Quanterix Corporation (QTRX) Earnings Call Transcript & Summary

All right. Good morning, everybody. It's still morning. My name is Luke Sergott. I cover life science tools and diagnostics. I have with me Kevin Hrusovsky and Masoud Toloue of Quanterix. Kind of got your names [ right ].

That was pretty good, Luke.

It was pretty close. There's a lot of consonants there leading off. So I guess you guys want to go over a couple of slides here if you want to go over and then we'll dig into some Q&A.

Yes. So maybe just to start off, if much of -- just from the standpoint of Quanterix, it's really great to be here first, Luke. And I do think that this is a very pivotal moment for our company. We're at a very important inflection point given the Lilly deal that we were able to bring in a couple weeks ago that further validates the role of the protein. And when you look at Quanterix, not just connecting up with Lilly and the pharma partners, but also the connections with the FDA and the NIH over COVID and being able to get Breakthrough Device Designation for 181 further creates opportunities even for the payers to better monitor whether a drug has efficacy in the long-term. So we feel that these relationships with pharma create a significant opportunity as we link into the overall PPH ecosystem, which is the Powering Precision Health. Being able to see disease before symptoms noninvasively is the promise of what these biomarkers can do. And if you look at just our evolution, we started out in research primarily focused on PSA and troponin for the heart. Then we moved into NFL the last few years and were able to build some neuroplexes for different ailments inside of a neuro for pipelines. It would be not only Alzheimer's but also Parkinson's, MS. And then COVID hit and we were asked by the NIH to summit an opportunity to create an antigen and serology test, which we did. And that actually broke us across for our first diagnostics, because we did get emergency use authorizations and those label claims further got expanded. And so that overall relevance was about the time we brought Masoud in who had been running the diagnostics business for PerkinElmer and has created a lot more momentum for our Alzheimer opportunity, getting the breakthrough designation. We're now deeply focused on the bottom right quadrant as well as the whole left side, the research. We think there's a symbiotic relationship with many of the companies that you see here evolving and creating the opportunity for us, we think, with our balance sheet to create a major opportunity for expanding across into diagnostics over the next several years. We know most of our pharma partners, strong antibody capability, and we just licensed the p-Tau 217 from Lilly, which was another major achievement. And we look at the merging of diagnostics and pharmaceuticals because there is an emerging field, we call it neurodiagnostic therapies, where you have to deploy the therapy early enough in the disease cascade to help the pathology be arrested. And so we think that the timing of a diagnostic prior to symptoms, particularly if it's noninvasively could be a major expansion opportunity for pharma. And they're starting to realize this, obviously, in the Alzheimer cascade, where on the research side with pharma, we can see TAMs around $500 million. But if you could move across to the right-hand side, the diagnostic and have an Alzheimer detection technology in blood that can be used in screens even before symptoms present, that ultimately creates a TAM opportunity of over $20 billion. So we can see a major opportunity to evolve what we're doing with research with pharma and helping get therapies approved earlier in the disease pathology can be further enhanced on the diagnostic side. And so we have laid out a 3-pronged approach that allows us to either invest directly in trying to build our own capability using our Accelerator for single-site IVD, where we have the breakthrough designation or LDT and then ultimately having a distributed IVD through partnerships or direct. And so we think these opportunities represent pathways where we invest directly or we go through partners, which could be better capital approaches to minimize overall risk. Reward wouldn't be as great. But as the pivot has occurred from growth to value, we have that optionality, which is really an awesome place to be positioned at this moment. And then finally, I'd just like to highlight that we did provide guidance, which we went with guidance higher than consensus. With all the geopolitical issues currently underway, we felt that we were able to do that. We felt good about that. But the other thing I would suggest is important here is the Accelerator is our strategic beachhead that we didn't grow last year and actually declined by 18% as Masoud came in and helped us rebuild the capacity for that. And we really want to make sure we use our consumable supply capability in 2022 to fuel a lot of growth in the Accelerator where we see it strategically being the linchpin to moving across into single-site IVD as well as LDT, but it also creates future sales of instruments and future consumables. And so when you look at that Accelerator, which really is just another way to consume consumables, because it's given data in a very good price margin similar to consumables or even greater. We actually see our 3-year CAGR going from 2019 a really strong year. We think that the combined consumables and Accelerator can get to the 34% to 41% range in 2022. This isn't guidance. This is just our targets because that combination of these 2 is really the important area for our future growth. But we ultimately see trying to further enhance the quality of all of our supply that goes into the Accelerator and ultimately offering the 100x sensitivity improvement in our Accelerator services. So this is a pretty important pathway for us as we move forward. With that, Luke, we'd love to answer questions.

Yes, great. And so just looking at the chart here, you got -- you're looking at '22, 34% to 41% consumables in Accelerator. Give us a sense of the instrument growth that you guys are looking for over that time next year as well? I mean you have a pretty massive step up this year, give us an idea of the order book.

Yes. So if we look again back from 2019 forward, our view was always that consumables are going to grow faster than instrument growth as will Accelerator because of the amplification approach you get for the installed base. As you increase the utility of these instruments, you get more consumable pull-through. So as you can see in this picture, almost 2/3 of our business now is going to be made up of Accelerator and consumables. And so instruments, even if it remained flat, would keep us on the continued trajectory of what we showed for our CAGR performance over that 3-year period. But I think you could expect the 20% level of 3-year CAGR from 2019 and -- from 2019 to '22. So I do think that while it's slower, it's going to continue being the longer-term furnace for the opportunities. And if we can surge Accelerator this year, which is our real interest with our consumable supply, that will further enhance our ability to grow instrumentation the subsequent years, which is what we've been doing the last few years, growing instruments at a rate of over 30% to 40%.

Okay. That's good framing. So let's start off here with Masoud. So talking about the transition and dive into your vision of how you plan to balance pushing further into the diagnostics side, while also maintaining the investments needed on the RUO side that really Kevin pioneered?

Hey, luke, thanks. Great question. The way we think about this a lot and the way when Kevin and I are having our one-on-ones, and we speak, we talk about propel, we use that word frequently. And Kevin being a pioneer in the proteomics space, how do we -- both of us now working together, how do we take a propel step? And so from a strategic standpoint, Kevin joining or moving to the Executive Chairman role and then myself as CEO, we feel that that combination is going to be very effective April 25, moving forward. And it's going to help us propel what we see as this translational moment in continuing the tool space and continuing building on the tool space and starting to put our foot towards diagnostics. And in between how do we translate that tool's footing to more of a diagnostic footing. And so that takes up a good part of our conversation.

All right. And so coming from Perkin and the diagnostics business that was like an overall portfolio trying to build out, reproductive health and then the immunology side. Give us a sense of what your strategy here is on the diagnostic side.

So we take a look at diagnostics in 3 steps. As you know, we have an Accelerator lab, which is a CLIA facility. And we take a lot of pharma and a lot of our customer samples in that CLIA laboratory. And what we want to do, as we said, is build an LDT for p-Tau 181 and/or NFL and validate that in '22. That's the first step of the diagnostic approach we're taking. The second step, as you know, we received the p-Tau 181 breakthrough designation from the FDA for a single-site IVD, so that's the second tier of our diagnostic strategy. And then finally, the last tier is going to be taking and putting a view on how do we do this in a distributed manner. Now, it's not gated. One's not gated by the other. We're doing this kind of in parallel and -- but it's just going to take a '23, '24, '25 time line to get there.

Yes. It's more on the regulatory side than you're doing everything in parallel. That make sense.

Yes.

And so we were talking last night, the Lilly partnership and for years, you've been screaming proteins matter. Give us a sense of really how seminal that is. You've got to feel some vindication there?

Yes. It's somewhat vindication, but I would go back to this term propel, because I do think that Illumina has been incredibly effective over the last 15-20 years, establishing the role of DNA and RNA in the overall biological setting. We've always felt that proteins, based on the identical twin studies, that one twin grows up to get cancer, the other one might grow up to get heart disease. But what's different? The recipe, the DNA, the RNA is similar. What's different is the protein. So we've always felt that the protein is more phenotypic to disease. The challenge has been can you see the same level of sensitivity that you could see in DNA and RNA. And our founder, David Walt, who also founded Illumina, was able to create the science to allow us to see the protein with exquisite sensitivity. Because it's more phenotypic, if you can see health levels of that protein, any movement from that baseline health into the disease would be an early trigger, many times years before symptoms. In the case of Alzheimer's, it can be as much as 15 years, there's elevations evidenced through many third-party peer-viewed publications of NFL and p-Tau 217. So these are the event -- using familial patients that have a known time line of when they're likely going to get dementia. They went back and they tested. They could see this elevation. That, to me, is somewhat of a breakthrough because for a low-cost blood test to be able to have that level of potential insight creates the opportunity for pharma to use that capability to arrest and intercept the disease earlier in the pathology when their medicines might have a better chance of stopping the progression. In the case of Alzheimer's, you're seeing a lot of evidence of many of the pharmas trying that. So we think that initially deploying this capability of the protein with pharma is paramount. And we're seeing evidence of major trials, one of the fastest adoption cycles. I've been in this for 7 years now and almost every pharma, I think top 22 of 25 now use the Simoa technology, seeing disease earlier but also stratifying out other diseases with these biomarkers. So I think that that breakthrough leads then to the diagnostic side where if you could then screen patients into the drugs and then monitor for the payers whether the drug is bringing the desired efficacy, you have a chance for a breakthrough. And that is what we've been able to do over the last several years working with the payers as well as pharma as well as the FDA and NIH. So I think we're at this inflection moment where the Lilly deal, Lilly has been working with us for 7 years, they can see the magic of this capability and they're working closely with us. And that is an instrumental, even licensing their antibodies, which is pretty rare for a pharma to do. We see Lilly as well as many of the others in the landscape, the J&Js, the Mercks, the Novartises, the Roches as having great Alzheimer opportunities. But the ability to get these biomarkers deployed in low cost, scalable technology that ultimately can go to the clinic and help them with the payers. We think that that's -- this is an important moment to really evolve this opportunity at Quanterix. And this is where Masoud and I are working together, him being someone who's been running this for me for really 8 months. He came in as president 8 months ago. So we've had a great chance to work together to see the opportunity and to evolve the operational side, while we now strategically start to sort out that we really have become something almost of a scarcity value to these pharmas, because if we can achieve this almost like a drug platform support for pharmas and even the diagnostics of Abbott, Roche and Siemens, seeing 212 proteins and collecting maybe more than $20 billion a year across single plexes of protein measurements normally after symptoms, we think both of these categories make us incredibly attractive to the future of the way science will be practiced.

All right. And so let's talk a little bit about, I guess, the IP here. So knowing what the protein is, is it really due to your sensitivity in that the Simoa can bring and nobody else can match that?

I see 3 reasons why companies like Lilly initially want to work with us. One of them is absolutely the sensitivity. Particularly on the low end of the curve, if you're trying to get earlier indication of the disease before symptoms when the medicine might have the ability to stop progression, but it can't reverse the disease pathology, you might have a better chance for that drug getting approved. Stratifying out patients that don't have Alzheimer's, today's images sometimes can be confusing if you use that to recruit patients. It could be Lewy body dementia or it could be frontal temporal dementia. It may not even be Alzheimer's. And so having biomarkers that can stratify out those patients that aren't going to benefit from the drug also further increase the potential for that drug to get approved. And if you can actually use a lower dose because you're getting to the disease earlier, it might improve toxicity. So we do believe that the sensitivity brings those benefits. But then having an HD-X, which was designed -- Martin Madaus is on our Board. Some of the original work done with STRATEC and [indiscernible] this was built to be a diagnostics instrument initially. And so having the ability to do sample prep and the detection all in one instrument, blood in, answer out, makes it a scalable technology for higher throughput. And then finally, I think the low-cost dimension of using antibodies, that's what Roche, Abbott and Siemens use. This is the lowest cost way to deploy an answer in a diagnostic test. We are using the same technology that they use only with more sensitivity. So having the low cost, the scalable technology and the sensitivity, we think those are the 3 components that make us very attractive to the pharmas and also to the diagnostic partners that we're working with. As you know, Abbott and Siemens have both gotten some licenses now from us, further validating parts of our portfolio. So I do think we're sitting in a really good position now to scale this in these 2 categories. And with Masoud's leadership across both RUO and now the beginnings of us emerging into diagnostics, we're well positioned to really disrupt with operational execution like we've done the last 7 years.

All right. And so I guess just a further follow-up there is looking at multiplexing. We still -- from the diagnostics side, I think there's only the 4 markers that we have for Alzheimer's, right? So as multiplexing becomes a larger piece of the puzzle and moving further downstream towards the clinic, how are you guys positioned, how is Simoa actually versus the competition?

I actually think this slide that we have up does reveal a really important point. If you look underneath of each of those pathways, we show singleplex and multiplex. The reason for that is that today, $20 billion to $25 billion is collected across 212 proteins by those diagnostic companies running singleplex. So we know there's a tremendous value for singleplex in the diagnostic landscape and that's what the FDA is used to. We would prefer to cross over with a singleplex initially with the FDA and the regulatory bodies because we think it's a faster, better way to market. And if you look at the third-party peer-reviewed publications from neurologists from Sweden that we use to get our breakthrough device designation, that was all just p-Tau 181 and singleplex with good area under the curve. If you add NFL and add we think GFAP to those p-Tau markers, we're talking 181 and potentially 217 in the future, you increase the area under the curve by about 5 percentage points based on third-party peer-reviewed publications, both precognitive impairment and after cognitive impairment. So we do think the multiplex will continue to evolve the area under the curve and allow us to be a leader. And our current technology is really good for anything 6-plex and less. And we are emerging into some newer technologies that will allow greater plexes. You probably are aware of the SPX that we acquired from Aushon several years ago, that can do up to 10-plex of cytokines today. We primarily deploy that in COVID and oncology as opposed to neurology, because you don't need as large a plex in neurology that you do in some of these immune areas where you have many cytokines. And so we think that those technologies that we have today further augmented by maybe technologies by 2025 that can get us to 20 plex allows us to hit 95% of the TAM of this entire market. Upstream of us is the discovery. And I'm also, as you know, the Chairman of 908 Devices, which is a little handheld mass spectrometer company. Mass spec has been primarily used historically for discovery. And now you've got new entrants like the SomaLogics and the Olinks and Nautilus. These are great companies to go after that upstream opportunity for discovery, which once the protein is discovered and correlated to disease, that's where our exquisite sensitivity, scalability and lower cost come in for the translation into pharma and into the clinic for diagnostics.

That's a good time line. And so as you're thinking about the development time lines here, how important is the 100x sensitivity in the new offering and being driven through Accelerator in reaching these targets?

Well, it is quite interesting that just 3 years ago, we were measuring total tau. And total tau is the addition of all the taus and it's a much higher concentration because it's all the taus. And then some of their work from the Romney Center at Harvard started to reveal subsets of tau, like p-Tau 181 and p-Tau 217. These subsets sometimes can be as low a concentration as 1% to 5% of the concentration of total tau. And so because of that, that 100x creates the ability to see things in blood that you could only maybe today see in cerebrospinal fluid. So our technology creates this pathway where we're making market -- it's in the blood by starting with the spinal fluid where the concentration might be 50x to 100x greater. So we're actually making markets for blood and less invasive samples by doing our high sensitivity today on the spinal tap fluids, which longer term, the 100x will allow those to get into blood. So again, we think the translation into less invasive samples seeing disease earlier are all reasons why the 100x is going to be important and also some level of multiplex. The TAM focus that we have on the translation and the diagnostics clearly in focus on building fortresses around this opportunity that we are in the lead for sure.

All right. And then last here, 2 seconds. Can you talk about aspiration 2.0 on the digital health [indiscernible] you guys bring out?

Well, the longer-term vision that we all have is to wear a biomarker watch and to be able to actually prevent the disease by understanding how your environmental triggers are creating disease. Radiation sometimes has been viewed as creating a lot of brain tumors today. We know that growth hormones could create different types of ailments. So someday, longer term, being able to combine wearables with biomarkers, we think, is a very valuable opportunity for investors.

Have you talked to the tech about that yet or no?

We're talking to a lot of people about it. Thank you very much, Luke.

Thank you again.