Quanterix Corporation (QTRX) Earnings Call Transcript & Summary

Hi, everyone. My name is [indiscernible] . I'm on the life science tools and diagnostics team of Morgan Stanley. Before we begin, I'd like to remind our listeners that important disclosure information can be found at morganstanley.com/researchdisclosures. With that, it's my pleasure to host Quanterix and speaking on behalf of the company is CEO, Masoud Toloue and CFO, Vandana Sriram. Thank you for joining us today.

Thanks [ Niko ].

Before we begin, I wanted to set up the stage. You've announced a corporate transformation last year. Tell us the key components of that transformation and where you are today in that journey?

So we announced the transformation in August 2022 and [ Niko ] it was really on the next shifting and preparing the company for the next stage of growth. And in that transformation, you kind of think about it as 3 key pillars. The first pillar of the transformation is getting the organization and the company to a stage that's ready for scale. So we have incredible technology, and we're able to measure proteins at ultra-high sensitivity. And how do you take that technology and apply it to different applications in the market? And so getting the company and the operations to a stage where it will scale and be ready for the next phase of growth was pillar #1. The second pillar of the transformation really around innovation. And as a high-growth life science tools company that's also in the diagnostic space, what were the things that were going to drive the next 5, 10 years of growth that were going to be one part of our core technology in detecting biomarkers with ultrasensitivity. But too, what's going to be next? And what's incremental to that? And we wanted to make sure that the product development engine for the company was humming and moving forward and that we were going to be very focused on new NPIs and new technology this year. Not 2 years from now, this year and looking into 2024. And then the final pillar of the transformation was around getting ready for translation. So we're a company that's very focused in research and academia. What are the steps we would have to take to take these tools that are used in clinical trials and research applications to the clinic, to patients and to diagnostics. And to do that, we'd have to do a few things inside of the company to prepare the company for that. I'm happy to say that we announced this in August of last year, and as we said on our last call, we're well on track, accelerating towards completion of that transformation. So sum it up, every function, every business, whole scale view of the company.

Great. That was a great overview. But before we talk more about that journey. Stepping back a bit, could you provide an overview of the Simoa platform? And while some of your peers have focused on multiplexing capabilities in the proteomics space, Simoa is, as you mentioned, known for its ultra sensitivity. What is -- what about Simoa technology that drives that high sensitivity that's difficult to match in other protein detection platforms?

Yes. It comes down to signal and noise, right? And what you have with Simoa technology, the ability to measure things digitally, whereas if you look at all the other platforms out there, you're looking at things in a very analog sense. So we're able to measure interactions of these proteins on bead and single wells. And so we get light and we measure the light from those wells, that gives us a digital signal. And you look at sort of [ cubuluminescent ] based systems or [ Elisa ], you have a [ nash ] in a big well of a lot of different particles, and you have to sort of normalize concentrations and et cetera, and that's very analog. And so where our digital signal becomes important is that as you get complex matrices, as in blood and you start to measure proteins in blood, you have these interactions and those analog systems just are going to be kind of noisy. You won't be able to detect those low-level protein analytes and with our system, we can detect it. And so you wouldn't use Simoa necessarily for really easy to measure proteins albumin. You use Simoa and the technology where it's difficult to measure those proteins, and that's what differentiates us. On the multiplex side, we're really around 1 to 4 today on the Simoa bead-based technology. We get to 10 plex when you look at our planar array platform. But that's sort of the sweet spot, and we view that as kind of more translational versus the -- looking at 500 or 1,000 or 5,000 at a time.

Got it. And that high sensitivity have been appreciated by the research community, particularly in neuroscience and urology fields. Tell us why you've seen that robust traction in neuroscience, neurology versus other fields?

I think it's focus, [ Niko ]. We spend a lot of time on neuro. The technology is something that can be ubiquitous and can be used in other areas and other fields. In fact, while we spend a lot of time in neuro, our customers are using Simoa technology to elucidate immunology. And they're using us for hard to detect immunology markers, which are important in a lot ranging diseases from autoimmune to other type of inflammatory markers. People are using us in oncology frequently to look at some of the early markers in oncology and even in infectious. There's been a lot of interesting work on infectious disease and looking for these biomarkers, protein biomarkers at a very early stage of disease or we can get sort of long stage diseases and whether these infectious particles persist with us over a period of time. So to answer your question, I would say focus. We're one of the very few life science tools company that's taking technology on the research side, and we're taking it from research to translation in pharma on clinical trials. And now we're going to the third leg of that stool, which is testing and diagnostics. If we were to do all of that in 4 fields, that I'll call a lack of focus. And that's why we've been so interested in neuro. And it turns out that when you look at these neuro biomarkers, typically the diseases that we're looking at Alzheimer's, Parkinson's, ALS, 1 to 4 to 5 markers are typically sufficient for doing the elucidation that we're doing. But as we said in January, we are looking at ways our customers could drive further growth in areas beyond neurology, it is just that our focus has been on neuro.

And then now talking more about those clinical applications in urology. Could you talk about the landscape for use of blood biomarker in urology? And what are the key benefits of using blood?

Yes. So blood in neuro is, we believe, incredibly important. And I think when you take a step back, we're working with the brain, right? And how do you access what's happening in the brain, right? I guess, soon, we may have chips and things like that implanted. But I mean, that's a big problem. And you need a proxy to measure that. So right now you have imaging. You could do imaging and you get some sort of answer for health state of the brain. You could do a spinal tap, an invasive spinal tap and look to see what's in the cerebrospinal compartment or you can measure things in blood. And we've been very focused on the blood side. And when you have a misfolded -- I think you said earlier that your background is a neuroscience, so you know you could -- you have sort of misfolding or damage in the brain these proteins misfold, they accumulate, and they have to be exited through a sort of cleaning mechanism. And so those proteins will go through your cerebrospinal fluid sort of half a liter there, and then they go to your blood 5 liters. And so you get this dilution effect from brain to blood, and that's where Simoa comes in. We can measure it effectively in blood, very hard to measure proteins and a lot of the other technology can't even -- even detect that in blood. So that's one key reason why Simoa and the technology is so ubiquitous in blood. And the importance, obviously, is noninvasive detection of disease before symptoms.

And you recently announced positive top line results from bio hermes clinical trials, which assess correlation between pTau-181 and amyloid positive PET scan. And also to support IVD filing, could you provide an overview of that finding of the trial and when you anticipate this to be published or presented?

Yes. So we are working on a publication. We -- on our last earnings call, we announced some of the results of that trial. So the trial was a 1,000 patient perspective, where we looked at people with cognitive symptoms that were early and late stage. And then we -- they were measured at PET and with our LucentAD test or pTau-181 assay. And we showed a high correlation to PET with sensitivities that ranged anywhere from 90 to up to 97-or-so percent detection. And we're basically able to -- in a very effective, high correlation, detect these patients that had amyloid pathology. And we use that data for our, not only our LVT, but we're using it for our submission on our IVD as part of our breakthrough designation with the FDA. So that was a Bio-Hermes. And then we've been talking about another advanced clinical trial that we're running between this year and next year, where we're going to look at a larger population swap, and we're going to be measuring in a prospective way folks who are going to the primary care clinic and memory centers and analyzing seeing, hey, how does this compare to PET, in that setting. And that's probably going to be more of a multi-marker assay that we're doing a comparison of.

And do you eventually see that type of approach replacing like a PET scan in the future? How does that journey play out?

Yes, we do. We believe -- the vision at our company is, can you detect the disease before symptoms and really mitigate the effects of disease by detecting things early noninvasively. And we believe that doing this in blood, you'll be able to detect things earlier than PET. And it's less invasive. It doesn't require the cost of PET. And we think that today, we view LucentAD as a rule out test. But with the advanced clinical trials that we're doing, we're expecting to look at a rule-in the Holy Grail, I think, in the market to go from blood, right to potentially a therapy as opposed to having PET be the required intermediary.

And you also have this nonexclusive global license agreement with Lilly for their pTau-217 antibody for use in RUO products and services as well as IVD applications. So with plans to launch the LDT this year, what data has been generated to support the use of that biomarker in the clinic?

Yes. So I'll take a step back. One, we continue our relationship with Lilly continues. And as we mentioned in the press release, we're working on both research and testing and diagnostic products, specifically around Lilly's 217 antibody. So that's progressing really well, and we're excited about that progress. And then taking a step back and looking at 217 as a marker, I think [ Niko ] -- what we've seen in the last couple -- several months is that 217 is turning out to be a very important biomarker for catching folks at the very early stages of disease. And if you can do that, it looks like the therapies in the market will be more efficacious and we'll have a better result if you can catch somewhat early. Sort of makes sense in disease. And 217 is probably hands down the best out of all the single biomarkers that we see out there today. And so we mentioned that we have a very high interest and desire to get a 217 assay solution out before the end of the year.

Okay. And then you also highlighted on the last call that new guidelines were recommended by National Institute of Aging and Alzheimer's Association for use of [indiscernible] blood biomarkers to detect and diagnose Alzheimer's. Can you tell us a little bit more about that?

Yes. So I think this [indiscernible] lines came out or the draft guidelines came out at the AAIC platform at the conference. And the guidelines are being driven by the National Institute of Health and Alzheimer's Association. And very encouraging for patients. I think there was a clear discussion on blood -- blood-based biomarkers. So today, if you want to do a diagnostic test, typically, you have either a PET, CSF, both have return [indiscernible] or blood. And the markers that were listed in the draft guidelines included everything that we currently have on the shelf, [ Abeta 4042, ] 217 and pTau-181. So very encouraging. We think that, that was very important for the field. At the end of the day, it's going to be blood that's going to really help with the infrastructure on getting patients access to therapy. I think when people think of PET and CSF today, they think of sort of situations where there's tons of access. And that's not necessarily the case, not only here in the U.S. but also around the world. And to get greater access, you're going to need to do things non-invasively in blood. And so I think that was a very important step forward, and we're very happy with those -- with the beginning of the draft guidelines.

And could you tell me a little bit more about the timelines on what finalization of those guidelines will look like? I'm guessing there's some kind of public comment period.

Yes. I think it's a public comment period right now and I have a little bit less detail on sort of when the draft guidelines are expected to come out. But usually a discussion period and it's usually pretty robust.

So what is your strategy to broaden access to those markets that were highlighted in the guidelines? And do you see a path to make these markers available as IVD over time?

Absolutely. Yes, I think one of the markers that were listed are currently is currently available as a LucentAD product. So we have a patient provider portal today on the site. So a provider can come to our site and order the LucentAD test. And either they do their own blood draw or we send them materials to do the blood draw. And we're already starting to see patient samples being sent to us. And we're doing some measurements there in our laboratory developed pTau-181 test. So that, I would say, has already begun. On the IVD side, 181 is also the breakthrough designation we have with the FDA. We also have a narrow [ film and light ] as part of that designation. And in our multimarket test, we have all 3 of those markers as part of the multi-marker strategy. So they're definitely in an IVD path and we're beginning with some of the laboratory developed testing.

Okay. The FDA also granted accelerated approval for Tofersen, a drug for SOD1 ALS based on neurofilament light-chain, a marker of neuro no injury. What does this accelerated approval mean for Quanterix and potential for subsequent approvals based on biomarkers on board?

Yes. I'm so glad you brought that up. I think a lot of attention in neuro -- the right place probably on Alzheimer's. But I think taking a step back, we think that was incredibly important. I mean if you look at the Tofersen trial, it was a Phase III that failed. And the patient ALS patient, there was an efficacy. I think we saw with the agency and people involved in the study saying, hey, look, this therapy is having a positive result on neurofilament light. We're seeing neurofilament light decrease over the therapy period, but we're just not seeing the clinical benefit. So let's give accelerated approval for this therapy based on a blood biomarker and maybe in a different clinical setting, we'll start to see some clinical improvement. So that was the kind of the core thesis behind the accelerated approval, and we're thrilled that has a blood biomarker that's energizing that. So take a step back, what does that mean? So today, if you're a biotech or a pharma company that has a neurotherapy or a pipeline, blood biomarkers should be part of your clinical trial study. I think that if anything, emphasized that point resoundedly and we're starting to see uptick there.

Okay. So you're starting to see more discussions about using neurofilament light chain?

Yes, not just discussions, but more clinical trials, highest number of neurofilament blood clinical trials to date. And a lot of interest, not only buying our platform and running those clinical trials either locally or sending the samples to our accelerator services laboratory to power a trial or to do some preclinical trial work.

So what are the things with NfL is that you see it elevated in a lot of different diseases. Do you see NfL being used in other neurological diseases over time? And like given that it is a little elevated in a lot of different types, like is it a good strategy to use that as like a clinical approach?

The way it's used. It's a good question. And the way it's used we call it, oftentimes the check engine light of the brain. Check engine light is on, you really have no idea what's wrong with the car, but you know that something's wrong and you got to go get it checked out. And so when you see improvement or improvement with a therapy a neurofilament light you know that something positive is happening. Those neuro cells that are dying are dying at a less active rate. And so it gives you that sort of perspective that things aren't getting worse. So I think that from that perspective, for a test or a trial, I think that's pretty important. And then a lot of times it's used as hey, a proxy for brain health, as I just described? And if you want to go to the next level, is it dementia? Is it Parkinson's? Is it ALS? You start to add additional biomarkers that will tease and give that answer and sort of give you [indiscernible] , okay, it's probably more dementia, Alzheimer's based on the tau results. So you get an answer with NfL and then you go down the tau pathway. Or there's some inflammatory or astrocyte conditions with the [ g-pap ] result or is it a frontal temporal dementia. So you have more exquisite tools, downstream of NfL, but for these clinical trials, I think NfL is an important marker. And so much so that we talked a few times in our earnings call about these reference standards. And if you can develop a reference standard for NfL, then everyone can be normalized and is database. So what was understood is that with age and BMI, NfL rates increase. And if you could do this in a large cohort population from children and adolescents to adults, you can start to say, hey, this is what your -- this is what a normal NfL level looks like, and you are elevated versus a population. And all that work was done with Simoa and our NfL.

You talked about earlier, you talked about people using -- researchers using Simoa for fields, therapeutic areas beyond neuro. Immunology, oncology, as well as infectious diseases. What additional capabilities do you think will be beneficial as you try to push towards that ground?

Yes. I think for us, we our view -- our mission is always hey develop the best biomarker tools for our customers. And today, those customers are pharma CROs and academia. And we can translate interesting proteins to biomarkers, then we've done a great job. And we've done a lot of that in neuro. But we've also, to your point, done that an immuno markers, inflammation markers as well as some oncology markers and infectious. I think the view that if you can catch things early or from an MRD standpoint, make sure that something is gone after therapy. Then I think Simoa becomes extremely attractive in those settings. And we have active programs in both the sort of MRD, make sure it's gone versus early detection and those are active in programs outside of neuro. So I want to make the point that if we're successful in the next several years, then Simoa will be a more ubiquitous tool.

I want to touch on your accelerator business. Despite softness in the instrument side, you've seen strong demand for the Accelerator lab business, which is expected to offset the softness in instrument along with consumables this year. What type of visibility do you have into the pipeline?

I can take that one. So our Accelerator business is really unique because it really gives us a view to what our customers are looking for. And it also helps to offset any short-term headwinds that we might have as customers aren't able to buy CapEx, et cetera. So there's really a lot of volume that goes to the Accelerator. There is some visibility to it because there is some level of constant research use that goes through. So we do have some visibility to it. And then we also have some of the larger trials going through there, so larger activity going through there as well.

Great. And then also with the strong traction you're seeing there, how do you feel about your capacity right now?

Yes. So we've got about 20-plus instruments in our Accelerator lab. We also only run one shift right now. So there's definitely an opportunity to expand and flex capacity as we need to. So it gives us a lot of, I'd say, optionality as the right opportunities come along.

Great. You've also been seeing macro-related softness in instrument purchases, starting with China in the first quarter, as you talked about. And -- but now it sounds a little bit more broad-based, affecting APAC, North America and EU. Could you elaborate on what you're seeing in terms of those headwinds within both academia and biopharma customers? And remind me, what is your academic versus biopharma mix today?

So let me start with the mix. We're right about 50-50 between academia and biopharma ebbs and flows, but right about evenly split between them. And you're right, we have been seeing some amount of instrument softness. For the first quarter, it was China, but we actually did pretty okay in the second quarter. So again there's not one particular pattern or trend to point to. But a lot of our peers and others in the tools industry have also pointed to the fact that there is some amount of tightening of [indiscernible] around CapEx. There's some amount of macro uncertainty. So we've definitely seen that come through. What's unique for us, that's a little bit different, though, is the Accelerator lab that we just talked about. So we've seen over the last couple of quarters, as customers haven't necessarily gone and bought an instrument, the work still goes on and they've come to us in the Accelerator lab to perform services instead. So while the instrument sales haven't happened, we've definitely seen the volumes still come through, which also points to the fact that the demand is still there. There might be a timing impact, but there is still solid demand and the work still needs to get done.

One of the things that's been like -- one of the themes that's been coming up over and over again at this conference, at least for Life Science Tools and Diagnostics, is that there's been a lot of comments about headwinds in China. So could you tell us a little bit more about what you're seeing and how you're thinking about the impact on the business?

Let me first [indiscernible] the size and then we can add on. So we're about 10% of our revenue comes from the total APAC region. Again heavily skewed to China because that's the largest market, but we have somewhat limited exposure compared to others in China. And as I mentioned, we saw a little bit of a dip, and then kind of saw it come back. So we haven't seen major headwinds come out of there at this point, at least.

And we're very positive about what can happen in China. It's the largest market when it comes to patients with Dementia and Alzheimer's. And one of our approaches has been in China for China. And so as you heard last year, we struck a deal with [ Ultra DX ] to offer IVD solutions in the market. And we're happy with the progress of that, and we expect to do more there.

Also, I wanted to ask about what your current thinking on M&A. What types of assets would you be interested in adding to your portfolio?

So I think on the M&A side, as you've seen, we have a pretty decent balance sheet and our cash burn has been declining or decreasing. If there was something that would get us to our goals faster, we should do it. It would make a lot of sense for us. If there was something that would accelerate our ability to offer exquisite biomarkers in the field. That's something else that we'd be paying attention to.

Great. And in the last minute or so here, I just wanted to wrap up. So with the corporate transformation on the way of completion by year-end, could you speak to where you see Quanterix exiting the year and outline your next key goals for 24?

Yes, [ Niko ]. One, we have a high level of confidence on the transformation now. I think you can see it in the financial results, but also in the company. And what we're able to do now that we may have not been able to do in the past. In '23 -- coming out of '23, I would expect -- we talked about a lot of these operational improvements. we probably, very importantly, have developed a product development engine. And I expect by the end of '23 us to have an engine that is developing faster and new NPIs and a lot faster rate. So we'll be a company in the Alzheimer's and neuro space that could do this in a very effective way. I also expect then on the diagnostics side that we're going to begin the initial pieces of building the global infrastructure for testing and both are going to accelerate the ubiquitousness of Simoa. So that about Simoa and just specialty labs, but it's really Simoa in all labs.

Well, that was a great overview, and thank you so much for joining us today.

Thanks [ Niko ].

Thanks [ Niko ].