Quanterix Corporation (QTRX) Earnings Call Transcript & Summary

Hello, everyone. I'm Noah from the Life Sciences Tools and Diagnostics team. Welcome to the J.P. Morgan Healthcare Conference, and welcome to Quanterix. This presentation, we've got 20 minutes with about 20 minutes of Q&A. And with that, I'll let Masoud to start it off.

Good afternoon. Thanks for having us, Noah. So today, I'm here with Vandana Sriram, our CFO; Naren Bhat, our Head of Corporate Development and Strategy; and Head of IR, Ed Joyce. Before we begin, I'll point you to our disclosures page on forward-looking statements and non-GAAP financial measures. So in the healthcare space, Quanterix is unique. What we do is that we're a catalyst in translating biomarker research into the clinic. So our customers use our platform to get insights into biologic and pharmacologic responses to drive therapy approvals and clinical treatment decisions. Our mission is to create the tools and deliver those tools to improve health outcomes. So Quanterix as a company, is a company at global commercial scale. We have a large instrument installed base and strong adoption with over 550 biomarkers detected using our platform and 2,500 publications. Simply put, our customers are pioneers. They do work at the cutting edge of research and they look at protein signatures undetectable by other technologies. So in the healthcare space, if you're looking to catch disease early, you're identifying first traces of these biomarkers using our Simoa platform. And we'll talk a little bit about applications in neurology today, but this has also manifested itself in oncology and immunology. And we'll, in 2024, talk about some of those additional areas. So when you look -- first, if you look at the technology, we're able to deliver exquisite sensitivity from a platform perspective by looking at single molecules. Looking at single molecules and thousands of femtoliter wells, we can produce a digital signal by separating signal from noise in a lot more effective way than a traditional method of protein detection, which looks at millions of molecules does an average and is very much an analog detection method. We've taken this great technology and we've applied it to probably the -- if I think about it, the largest axiom or the largest paradigm in this whole healthcare conference or what we should be doing as an industry, which is identifying disease early before symptoms so that can better be eradicated or something can actually be done with it. And if you have a technology that can look at the very earliest signatures of protein then you're on the right track for identifying that disease early. And that's what we -- that's our vision at the company and that's what we're applying our technology for. So clearly, this is a big feat. This is a big endeavor as a company and the team at Quanterix has been working incredibly hard at democratizing the technology, getting Simoa in more hands so that Simoa's technology, the platform, the assays, the services that we offer are not just for specialty labs, but for all laboratories. And over the last year, 6 quarters or so, we've been working on a corporate transformation to be able to realize that potential for future growth. So the 2 top line goals of this transformation over the last 6 quarters have been producing highly skilled production lines. So we want to deliver products at a high level of efficiency. And second, top line goal for the company has been accelerated innovation rate, increasing the number of products that are coming out and increasing the cadence of products that were coming out in our menu. And so this has largely been successful over the last 6 quarters. We've seen margin accretion in just in 1 year, over 1,200 basis points of improvement. We've reduced cash burn by 3-fold since 2022 and had double-digit growth in '23. On top of this strong foundation coming from the transformation, we've built an efficient operating framework. What does that mean? Testing scale. We've improved testing scale by 50% over the last 6 quarters. In the same period, we have over 300% more assays coming off of our production lines than it did in the same period. And the number of partnerships, collaborations with pharma and research have increased by over 80%. So strong success. The second top line area that I talked about is innovation rate. And we define innovation rate at Quanterix as the cadence of new breakthrough assays that we've developed and we've released to the market on our platform. And so as you can see from this time line in the last 3 or 4 years, we've had some level of assays that we've put into the market. But with this transformation, we now have the building block to increase that rate and are expecting tens of new assays in 2024 and beyond. So you might ask yourself, what are you building the scale for? Why are you building these incredibly efficient operating lines? What are you innovating for. And this comes down to a very important point at Quanterix, we have a strong conviction that the next 10 years are going to be renaissance years for neurology. And if you think about the next 10 years and why we think this is we've seen a lot of indicators. Clearly, Quanterix is highly indexed to the neurology field. And some of these indicators within the company are the number of CNS programs or clinical trials in the market today. So there's over 120 CNS programs growing at one of its fastest rates in the history of neurology. We're in a large percentage of these programs and so we can see this. We're involved in those clinical trials. They're using our platforms for their clinical trials. So we're in the front line of that. When you look at our top line customers working on high-level disease-modifying therapies, the number of tests that they run on their similar platforms have increased almost 4-fold over the last couple of years. And then finally, if you look at neurology as a space and as a field, there are more disease-modifying therapies in the market today or coming out in the market today that are driven by biomarkers or blood-based biomarkers in the market. And I think finally, clearly, Alzheimer's disease is a third horsemen after heart disease at oncology. It's an important area that needs attention. Since beginning of time where the number of folks that are growing in the age demographic is increasing and the number of people who have dementia or Alzheimer's is becoming a problem in the field. Now the problem with neurology is that it's hard to access the brain. You have a blood brain barrier, which is truly a barrier. You have a skeletal structure around the brain. You can't just go in and do a biopsy. And is that very point that is one of the reasons why advances in neurology and therapies in neurology have lagged versus oncology and immunology. Now Quanterix is that blood-based, non-invasive liquid biopsy for the brain, that brain health proxy that gives a sense of what's going on. And so I think one of the clearest examples or most recent examples was with ALS. So, with the Quanterix NfL biomarker, we looked at neurofilament light, which is a scaffolding protein in the axons of neurons. And when the therapy was applied to patients, there was an improvement in that neurofilament light biomarker, which led to accelerated approval of the therapy and the patients now have access to a drug for a very debilitating disease. So we believe that similar biomarkers are going to continue to enable these therapy approvals moving forward. So, we reached an inflection point in neurology. If you look at the last 20 years or a couple of decades, Quanterix has been building up evidence, building up through research publications, over 2,500 publications that use Simoa as the brain liquid biopsy as the proxy for brain health. And just in the last 3 years, there have been 4 DMTs, Disease Modified Therapies that have been approved, all powered by Quanterix biomarkers, all approved with the help of Quanterix biomarkers. And what we're seeing in the next 10 years for neurology is, as I said, a growing number of new programs that are looking to accelerate and be approved with some of our biomarkers. So up until now, everything I've talked about have been Simoa used as the liquid biopsy for the brain and accelerating approvals in the market. Now for the first time in neurology, we now have these disease-modifying therapies. And we have patients who want to get on to the therapies. And so there's a real need in this neurology space to match a patient to that therapy and it's been a renewed focus for the company to develop disease diagnostics for specifically Alzheimer's. Now as I said, Alzheimer's is one of the most debilitating broad-based and costly diseases from a societal cost perspective. One in 9 people, 65 and older have either dementia or Alzheimer's disease. And it's just been one of those diseases, I said, the third horsemen that needs a solution. Now, our perspective on this has been we have an incredibly sensitive technology that detects first traces of disease. We know that if you look at the therapies on the market today for Alzheimer's disease, they work better if you can catch someone early in the progression. And so when we were developing this diagnostic test, there are a few key criterion in developing the test. First, we wanted to catch the widest cohort of patients. We want to catch very early-stage patients in the disease progress. 2, we're working with research partners. We wanted to identify a biomarker that be able to do that. You need the sensitivity on our platform, but you also need that unique biomarker. And so looking at the Tau species, a lot of work has been done on Tau and the phosphorylated position at 217. Combination of our sensitivity and the 217 protein gave us the ability to identify patients early in this devastating cascade. So a couple of months ago, we released our diagnostic test that's called the LucentAD p-Tau 217 test. We wanted a sense on spec and accuracy that was going to be on par with an invasive test. We wanted to catch the very early stages of a patient's amyloid pathology, as well as producing a scalable workflow. And so we've done that. We've released the test on the market and we're building -- built a commercial team and we're going after expanding this test to more patients. So the 217 test is a best-in-class test. We're offering the test through our accelerator laboratory, which is a CLIA laboratory in Boston. We're able to offer capacities of thousands of samples on a weekly basis. But our strategy goes much beyond that. Our goal with this test is to really build the global infrastructure for testing. And so we're enabling hospitals and reference laboratories access to this test. So to be very clear, this is a start for Quanterix. We have a strong interest to continue to increase that near 1,000 sample or instrument installed base. We continue to expand that base to democratize the test. We're looking at multi-marker based tests. So by adding additional markers, we can look at differential diagnosis of the disease and we think that's going to be important in the market, as well as increasing and improving the workflow. So as I said, a highly sensitive technology, we can measure Tau in dry blood spots and think that around the world that's going to be very important for getting broader access in the test. This is a big focus of ours and we've been allocating capital to advance Alzheimer's disease diagnosis specifically around regulatory approval, reimbursement as well as continuing our prospective clinical trials throughout 2024 to maximize access to the widest cohort of patients, widest and most diverse patients for access to improving access to these therapies. So to summarize, we are feeling good about the foundation that the team has built. And with this transformation that the company has underwent, there's a level of resiliency we feel we have going into 2024, that starts with our diversified portfolio of platforms. We have assays that run on those platforms as well as we offer lab services on top of the products that we were able to offer to the market. Second, we're highly indexed to well-funded projects, usually when we're customers are doing a clinical trial, there's a DMT or the therapy approval that's pending. So those tend to be well funded and we expect that to continue in 2024. And then finally, as we talked about and I alluded to, there's a growing number of new clinical trials and interest in combinatorial therapies, not just in Alzheimer's disease, but in Parkinson's, TBI, MS and different neuropsychology disorders. So to conclude, we -- the great work, the work done by our great team at Quanterix has us feeling really good that we've built the right foundation as demonstrated by our strong results, increasing operating leverage and strong balance sheet to ensure that Quanterix is the lead catalyst for neurology in the next 10 years. Thank you.

And just as a reminder, feel free to submit any questions through the portal or raise your hand and we can pass the microphone around. But just to start it off here. So in your presentation, you talked a lot about potential of the Simoa technology. And particularly, there's been a lot of excitement about the possibility of catching disease early. Can you talk about how Simoa is positioned against other technologies, for example, mass spec or other competing technologies in early disease detection and sort of the importance of that market for you?

Yes. Noah, I think it comes down to sensitivity and number of molecules. So I think when you're looking at early signs or protein signature in the blood and you're trying to measure something noninvasively, you're looking for molecules of that signature. And if your detection mode is going to be millions of molecules, you're clearly just by that correlation, looking at something later in that category. So on a biomarker by biomarker basis, we can detect something in much earlier stage of disease versus traditional technology. And then we can look at the biomarkers that are hard to look at or diluted as they go from the brain to the CSF compartment and to blood. So for us, we focus on markers that require that first trace early sensitivity as is common in neurology.

And in recognizing the opportunity of creating a test that's sensitive, peers have sort of been iterating on their sensitivity as well. The HDX has sort of created a dominant position in sort of this sort of highly sensitive applications. How are you thinking about the potential road map of updating the HDX in the future?

Yes. I mean that's a good question. Our view and as a big part of our internal focus is next-generation innovation in the company. Today, we talked about innovation from an assay standpoint, but the other component and what we focus a lot on is what is the next level of sensitivity. If you put all your bandwidth on a single marker, we can look at things at the molecule level, right, at a molar levels. Now, if we begin to add markers to that test, can you look at each of those markers at that high level of sensitivity. That requires new advancements that we're working on throughout 2023, and we'll hopefully, talk a little bit more about that in 2024. But to your point, next-generation platform and our investment is happening.

And do you have an initial framework for the types of things that you could improve with the next-generation HDX? For example, you mentioned sensitivity. Could there be a possible multiplex increase or throughput or something like that?

Yes. I think the 3 key areas, I would say, is we pay attention to sensitivity, increasing the throughput and multiplex is a part and then form fit and size of the platform, making it amenable to meet our goal of Simoa not just in specialty labs, but Simoa in all laboratories.

That's very pertinent. And so just relating to that, the Simoa technology is used by both Quanterix internally as well as with external partners. So for example, like other private players or other companies like ALZpath are commercializing their own tests based on the Quanterix platform. So how do you sort of manage the relationship there and sort of be a good partner externally as well as developing your test to sell sort of internally as well?

Yes. Our key Noah, guiding principle is our focus on democratizing the infrastructure for testing. So if we did all of the testing in the U.S. globally, right, that wouldn't be a great thing. So we want the technology in as many hands as possible, that's hospitals, physicians, neurologists around the world. And we're going to start by offering -- we have already started by offering that capacity in our CLIA laboratory, but we want this broad-based and if there's a partner that wants to use our platform and do testing, we're going to absolutely support them to do the testing. That being said, when it comes to 217, a lot of roads come to Quanterix because it's a very difficult marker to measure. And we've had collaborations with a few pharma companies with their 217s for therapies and we expect those programs to continue and for us to make those assays available to the broader market.

And I think the Quanterix story is definitely underpinned by these strong relationships with pharma companies. How do you position yourself regardless of your partnership status to actually become the dominant testing player for very high-quality markets like p-Tau 217 in the near future? There's been a lot of focus from both investors and companies on specifically the p-Tau 217 opportunity in the next year or so.

Yes. What we have is we sort of put all of our attention on the best test. So if you look at our p-Tau 217 rule-in test, it's best-in-class in the market. And that's not just by coincidence. We put a lot of effort in a high sensitivity test that would touch the most number of patients, high specificity and accuracy compared to invasive tests. And if we focus on that, we can catch as many patients as possible, then that's the right thing for the market. And so put a lot of effort, the sensitivity clearly helps in being able to provide that. And we think in the next year, if you look at some of the guidelines that are out there, 217 is the bar. If you want to detect these Tau proteins in blood, it should be a 217 test, not all 217 tests are created equally. Some are more accurate than others. Ours is at the front of the line. And we expect over the next year to be a dominant test in the marketplace.

Can you just refresh everybody on the sort of rule-in versus rule-out opportunity and how you plan on making that a real market?

Yes. Yes. So our first Lucent test was something that we worked and spent a lot of time in, which was p-Tau 181. And that rule-out test had a high sensitivity, lower specificity, which was designed to be used as an aid to a diagnostic for a physician who's looking at a patient and wants to decide whether they should send them or reflex to PET or an invasive CSF. That's the way that was designed. And then with the incredible clinical trial data we've been seeing, not just from us but with our partners, we began -- it became very clear that 217 is a better -- much better test than 181, sort of now uncomparable. And it could be a rule-in test, meaning you could take the test and that would be the diagnostic you would need before you get on to therapy. So we developed the 217 test with 2 cut points. Above certain cut point, you would be a candidate for the therapy and below a certain cut point, you wouldn't be a candidate for that therapy. So it's still an aid to a diagnostic and a new advance in the field of Alzheimer's testing, staging and monitoring.

Yes. And the p-Tau 217 opportunity in itself seems to be a pretty exciting opportunity. And you do seem to have a pretty leading -- leadership sort of role in that offering. So how do you sort of think about using that leadership role to potentially expand into multi-marker testing? Or do you sort of view the stand-alone p-Tau 217 test as becoming the sort of leader in diagnostics for Alzheimer's?

Yes. So yes, your last question, I do expect 217 to be the lead assay in diagnostic testing. The criterion and the NIAAA guidelines support that, talking to neurologists support that, the conference support that. So yes, I do expect that to be the test that's going to be predominantly used. On the multi-marker side, there's a lot of opportunity. Let's say, you're a patient, you're suffering from memory problems. You come in, you take our 217 test, you have memory problems, but the result is negative. So what is it then, right? And I think if with a multi-marker test, we can provide a, hey, it's not amyloid pathology, but let's say, it's Lewy bodies or frontotemporal dementia, I think that's real value added to the patient that's giving them an answer where you might have an answer that's sort of negative. And so that's where I think that multi-marker could be incredibly effective. I don't see it as, today as a replacement for the standalone p-Tau 217, but an additional menu item in our journey of adding new markers for the first time in a really exciting diagnostic area.

Yes. And sort of can you talk about that potential path to even if it -- there isn't sort of a marker expansion to how you could potentially gain additional indications or how you could expand the ASP of the test that you currently sell?

Yes. So today, it's a single marker test. We're in advanced -- we have an advanced prospective clinical trial that's ongoing that we should read out in 2024, where we're looking at patients that are entering -- we're in Phase II. We're looking at patients that are entering primary care physician offices with memory concerns as well as memory centers. They get a PET, they get our blood test. We compare the data. These are patients that have early symptoms, mild cognitively impaired patients and patients that are pretty cognitively impaired. We look at that data and see if we can do some differential diagnosis with the platform that will read out by 2024, and we'll be able to -- our goal is to continue to offer these as LDTs, but submit them also for regulatory approval. As we've done with NfL, p-Tau 181, we received FDA breakthrough designation for both of those. We intend to do the same thing with p-Tau 217 and any future multi-marker that we offer.

And just remind us, what's the initial framework for sort of like when you could see approval for some of those tests?