MaxCyte, Inc. (NASDAQ:MXCT) Q2 2022 Earnings Conference Call August 10, 2022 4:30 PM ET
Company Participants
Sean Menarguez – Director of Investor Relations
Doug Doerfler – Founder, President & Chief Executive Officer
Ron Holtz – Chief Financial Officer
Conference Call Participants
Max Masucci – Cowen
Operator
Good day, and thank you for standing by, and welcome to MaxCyte Second Quarter 2022 Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded.
I would now like to hand the conference over to your speaker today, Sean Menarguez, Director of Investor Relations. Please go ahead.
Sean Menarguez
Thank you, Norma, and good afternoon, everyone. My name is Sean Menarguez, and I’m the Director of Investor Relations here at MaxCyte. Thank you all for participating in today’s conference call. On the call from MaxCyte, we have Doug Doerfler, President and Chief Executive Officer; and Ron Holtz, Interim Chief Financial Officer.
Earlier today, MaxCyte released financial results for the second quarter ended June 30, 2022. A copy of the press release is available on the company’s website. Before we begin, I need to read the following statements. Statements or comments made during this call may be forward-looking statements within the meaning of federal securities laws. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements. Actual results may differ materially from those expressed or implied in any forward-looking statements due to a variety of factors, which are discussed in detail in our SEC filings. The company undertakes no obligation to publicly update any forward-looking statements, whether because of new information, future events or otherwise.
And with that, I will turn the call over to Doug.
Doug Doerfler
Well, thank you, Sean, and good afternoon, everyone, and thank you for joining MaxCyte’s second quarter earnings call. I will begin with a discussion of our business and operational highlights during the quarter, followed by a detailed financial review from Ron, along with an update on our revenue outlook for the year. We will then open the call for questions.
I am very pleased with our start to 2022, as our team continues to deliver on the financial and strategic objectives in our plan. MaxCyte’s ExPERT platform and team continue to be the premier cell engineering technology and partner, enabling the development of a growing set of advanced cell-based therapeutics. With additional resources at hand, we continue to invest in our people and capabilities at a measured but healthy rate as we seek to take advantage of the growing markets and support our customers’ and partners’ growth. Ron will provide more details later in the call, but I’d note that we generated very strong second quarter 2022 results, as outlined in the press release this morning.
We continue to build traction and saw steady growth in our core business, which was up 45% year-over-year led by revenue from cell therapy customers, which increased 61% year-over-year, while revenue from drug discovery customers increased 4%. Cell therapy revenue growth was driven by significant increases in both instrument and PA sales. We are seeing expansion of our global customer base across all stages of development and are encouraged by our traction with the cell therapy customers in early development stages, which continues to strengthen our robust pre-SPL partnership pipeline.
Our partnership pipeline is the strongest it’s ever been and spans across a wide array of cell types, approaches and indications. We did not recognize any SPL program-related revenue during the second quarter, and we remain excited about the progress our partners have been making as they progress their clinical programs, including into pivotal studies. We are also hopeful regarding the potential for some of our partners’ therapeutics to reach commercialization over the next 12 to 24 months with others reaching that space thereafter, which we believe will generate meaningful and growing revenue to us.
In addition, we continue to sign new strategic platform partners. I do want to note that due to the confidentiality of our partnership agreement, we will not be able to answer any specific questions related to SPL Partners, their clinical progress, or their respective development programs.
A few weeks ago, we signed an SPA with LG Chem, Korea’s largest chemical company and a globally diversified petrochemical advanced materials and biotechnology company. We are excited to partner and support their CAR-T programs for solid tumors. This represents our first SPL with a South Korean company and broadens our reach in Asia. With this most recent agreement, we now have 17 SPL partnerships, covering more than 95 development programs in the aggregate, that’s based on the calculations we talked about in January 2022, of which more than 15% have entered the clinic. We remain optimistic regarding the potential to add additional SPL partnerships this year and the comparable economics to prior partnerships.
We maintain strong relationships with our partners and customers and believe the combination of MaxCyte’s ExPERT platform and the support of our team is a core aspect of their therapeutic development strategy. Our partners are well funded and leaders in the cell therapy industry, developing a wide-ranging set of innovative gene editing approaches. Our platform continues to lead the industry in transfection efficiency, cell viability and scalability, which are critical capabilities through the development of cell-based therapeutics. And combined with our unparalleled scientific support is the core of what brings customers to our platform.
A key element of our work this year is the ongoing investment we are making to support our future revenue growth. These investments include expanding our commercial teams, expanding in-house manufacturing, enhancing our applications and process development capabilities and ongoing product development, as well as reinforcing our business infrastructure. All these investments are central to supporting our customers and partner success in driving continued revenue growth.
This summer, we are completing our move to new headquarters in a facility nearby in Maryland. A key part of our headquarters project is the expansion of our instrument and disposables manufacturing capacity from research and clinical scale to now commercial therapeutic scale. Building out in-house manufacturing is expected to increase our manufacturing capacity, build redundant disposable manufacturing capability and enhance our control over supply chain. These developments are critical to supporting our SPL partners as their programs advance.
In addition, we continue to see exciting growth in our end markets, particularly in novel cell types and gene editing applications. Our ongoing investments in our applications and process development labs will keep us at the forefront of these changes, where we play a central role enabling innovation in cell therapy as the field advances. Additionally, the PD lab is building out the platform and processes needed to support the use of the VLx platform in large-scale bioprocessing, including the production of monoclonal antibodies.
We also are investing in our sales, marketing and field science applications team to further our ability to capitalize on growing markets. Finally, we are making the necessary investments in our business infrastructure, information systems, quality systems, regulatory, legal, finance and accounting to support the growth of the company. These investments will advance our ability to support expanding markets, engage successfully with emerging therapeutic development programs in companies and support our partners as they move towards commercial launch of therapeutic products. We remain confident in the value of these investments to our partners and that they will continue to deliver strong growth. As we make these investments, important to note that we remain well funded with modest cash burn and a strong balance sheet as we move toward profitability.
In summary, we had an excellent second quarter, 2022. We remain excited about our opportunity going forward, especially in the cell therapy market as we continue to execute on our financial and strategic goals and make the right investments to drive growth across our business.
I will now turn the call over to Ron to discuss our financial results. Ron?
Ron Holtz
Thank you, Doug. Hello, everyone. As Doug mentioned, we reported total revenue of $9.6 million in the second quarter, compared to $7.1 million in the prior year’s quarter, driven by strong performance in our core business. Core business revenue was $9.6 million in the second quarter of 2022, compared to $6.6 million in 2021. This includes revenue from cell therapy customers of $7.7 million, which grew 61% year-over-year, while revenue from drug discovery customers was $1.9 million, up 4% year-over-year. The increases were primarily driven by strong instrument and disposable sales growth in cell therapy. We did not recognize any material SPL program-related revenue in the second quarter of 2022, as compared to $0.5 million of program-related revenue in the second quarter of 2021.
Moving down the P&L. Gross margin was 88% in the quarter versus 89% in the second quarter of the year prior. Total operating expenses for the second quarter of 2022 were $17.2 million, compared to $10.7 million in the second quarter of 2021. The overall increase in operating expenses was primarily driven by increased staff and field sales science, manufacturing, lab teams that support customers’ and partners’ growth. The increase also included growth in public company-related stock-based compensation and marketing expenses compared with the same period a year ago.
Furthermore, we have a very healthy balance sheet with combined total cash, cash equivalents and short-term investments of $240.9 million as of the end of the second quarter and no debt. As communicated last quarter, total investments this year in our new headquarters is expected to be approximately $12 million in 2022. Based on the growth year-to-date and a robust pipeline, we are raising our revenue outlook for 2022. We remain cautiously optimistic about the balance of 2022 and now expect revenue from our core business which includes sales and leases of instruments and sales of disposables to both cell therapy and drug discovery customers to grow approximately 30% compared to 2021 core business revenue.
Turning to our SPL Program economics. As we’ve discussed previously, the timing of SPL revenues is predicated in our customers’ clinical and regulatory progress and, therefore, is fundamentally more difficult to predict than core revenues, which we manage directly. Based on that more limited visibility, we continue to expect 2022 SPL milestone revenue of approximately $4 million.
Lastly, we believe that our modest cash burn and debt-free balance sheet will support our future plans for profitable growth. We expect to end this year with approximately $220 million in cash, cash equivalents and short-term investments.
Now I’ll turn it back over to Doug.
Doug Doerfler
Well, thank you, Ron. So in summary, we remain optimistic about the opportunity to lead the industry forward as the premier cell engineering platform technology, supporting the development of advanced cell-based therapeutics for patients who may not otherwise have treatment options. We are very pleased to report strong second quarter results and raise our full year revenue outlook. We’re excited about the opportunities ahead. And as always, we want to take this opportunity to thank our team, the Board, suppliers, investors, partners and the amazing industry that we have the honor of serving.
Thank you, and I’m open for any questions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from Max Masucci with Cowen.
Max Masucci
First one related to the core cell therapy business, another strong beat in the segment. It would be great to understand how much of that strong growth in the core cell therapy business, both on the instrument placements and processing assembly side of things, how much of that growth is being driven by SPL partners versus customers that you haven’t signed SPL agreements with?
Doug Doerfler
Ron, do you want to take that one? Thanks, Max.
Ron Holtz
Yes, sure. So the SPL customers on the cell therapy side tend to be the larger customers. And so more of the growth comes from them than from smaller customers and new customers where they’re typically buying one instrument or have a single instrument on lease. So it’s — I don’t have the proportion in my head, but it’s certainly the larger proportion is coming from SPL customers.
Max Masucci
Okay, great. And then second one, could you — is there a way for us to better understand maybe even qualitatively, just how licensing fees have evolved as a contributor to revenues and growth, maybe compared to the time of the NASDAQ IPO or in recent quarters?
Ron Holtz
Yes. So I don’t think that there’s been a lot of movement in the proportion. So the mix is kind of recurring revenue, so you have instruments that are licensed and those are — those grow. And because they’re recurring, as long as the instruments are in place, that gives us a strong base for growth. Process and assemblies tend to be repeating and also a consistent proportion of revenues. And I don’t — I was looking at it today. I don’t think there’s been much in the way of the shift in the past, even few years really.
Max Masucci
Okay. Got it. Maybe final one. Several MaxCyte engineered therapies in various phases of clinical development, all with aspirations of regulatory approval and launch. I think for us, at biomanufacturing conferences, there seems to be an emphasis on companies preparing for commercialization, logistics and scale up a bit earlier than, say, a few years ago. So just a broad question. Is that what you’re seeing on your end? And if so, is there anything that you need to do at MaxCyte to sort of prepare yourself operationally for that next wave that will be coming over the next, call it, 3 to 4 years?
Doug Doerfler
Right. Let me take that. It’s a great question. Precisely what we’ve been investing in the last year or so. We talked about moving into our new facility that basis for that move is to substantially expand our manufacturing operation and to become more basic in the manufacturing of processing assemblies. So we want to build up a lot of capability. We also — you also will see some increase in inventory, and that’s a result of us, again, becoming more basic building in our supply chain so that we can support our customers as they move from late stage clinical development into that launch phase.
And as you can imagine, there’s a lot of speculation on what those numbers could look like, but we want to make sure that we’re in a position that we can support our commercial customers at any level that they need. And so we’re spending a lot of time thinking about that. We’re also investing in regulatory field support because these companies are typically thinking about global launches or at least EU, U.K. and U.S. launches, and also building out our operating group as it relates to quality group and making sure we have all the processes built redundant to support audits by our customers. So there’s a lot of work going on. I think it’s fair to say at MaxCyte, that’s our #1 priority right now is preparing for our partners’ launches.
Max Masucci
Great. And congrats on the other great quarter.
Doug Doerfler
Thanks.
Operator
Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.
Doug Doerfler
Thank you.
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