomatic decision-making. And they probably are going to work directly with us. And so we call it the leapfrog effect of commercialization. So that's why we started on the right, because if you look at the TAMs on the right, you can see that they're 10x the size of the TAMs on the left. But now there's a lot of new entrants on the left, right? You've got Seer, you've got Moelis, you've got SomaLogic, you've got Olink, you've got Quantum-Si. So all these companies are entering, we think, is an incredibly productive move for getting more proteins into this pipeline, similar to what Solexa did for Illumina. But then the translation is where the TAM achievement comes, and that's where our sensitivity is going to really pay the dividends. And that's why we're growing so rapidly is that we're not trying to be everything. We're not trying to multi-plex and a 1,000-plex and discover proteins. We feel like someday we can do that noninvasively, but there's no need right now. There's a lot of smart investment going upstream that we think will be very complementary to where we sit in this pipeline. So we do a TAM workout story as well that we describe how we're going to evolve, let's say, over the next 5 years and the way we evolve TAM. But I think this slide here is really the important one that I'll close on this question, because I think it's very material. And I get more questions from investors about what you just asked and we do sometimes even about Quanterix, because they're trying to sort this thing out. But if you look at this pipeline at the top, you go from discovery, basic research, drug development and then diagnostics, you've got the cost per samples got to come down and get in diagnostics and the throughput has got to go up. So the TAM analysis for us in the 2025 plus, most of that value is on the right. And that's why we want to make sure we continue to work on 10-plex or less, because you could see you don't need to get to these 1,000-plex, but to do it with great cost, great throughput and great sensitivity for the less invasive samples. And that's where, at the bottom, you can see where Quanterix has planned pre-COVID, COVID and then post-COVID. And you can also see how the sensitivity of what we've done translates into that TAM expansion, which is really important. So as that protein goes from the left to the right, you play where the value is greater. So I hope that helps, Doug, but this is -- it took 7 years to build that deck we just showed.

No, that was impressive. I love it. So thank you. That's super-helpful. And also thank you for playing a lot with by potentially clumsy metaphor. That was well done. A lot to unpack there. I want to go back to neuro in a minute as kind of one of the important and early use cases for your technology. But before we go there, when I look at all this opportunity and think about how much is there for Quanterix with what you have now, but also then think through what you -- or at least appreciate what you described in terms of your vision within proteomics and the infrastructure you've built, both from a development, but as well as from a commercial standpoint. And then if we kind of look at your balance sheet and recognize over the last few months, you've brought in another $250 million. I know you don't need to go out and do any other technology deals. I know you don't need to go out and do anything else inorganically. But is it a possibility that you would go out and do something else that would put you in a better position to more broadly fulfill your vision and take advantage of what you've built specifically at Quanterix?

Yes. I think you're raising a really important question, because from where we sit, we have what we call the execution side of our business which, as you can see on this slide, is really the left-hand side, which is more of the research side of that pipeline that we just showed. And there, we see just tremendous potential to continue to run drug trials, helping drugs get approved by bringing a 300% greater probability of a drug being approved if they use our biomarkers to enrich their cohort by seeing disease earlier and stratifying out subcohorts. Like in Alzheimer's, we're able to stratify out Lewy bodies dementia and frontal temporal dementia. So that the Biogens and the Lillys have a very pristine shot at a drug just on Alzheimer's, right? So the enrichment of cohorts is the left-hand side. And I do think that we're growing and we have a very clear vision of execution on this left side on how we can keep evolving that. And as you know, it helps us bridge into the right-hand side. I do think that the Accelerator Lab is one of the most important investments that we have. And I think that, that's going to evolve potentially a need for a better and bigger accelerator. So we invested heavily in 2020 into the accelerator. Can we invest quick enough organically to support what we see happening on this left-hand side? Or would we be better served to accelerate our laboratory capability because of these incredible tools to allow more flow from the left to the right? And don't forget, we're prioritizing the left to neuro. We think that the oncology landscape, while we can do some really great things there, it's very crowded. And we think we just want to be a partner there. We actually think in neuro, we're so disruptive seeing brain health and a dry blood spot that we want to stay really focused on neuro and build that franchise. And we've launched a lot of new products. pTaus do a lot of the things we said for the Lillys and the Biogens and Glaxos and Takedas. All of those that are looking for Alzheimer's, we think it could be the biggest drug in the world. And we also now see a connection between COVID and Alzheimer's, which is unprecedented. Our NfL can measure the loss of taste and smell from those that have COVID, and that's a neurological CNS implication that could trigger in a lot of the current thinking potential pathology in the whole neurodegenerative field. So there's a lot of concern around what we call long-haulers of the COVID patients. And the UnitedHealth Groups and the payer groups are also very concerned about members that seem to have like minor symptoms that could be triggering longer-term disease linkages. And we think that the NfL is one example of neurodegeneration that we can see. But then we add other markers into neuro that really can play that role. So moving in COVID -- and the NIH is the one that discovered us, helped us, helped with COVID with the antigen and the serology. We're looking at it not as our long-term strategic focus, but it's the bridge that allowed us to get from what we call the left-hand side of this to the right-hand side. They've given us $20 million to build this bridge to go from research into a diagnostic. And that road and that bridge that's built, we can put neuro markers on that too. And given that COVID's got this neuro-CNS linkage, we think it's very strategically sound to stay prioritized using this bridge that NIH helped us build in the FDA to now deploy and try to evolve with the Alzheimer companies. If they can get a drug approved, they use us to get it approved. If they can get it approved, we then can help them screen patients into the drug with very noninvasive testing. So that's the vision of what we think is an incredibly compelling way to get this engine started for Powering Precision Health and neuro that then can expand with the payer groups into every category.

So you can follow this playbook, obviously, in other categories. But sticking with neuro, which, as you well articulated, has been a really powerful use case in terms of demonstrating what you can do. You just talked about companion diagnostics and that opportunity building off of your role in clinical studies. Can these -- can the involvement in clinical studies and what you learn from them and then what you learn on the market, does that put you in a position at some point to have a monitoring or screening tool as well?

Absolutely. And I think the other reason we selected neuro isn't just for the fact that we've had so much success there. We bought Uman. We got the NfL now kind of the specificity of the antibody pairs as well as the sensitivity from Simoa. There's another strategic reason, Doug, and that is that when you try to do companion diagnostics, like many companies do, foundation medicine and Natera, you see a lot of movement. So it's crowded, and that's one reason why we don't want to enter where it's really crowded. But the second reason is we found over the years that many of the drug companies aren't as excited about companion diagnostics in the field of oncology, because many of these drugs only work 10% of the time. And so if you really have biomarkers that could limit the drug to only be sold to the patients that it works on, you're taking a market that's 10x the size and you're reducing it to a very small market. We don't see a pharma getting really excited about that. But in neuro, Alzheimer, no drug has ever been approved. So they can't get through the gate without the biomarker, without the companion diagnostic. And so we actually see the pharma companies embracing us with companion diagnostics. And so we strategically see that as a better place for us to cross over. And we do feel that drug monitoring -- patient monitoring is an easy first putt for MS. We already have had numerous drugs have trials with our NfL. Once you know you've got MS, once you're on one of the 16 drugs and $22 billion, if that NfL level comes down, you're on the right drug. If it doesn't, you better switch drugs. And so we already know that there's use cases starting for MS for NfL. And so I think in any neurodegenerative field, you really want to know what your NfL level is. I think someday, every child is going to want to know their NfL levels. They're playing soccer, because even concussions can create neuro death. And so we think it's the cholesterol of the brain, and we think we wanted to corner NfL, because it's something that we think everybody wants to know. There's just a new pub that came out last week around aging. It can almost define your age if you're healthy with your brain based on your NfL level. And so if your NfL level is elevated, then it's telling you you've got some kind of neurodegeneration going on, either concussions, Alzheimer's, ALS, Parkinson's. So we actually see NfL as being a very versatile, high utility biomarker for the future.

Can I just ask a couple of basic really business model question and how you're thinking about this exciting diagnostic opportunity that we're talking about? So you have a license agreement in place with Abbott. You have your own internal development plans. Do you have partnerships with health care payer groups? So you're already pulling a lot of the levers you would in terms of internal and partnership type agreements to move towards the market. As we think about advancing in neuro, in cardio, in oncology, and just putting COVID aside for a minute, what's the -- how are you thinking about go-to-market strategy? Or is it too early to commit to one model versus another?

Yes. So first of all, I would say COVID go-to-market, we're being highly strategic, because if you look at our TAMs set of slides, we went into COVID EUAs, because the nation needed us and it was a way to create something that no one else has and the ability to see the virus long before symptoms when it's actually very difficult and it's most contagious. That gives us the ability to kind of showcase that capability. But I think that when you then look at the broader-based opportunity, this slide that we showed earlier on the right starts to really reveal the way we're thinking about the right-hand side, because I think that the ultimate biggest opportunity to cross over from neuro is going to happen with the payer groups. And I actually think that right now, we're seeing really interesting opportunities to team up with a pharma company and a payer to actually recruit patients for an Alzheimer's trial using our biomarkers. But once you've got that established, and that cohort is rich and enhanced, pharma company gets a drug approved, we then know that the payer group is going to deploy that drug and they're going to need biomarkers to screen. So I think that the concept of screening with the payer groups is probably where this disruption is going to be broadest around getting out of neuro and going into other categories. And so we had a slide that I think is fairly telling around the payer groups. And I'll just show that, Doug. It's a slide that, we think, tells the story of the payer. They're looking for improved outcomes, early detection noninvasively, remove costs, lengthen life. That leads to them adding members. We know today that for MS, diabetes and COVID, there are already therapies and biomarkers to see COVID early, to see diabetes early, to see MS early. And you could deploy drugs now and get them on the best drugs. The category B is where those no therapy, but there is a great biomarkers. And Alzheimer's is where we sit today with that based on this pTau-181 and 217 are just game-changing for the field of Alzheimer's. And then C is where you're trying to go after pancreatic cancer and you want to monitor your membership, looking at a lot of biomarkers quarterly and determine when someone does get an illness, let's go back and look 2 years earlier, what biomarkers could have revealed that. So I call that biomarker discovery. I actually think that, that's the most transformative componentry of how proteomics ultimately is going to bring value a lot quicker than traditional technologies bring value to patients. And that's what Powering Precision Health is all about is how can you rapidly and quickly get an ecosystem to move it into the patient very rapidly. And that's, I think, best done by the payer groups.

Yes. But that's -- I mean if you can do that with payers and/or health systems, right, and especially CODIS health care systems, I mean you can get in there and help them day 1. But over time, you get some of that launch pseudo information that actually kind of creates a virtuous circle of knowledge, where you can actually take your technology and create more targeted, purpose-built assays across the disease categories, I would think.

That's correct. And this is a slide that just shows like biomarker adoption starts with the drug companies. And then you move to demonstrate clinically the validity and the utility, and you can see there are 6 markers for right now that's replacing imaging and spinal tap data. And then you move it into the diagnostic. And once you fulfill that cycle, then the drug companies even more want to use biomarkers. And that's where goes TAMs, we think, could get the $12 billion in the drug development landscape.

I just want to be clear on this. We talked about it a little bit. But in terms of the use of your technology in liquid biopsy applications for cancer, you're rapidly increasing your focus there, including a trial work via the accelerator, as you mentioned. As we think about this being more of an opportunity for Quanterix, and more broadly, protein markers being incorporated in this application, what's the go-to-market strategy here beyond the accelerator?

Yes. So for us, when we look at the whole area of oncology right now, again, it's the most crowded landscape. And so we clearly make it #3. So COVID and neuro are 1 and 2. So in 3, we've got 2 companies right now that have bought our technology that would be considered liquid biopsy companies, and we're trying to formulate relationships with them. The protein is a much lower cost way to get information versus genomics. And so if you've got critical genes that provide certain amount of data into an algorithm, if you can move it to the protein, then you can better economically address the screening field. So I look at Thrive being acquired by Exact Sciences, and they're 50-50, 50% genomics, which up until that moment, I think Exact Sciences was more like 100% genomics. And so they're now bridging across into proteomics. And I think that, that combination is necessary, both for seeing cancer that's actually materialized versus predisposition; and then secondly, seeing it more economically. And we look at Thrive's protein algorithms, and in breast cancer, they've got the least sensitivity. We actually feel like there's 5 proteins that they can't quite see the signal, because their sensitivity is not there. They were using other traditional technologies. So we would like to partner with folks like that to further enrich those algorithms by using our sensitivity and do it in a collaborative relationship where we would get royalties or milestone payments as opposed to us building out our own breast cancer panel. We just feel like that's just a too complicated place for us to enter. So that's why we say it's more partnerships. And so Freenome and Volition are 2 companies that have bought our technology that both are advancing on the research into liquid biopsy.

Kevin, a technology question. You're targeting, I believe, a 100x increase in assay sensitivity. What does that open up for Quanterix that you can't do today?

Yes. It's interesting, because when you go back and look at this slide of what I think has driven a lot of the new entrants is discovery of new proteins. But what's really interesting is that there's already some places in the human body where the protein is highly concentrated. The cerebral spinal fluid happens to be one of those locations. And so what we've seen researchers doing is applying our exquisite sensitivity into sample sets that have high concentration of proteins. And by doing so, they can find subtypes of proteins. And so in the area of pTau, everything was initially focused on total Tau. But then they started to look at subtypes, and there's literally 15 different subtypes that we've had researchers looking at. And what we found in that is it creates new levels of pathology and stratification opportunity, because pTau-181 only gets elevated for Alzheimer's, not for Lewy bodies dementia or frontal temporal dementia. So those subtypes only in the cerebral spinal fluid at 1% to 2% the level of concentration of total Tau. And if you want to see anything in blood, everything is about 50x to 100x less concentrated, because you have 6 -- you have 6 quarts of blood, and you only have 3 pints of CSF. So when a protein crosses that blood-brain barrier, it gets diluted. So what we're finding is customers are using our technology in the high concentrates of sample types to discover new proteins that then they want to see noninvasively's to get the utility up. So there is where the 100x comes in for us. They're finding things right now in CSF that they can't see in blood until they can get our 100x. So we know we're making a market for ourselves with the current discovery tool, and that gives us this advantage to use our tool to actually make the next market.

Yes and kind of an unfair question to ask when we have like 30 seconds left. But I think it's an important one. You've consistently exceeded your revenue growth target on the research side of 30% to 40% annually over the past several years when you adjust for any COVID-19 headwinds. It seems like you could be higher than that this year, given just everything that's going on with your products, in terms of their applicability. And then coupled with favorable comps, I would take the over relative to that number for 2021. As you think about longer-term sustainability of this growth rate, I know you don't want to provide guidance here, but when you think about all these opportunities, I mean, is this not -- would it be ridiculous to think that you're going to be able to maintain this over the next 3 to 5 years?

Peter Lynch told me once in a meeting like, hey, the key is just deliver. They will find you. Making predictions around what you're going to do is not necessary if you just deliver. And so as we talked earlier, Doug, there's 2 sides to execution. One of them is don't let the expectations get out of control. I've been a CEO for 25 years. We spend a lot of time looking at what is it that we know we can get tripped up on. And 30% to 40% CAGR from 2019 to '23, we feel, is a very makeable without regulatory reimbursement risk. There are some significant upsides. And as the narrative keeps evolving, that many of our investors come into PPH and see first-hand a lot of these studies. There's now 1,200 third-party peer-reviewed publications. They can start to see that there are some significant upsides to that. Since we've gone public, we've doubled our growth rate, because our investors are introducing us to the pharma companies that they own to try to get those drugs approved. That's created a faster pace. So I do feel 30% to 40% is very doable. And yes, we have been exceeding that the last few years. And I do think we have a strong opportunity to exceed the 30% to 40% CAGR this year, because we're coming off of a little bit of a slow -- we had headwinds in 2020. We don't have those in '21. As we look forward, we might even have some tailwinds because of what we've done in COVID.

All right. That was fantastic. Thanks, Kevin. Really appreciate you taking the time.

Thank you for all you're doing, pal. Thanks to Cowen. Take care.