Quanterix Corporation (QTRX) Earnings Call Transcript & Summary

Hello, and welcome to today's call to discuss Quanterix' acquisition of Akoya Biosciences. [Operator Instructions] As a reminder, this conference call is being recorded in the press release and slide presentation regarding the transactions are available at the Investor Relations section of each company's website. Archived replay can be accessed there following the call. I would now like to hand the call over to Joshua Young, Head of Investor Relations at Quanterix. Please go ahead.

Thank you, and welcome, everybody. Today's discussion of Quanterix' proposed acquisition of Akoya including the answers to your questions, will contain statements that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those expressed or implied by such forward-looking statements. These risks include, among others, matters that we described in our press release announcing this transaction in our SEC filings. Unless required by law, we disclaim any obligation to update these forward-looking statements and encourage you to review the important information included in our press release regarding forward-looking statements, the forthcoming registration statement filing and solicitation matters. Our participants today include Quanterix's President and CEO; Masoud Toloue and Chief Financial Officer, Vandana Sriram. After our prepared remarks, we'll open up for Q&A. Now I'd like to turn the call over to Masoud.

Thank you, Joshua. We're excited to speak with you today about the combination of our 2 companies. We believe that the transaction is a strong fit with our strategy, and will create a true leader in our space with a one of a-kind integrated platform across the detection of blood and tissue-based protein biomarkers. Our combined ability to serve customers with a fully integrated offering, unmatched innovation, speed and reliability not only fills a void in the market, but is also expected to create significant value for shareholders of both companies. The combined Akoya and Quanterix will serve 3 high-growth markets across neurology, oncology and immunology, and we will go to market with a comprehensive suite of technology offerings backed by a strong cash balance enabling us to reinvest in core growth opportunities and accelerate our path to profitability. With that as a backdrop, I'll now spend a few minutes providing an overview of the transaction terms. Akoya shareholders will receive 0.318 share of Quanterix stock for each share of Akoya they own. This represents a pro forma ownership of the combined company of 70% for Quanterix shareholders and 30% for Akoya shareholders. As for leadership, post closing, Vandana and I will continue to lead Quanterix, and we will operate under the Quanterix name. We look forward to welcoming 2 directors proposed by Akoya directors -- to our Board of Directors for a total of 9 Quanterix directors. As you have seen, certain shareholders controlling more than 50% of Akoya shares have signed a voting agreement in support of the transaction. Finally, we expect to close the transaction in the second quarter of 2025 following approval by both company shareholders and satisfaction of various closing conditions and regulatory approvals. So before Vandana and I review the many strategic and financial benefits of the transaction, I want to start by explaining why. Philosophically, this transaction is so important for both Quanterix and our industry. The Quanterix mission lies in the advancements of enabling early detection of disease before symptoms appear. Today, we're combining 2 companies focused on different aspects of detection -- to create an offering able to address a broader range of customer needs. Diseases like cancer begin in tissue, spread to blood and often end up in organs such as lung and liver that ultimately takes life. To effectively detect and treat disease, we must measure signals as they follow this pathway. Typically, you have pathologists doing research in blood and other pathologists only measuring biomarkers in tissue. Our vision is to bring clinical and anatomical pathology together to solve this problem. By combining the leader in ultrasensitive biomarker detection in blood, Quanterix, with the leader in measuring biomarkers in tissue, Akoya Biosciences, we are building the tool set for this mission and uniquely positioned to speed up market development of new tests. With that foundation, let me now add some further context to what this transaction means for Quanterix and how it will accelerate our strategic plan to create a scalable platform. Our overarching strategic plan focuses on 3 core areas: #1, growing our menu; #2, expanding into adjacencies and finally, translating into Alzheimer's disease diagnostics. We have consistently made progress across each area, but where I want to spend the most time today is on Pillar 2, expanding into adjacencies. As this is really where Akoya will strengthen our position. Our Simoa platform is able to detect over 550 biomarkers in blood largely targeted to detect neuro disease. Throughout Quanterix's history, the company has been highly indexed and a leader in the neurology field, but our applications have also manifested in oncology, and immunology. Both are 2 high-growth adjacencies and represent 2 of the largest markets with the greatest position for early detection. Expanding into these adjacencies will enhance our offerings in research and in academic settings, improving our ability to participate in the most dynamic subsectors of health care. Our approach to each market is slightly different. For immunology, we have been focused on the launch of our upcoming new mid-Plex Simoa platform. And for oncology, it is through tissue and blood biomarker monitoring and detection. As we think about Akoya's profile, they check both boxes. Akoya's world-class spatial biology capabilities are the gold standard with a roughly 1,300 installed base across oncology and immunology markets. And importantly, their instrument portfolio is highly complementary to Simoa. Across our combined technology and service offerings, I'd like to think about our growth potential in 3 parts that will ultimately drive our continued strong double-digit organic growth. First, menu. We'll apply our combined consumables product development engine to accelerate growth of new biomarker repairs across tissue and blood and deliver on the promise of our integrated platform, as I just described. Second, services. We will replicate Quanterix' accelerator model to expand Akoya's tissue testing services portfolio. Our differentiated accelerator offerings have created a valuable franchise that has helped us deliver our consistent double-digit growth. And third, footprint. Given the complementary nature of the transaction, there are significant new cross-selling opportunities across our combined installed base of over 2,300 instruments. And when taken together, we now have the opportunity to go after a larger $5 billion mid-plex and spatial biology market, positioning us for sustainable growth and market leadership. So that is how we really look at the core pillar and the acceleration we'll see from Akoya. As it relates to diagnostics, we remain incredibly excited about our potential in the Alzheimer's diagnostics market. As Vandana will review in a moment, we will maintain our financial flexibility to continue building a leading global diagnostic testing infrastructure for Alzheimer's disease and strengthen our promising franchise. Now I'll turn the call over to Vandana to cover our financial profile of the combined company.

Thank you, Masoud. And I echo your excitement for the future of our combined company. The financial profile of this transaction sets both companies up on an accelerated path to profitability. As Masoud mentioned, with our strong foothold in neurology and Akoya's in oncology and immunology, similar customer profiles and our proven track record of execution, this transaction paves the way to expanded opportunities for both companies. This acquisition will provide us with the opportunity to thoughtfully invest in our combined R&D and expand our commercial reach. Additionally, there is significant opportunity to leverage a common operating and commercial infrastructure to realize considerable synergies of $40 million by the end of 2026. -- of that, we expect to realize $20 million of savings within the first year after the deal closes. These synergies will be achieved in 3 distinct areas: we expect to consolidate our commercial infrastructure by combining our geographic footprint and call points with customers. On the operations side, Quanterix has already made significant investments in scalability as part of our transformation. And we will leverage those investments effectively in the combined company through driving synergies in testing and manufacturing. And finally, streamlining duplicative corporate structures and general and administrative costs across our separate organizations will drive savings in the combined company. Over the trailing 12-month period ended September 30, 2024, the combined company has generated revenues of approximately $220 million. We will provide an update on Quanterix' fourth quarter performance next week, and we expect the combined entity to support Quanterix' goal of achieving strong double-digit organic revenue growth. With more than $300 million in combined cash today, we expect to have approximately $175 million in cash with no expected debt at the time of closing. This $175 million balance accounts for repayment of Akoya's debt, all transaction costs and a $20 million payment for our previously announced acquisition of emission. We continue to have sufficient capital to invest in growth opportunities, including our planned investment of $20 million by the end of this year to advance Alzheimer's disease diagnostics. Over the last couple of years, we've reduced our cash burn by approximately 50% between our continued initiatives to prudently manage costs and the synergies we expect to achieve in this transaction, -- we now expect to be able to accelerate our profitability targets and believe we have a cash -- path to being cash flow positive in 2026. With that, let me turn it back to Masoud.

Thank you, Vandana. In closing, we're bringing together 2 highly complementary companies that will not only enhance the scale and efficiency of our organization. But will make a meaningful difference to our customers who are on the front lines of treating patients. I'd like to personally thank the CEO of Accoya, Brian McKelligon and his team. They have built a compelling portfolio with very attractive growth opportunities. With our combined world-class talent, I'm confident we will deliver on the promise of this combination. With that, let's begin Q&A.

Ladies and gentlemen, we are now about to begin the Q&A session. [Operator Instructions]. Your first question comes from the line of Sung Ji Nam of Scotiabank.

Just that curious, I know for Quanterix, the end market customer -- by customer type split is roughly 50-50 academic -- and biopharma and I know you guys are also ramping on the clinical side, but curious what the split might be for Akoya at this point?

Yes, I can take that, Sung Ji. As you mentioned, our split is approximately varies between 45% and 55% between pharma biotech and academia. For Akoya, the split is slightly more skewed towards pharma a little over 60% for pharma, biotech and CROs and the rest is academic and government.

Okay. Great. And then just kind of curious, obviously, a lot of synergies here and also great opportunities for the integrated company. Just kind of curious for the -- and you've mentioned the large installed base combining the 2 companies? Just kind of curious what kind of portion of that or if there are customers that are currently leveraging both types of applications and technologies, or is this largely aspirational at this point? Just trying to get a sense of how much is currently in practice and how much of it would be contingent on you guys really building out capabilities to move easily from tissue to blood, et cetera?

Sung Ji. So this is happening now. I would say it's a very nascent and breaking scientific development. Researchers around the globe are looking at markers and tissue. And there are several publications that are coming out, showing key markers like ORF1, PD-L1 and even HER2 showing up in solubilized form in blood or as cargo in tumor-derived extracellular vesicles and serving as markers for detecting cancer. So this is happening. We're seeing these publications, they're using, and they require the sensitivity of our platform to make the detection, as things move from tissue to blood -- and so we have a good sign of this being impactful in the future.

And just then a quick follow-up on that. Is there a lot of overlap between your customer base versus Akoya's at this point or -- so.

So, I would say there -- between the combined 2,300 installed base, we see biomarker laps that are regularly using the great Akoya platform. And then across the hall, they're using the Simoa platform or in another lab, they're using the Simoa platform. So in the end, we see biomarker labs. We're interested in doing both work in tissue and in blood needing the combined platform for their discovery and for this new work.

Your next question comes from the line of Kyle Mikson of Canaccord Genuity.

Congrats on the deal. Congrats to Brian and John over there at Akoya as well. So I guess, first of all, could you talk about if the Akoya's side is going to be changing its focus and strategy in spatial and all? Is it probably still going to be kind of focused on like higher plex. I think that was kind of the recent focus of Akoya. And then also any interest on the Akoya side in an internal multi-omics program, so that could detect it's like RNA, I think that was like a focus in the past? Or is it going to be like the partnership model remaining Basically, the spatial business going to be high plex still as well as maybe like a goal to get to multi-omics too? Thanks.

Kyle, I'll reserve that question for Brian to answer. Once you have a chance to talk with Brian. And we're probably not going to comment on Akoya specifically on this call. We're really focused on this call on the combination of the 2 companies and what that means.

That's fair. I guess both companies have significant services businesses, that have been relatively kind of healthy and it exploit in this environment. What's the benefits of having such a large service revenue mix going forward? And how do you see that kind of playing out over time?

Yes, it's a great question, Kyle. We see 3 key growth drivers. First, there's menu, right? Over the last 2 years, context has grown reagents by 24%. We're a life science tools company, that means menu through our platform, and that's a key focus. The second key point or growth driver is what you just brought up, Kyle, which is services. We're going to replicate the Quanterix accelerator model to expand the Akoya's tissue testing services portfolio. As you know, over the last 2 years, with the investments that we've made, the Accelerator program has grown over 33%, and we see real opportunity there as a combined entity offering services. So it's a key part of the focus and the key part of the plan once we combine.

And maybe just clarify if Akoya strengthens your position in Alzheimer's diagnostics and the work that you've done so far, given that you can kind of target the tissue side, maybe or maybe the early research side of that area?

Yes, it's a great question. We learned through the process that, obviously, Akoya is very active in neurology and in a lot of the early discoveries with -- related to neurological disorders, including Alzheimer's disease. A lot of the customers we talk to are involved in translation, but they're working or they're partnering with people, who are trying to understand the biology of Alzheimer's disease. And as you know, it's still not very well understood. So we're really taking and bridging and going from discovery all the way to translation and having a combined company to be able to offer that across neurology, immunology and oncology is pretty powerful.

And final one, Vandana mentioned over $200 million of capital allocated for '24 and '25 to advanced diagnostics. Did that include any investment in Akoya's clinical work?

To be clear, I referenced $20 million of investment in Alzheimer's Diagnostics. This is the same $20 million that we had announced in the beginning of 2024. In the beginning of 2024, we had earmark $20 million that will be spent between '24 and '25, and we remain committed to that investment and continue to move forward with that plan, as we described before.

And then on the companion diagnostics part, Akoya, I think that, call that you were referring to, Akoya has a great companion diagnostics business, and we intend to make sure that, that is moving forward, if not accelerating with investment.

Your next question comes from the line of Puneet Souda of Leerink Partners.

So first one is maybe a multipart question. Why is now the best time to get into spatial technology because when you look at the opportunities that are ahead of you, you have Alzheimer's diagnostics -- it's not easy to drive diagnostics, while running the tools business. So obviously, speed is needed there. Do you have FDA approval potentially down the line and you have reimbursement and other milestones -- so I'm just trying to understand why is now the right time to pursue this. And then could you elaborate a bit more on how much of the business is going to be now translational versus pure research? And what can you do in the accelerator part of the business, meaning how much of that could actually help -- but at the same time, it looks like it could potentially even cannibalize some of the sales that are happening as pharma companies could shift over their work towards accelerators. So maybe just talk to us about those points.

Thanks, Puneet. I'll start with your first question now and why now. And I want to just go back and reemphasize the strategy that Quanterix laid out 2 years ago, when we underwent a large transformation. And we said at the outset that our strategy is going to be centered around 3 key pillars. And we've repeated these over and over, which is you can use the acronym GET. To remind you of the 3 pillars, it's G. We got to grow menu. We're going to extend our lead position in neurology biomarkers. That's key to maintaining our #1 position in translational ultra-sensitive detection of these markers. That's a key focus for us. #2, expanding into adjacencies. The Simoa platform, while we have 70% focus in neurology is already in immunology and oncology and we need to expand those adjacencies and make sure that others, who are working in these fields have the power of ultrasensitivity, so we need to democratize the platform and get Simoa into more labs and a big focus of our strategy has been expanding into immunology and oncology. Obviously, as I mentioned in the earlier remarks, Akoya is a big part of that. And then finally, 3, the third pillar of our focus is we're a translational company on the backs of Quanterix. We've taken biomarkers all the way from research through discovery to translation and now diagnostics. And as Vandana mentioned, we're very focused on our allocation of capital and resources for testing and building that infrastructure. So we believe that, hey, we're going to be able to march on these 3 pillars effectively. We have a talented team that can work through this. And if anything, with the combination of Akoya and their diagnostics efforts we see some real synergies. On your third -- on your second question related to accelerator and cannibalization, our focus 2 years ago an accelerator had always been, this is synergistic, meaning the -- it's first -- it used to be a try before you buy the Simoa platform. And it's become, "hey, I have a fleet of Simoa or HD-Xs in my laboratory or in my pharma environment, but I have so many samples I need to run these samples in a place where I have a high throughput ability to get data." And so a lot of our pharma customers have this dual model where they're running consumables. They have our instruments, they're adding instruments, but they need high capacity, high volume of the 24 systems we have here in Accelerator. And I can imagine as we learn more and work together in Akoya, this is going to be a similar scenario. So we don't see it as a cannibalization. In CapEx constrained environments, as you can see, has been very productive with our accelerator business growing 33% over the last 2 years.

That's helpful, Masoud. One question that we're getting from investors is, is this year, Akoya's expectation, I think in the Street numbers is about $92 million. Is that something you're still comfortable with? And just want to clarify, I mean your expectations for 2025, given just the delays in the sales cycle, instrumentation sales and challenges that I mean, Akoya has seen. Obviously, they had to cut the guide for 2024. So I'm just trying to understand what are you baking in for our expectations this year?

Yes. So we -- I'm not going to comment on Akoya specifically and Akoya stand-alone as a growth and their growth rates. But Akoya, I'd just emphasize has the largest installed base and supporting publications in tissue and spatial biology. And that perfectly pairs with our solutions. We have proven ability to sustain double-digit growth despite the CapEx environment. I've talked about 3 ways that we're going to be very focused in upon integration driving growth between the combined companies. And I think this complementary nature of the acquisition and the vision we laid out in the early remarks are going to bring not just strong top-line revenue growth, but help improve cost position across the combined enterprise.

Got it. And just last one, if I could for Vandana. On the $40 million cost synergies, could you elaborate a little bit more on that? How much of that is on the sales and commercial side? How much is sort of on the facilities that you're planning to shut down potentially? How much is -- maybe just help us understand the overlap and redundancies?

Yes. Thanks for the question, Puneet. We do think there's tremendous opportunity for synergies here. All of the items you mentioned, they're all part of that construct. And we spent a lot of time really digging into this through the diligence process with the help and collaboration of Brian and the team. So the 3 key areas are really firstly commercial there's a lot of overlap in geography in the areas we operate in our business model as well as our key customers. So bringing that together as a total solution through one sales and service team is great from a cost perspective, but will also give better outcomes to our customers. Then on the operations side, there's definitely a facility element here, but there's also a fair amount of commonality in our fulfillment processes. We spent a lot of time and investment over the last couple of years, very specifically investing in the scalability of our operations. So that gives us a lot of leverage here. And then we're 2 small-cap public companies. So there's fairly significant overlap in terms of the corporate function of both companies that we'll be able to streamline. So we'll develop these specifics as we continue to plan our integration and as we continue to move this forward. But all of the areas you mentioned are contemplated in that $40 million.