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Good day, and thank you for standing by and welcome to MaxCyte’s First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [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. Please go ahead.
Good afternoon, everyone. My name is Sean Menarguez and I am the Head of Investor Relations here at MaxCyte. Thank you all for participating in today’s conference call. On the call from MaxCyte is Doug Doerfler, President and Chief Executive Officer and Douglas Swirsky, Chief Financial Office. Earlier today, MaxCyte released financial results for the first quarter ended March 31, 2023. A copy of the press release is available on the company’s website.
Before we begin, I need to read the following statement. Statements or comments made during this call maybe 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.
Now with that, I will turn the call over to Doug.
Thank you, Sean. Good afternoon everyone and thank you for joining MaxCyte's first quarter 2023 earnings call. I will begin with a discussion of our business and operational highlights during the quarter, followed by a detailed financial review from Douglas Swirsky, known as DJ at MaxCyte, our recently appointed CFO. We will then open the call for questions.
I would like to start off by extending a warm welcome to DJ, who joined MaxCyte's leadership team as our Chief Financial Officer in March. He is a seasoned financial leader with over two decades of experience in the healthcare sector. He brings financial, strategic and operational expertise across multiple life science companies, including NASDAQ-listed public organizations. We look forward to the pivotal role he will play a MaxCyte continued growth as an industry-leading cell engineering company.
I also thank Ron Holtz, who served as our interim CFO for the past year, as well as MaxCyte's CFO from 2005 to September 2020 for his dedication and contributions to MaxCyte. Ron is supporting DJ's transition as CFO, as he moves into a new role as EVP of Administration for the company.
MaxCyte began 2023 with the first quarter financial results were in line with our expectations. Although given some of the challenges in the cell therapy industry that I will discuss, we have determined that it is appropriate to lower our revenue expectations for the remainder of the year. DJ will talk more about this in his results. Despite those challenges, I remain extremely excited about the prospects for MaxCyte's platform, as the premier cell engineering technology for the industry, enabling the development of a growing set of advanced cell-based therapeutics and I am confident in our team's ability to deliver against our long-term strategic plan.
You'll note that our first quarter revenues including our core business revenues are down from the same quarter last year. As discussed on last quarter's call, we are expecting a return to more typical seasonality in our financial performance in 2023, than we had in 2022. It's important to note that in the first half of 2022, laboratories came back to near full capacity following COVID-19-related disruptions which resulted in elevated spending on instruments and PAs in that six-month period and has created a more difficult year-over-year comparison for the first half of 2023.
With regard to PA purchasing among customers with advanced clinical programs, we believe some purchases were accelerated into 2022 in anticipation of potential product approvals, which is resulting in lower levels of PA purchases in 2023. Outside of our core business, we generated $800,000 in milestone revenue during the first quarter. Our partners continue to make progress in their development programs with several progressing into and through clinical development over the course of the year.
As discussed on last quarter's call, 2023 shows signs of being a challenging year for the industry. In the face of a challenging capital markets environment, companies are prioritizing pipeline assets for research and development, which is having some impact on the timing of projects in 2023, especially for smaller cell therapy biotech companies with late-stage preclinical and early-stage clinical programs.
We also have seen numerous restructurings and expense cutting measures being undertaking at cell therapy companies in recent months, including several such announcements coming within our customer base. Within this environment, we are also seeing increased hesitancy and therefore extended timelines for capital investments from our customers. We felt the impact of that macro environment impacting the timing of instruments and PA purchases as 2023 has progressed, increasing the caution we discussed in March and as DJ will describe in more detail.
Despite those evolving headwinds, in the near term, our opportunity pipeline remains healthy and our confidence in the value of our offerings remain strong for the longer term. Cell therapy companies continue to move toward nonviral approaches and or focus and invest in more complex engineered cell therapies, including multiple molecules and editing formats across a variety of disease types that play to the strengths of our platform.
Our customers are narrowing and focusing their investments, but we do not see weakness in our core clinical SPL partners as they continue to focus development on their lead aspects. As a reminder, most of MaxCyte's partner programs are tied to the partner's lead and/or second clinical program asset, where investment is continuing and progress through the clinic remains well funded.
Importantly, even in this challenging near-term environment our non-SPL customers continue to progress toward SPL partnerships. We have signed two partnerships so far in 2023, and we anticipate continued momentum toward announcing more this year.
In January, we announced a partnership with Catamaran Bio to support its CAR-NK cell therapy programs to treat a variety of solid tumor types. Just last week, we were excited to announce a partnership with Walking Fish Therapeutics, to support its innovative B-cell platform. The partnership with Walking Fish further expands our SPL program portfolio into B cells and rare diseases.
Additionally, this partnership expands the application of the MaxCyte platform as Walking Fish is developing an innovative B-cell platform to serve as in vivo protein factories that produce the deficient enzyme in Fabry disease. The additions of Catamaran Bio and Walking Fish Therapeutics bring the total number of our partnerships to 20 and with continued high level of engagement with potential partners, we remain confident in MaxCyte's position as a partner of choice to sell in gene innovators.
We look forward to a potentially first commercially approved product enabled by our platform Vertex and CRISPR XL program, which recently announced completion of the rolling biologics license application BLA to the US Food and Drug Administration for sickle cell disease and transfusion-dependent beta thalassemia, with request for priority review. This application approval would be the first non-viral engineered cell therapy product granted by the FDA, and would further validate the utility of MaxCyte's platform technology as the premier enabler of non-viral cell therapies.
So far in 2023, we continue to position ourselves strongly with targeted investments to support our future growth, as well as our customers and partners' success. We are focusing on growing our commercial teams, implementing automation in our recently expanded manufacturing capabilities, enhancing our process development capabilities and ongoing product and technology development.
In addition, we continue to make investments in our applications lab, which will enhance our ability to support next-generation cell therapy innovators. We believe these are the right investments to ensure long-term success for MaxCyte and the cell therapy sector.
Late last year, we took key steps to formalize our approach to environmental social and governance disclosures. Earlier this week, we issued our inaugural ESG report, which can be found on our Investor Relations website.
In this report, we highlight our ongoing efforts in all areas of ESG, including our value for patient initiative launched in 2021 which establishes our efforts to better understand the differential challenges that discrete patient populations face.
In the time since launching this initiative, we are developing an understanding of the potential social racial economic and bioethical challenges relating to developing gene and cell therapies. We have taken these findings and partnered with key opinion leaders proactively participate in efforts that support the novel treatments we enable as they move toward reaching the patients who need them the most.
We are pleased to share this first ESG report with our shareholders, and to share our commitment to understanding managing and monitoring our businesses support for sustainability of responsibilities, as a corporate citizen and our role in creating value for patient communities more broadly.
In summary, we expect a more challenging operating environment in 2023, which will impact the timing of our customers' development programs and capital investments. However, we see these developments as short term in the therapeutic space, with great promise over the long term.
Importantly, we continue to have confidence in the value our enablement provides to our industry and in the strength of our SPL partnerships and pipeline opportunities, which remains as robust as ever. We have made critical strategic investments positioning MaxCyte to execute on long-term goals. We are honored to support our partners and believe we remain the partner of choice for non-viral cell engineering technology to support critical programs through development to commercialization.
The cell and gene therapy industry is in the early innings of a significant global opportunity to deliver therapies to patients and we remain very optimistic about the medium- to long-term growth for MaxCyte.
With that, I will now turn the call over to DJ to discuss our financial results. DJ?
Thanks, Doug. Hello, everyone. I'm very excited to have joined the MaxCyte team. I appreciate the opportunity to support our mission for having the next generation of cell-based therapies. During my short time with the company, I continue to be impressed by the quality of our team at all levels in the organization. It is an honor to work with all of them as we support our partners, as they develop innovative therapies for patients who need them most.
I will now discuss MaxCyte's financial results for the first quarter. Total revenue in the first quarter of 2023 was $8.6 million compared to $11.6 million in the first quarter of 2022 representing a 26% decline. In the first quarter, we reported core revenue of $7.8 million compared to $9.6 million in the comparable prior year quarter representing a 19% decline.
This includes revenue from cell therapeutic companies of $6 million, which declined 19% year-over-year and revenue from drug discovery customers of $1.8 million, which declined 17% year-over-year. The year-over-year decrease in revenues were driven by an unusually strong first half of 2022, which did not see our typical seasonality and was strongly impacted by the purchasing patterns of late-stage pre-approval programs and laboratories tied back to near full capacity following COVID-19-related disruptions.
As discussed on last quarter's call, we expect about 40% of 2023 core revenue to occur in the first half of this year consistent with our historical experience outside of last year's less typical seasonality. We recognized $0.8 million of SPL program-related revenue in the first quarter of 2023 compared to $2 million in the first quarter of 2022. We will not be able to discuss further details on our SPL program-related revenue or our partner's progress due to confidentiality agreements.
Moving down the P&L. Gross margin was 88% in the first quarter of 2023 compared to 91% in the first quarter of the prior year. Margins were influenced by highly variable milestone revenues as well as the mix of products and customer types and we saw those effects in the first quarter.
Total operating expenses for the first quarter of 2023 were $20.8 million compared to $14.7 million in the first quarter of 2022. The overall increase in operating expenses was primarily driven by increases in R&D, sales and marketing, headcount and strategic consulting expenses as the company continues to invest in the expansion of commercial sales and marketing as well as in business, and corporate development and innovation and product offerings for long-term growth. We finished the first quarter with combined total cash and cash equivalents and short-term investments of $224.7 million as of March 31, 2023 and of course no debt.
Moving to our updated full year 2023 guidance. We now expect total revenue for 2023 to grow between 8% and 12% compared to 2022, including core revenue growth of between 5% and 10% and SPL program-related revenue expectations remaining unchanged at approximately $6 million for the year. Our updated guidance incorporates the challenging macro environment and the timing of purchasing patterns from our customers and partners, which Doug discussed.
As we have discussed previously the timing of partnership revenue is predicated on our customers' clinical and regulatory progress and therefore it's fundamentally more difficult to predict than core revenues. Our program-related revenue expectation is a risk-adjusted forecast achievable under various potential outcomes across our 20 announced partnerships and their planned clinical progress.
As I mentioned, we continue to expect a back half weighted seasonality split of roughly 40% to 60% first half and second half core revenues in 2023 which would be consistent with our historical experience before 2022.
And finally, I want to note our strong financial position as we expect to end this year with approximately $200 million in cash, cash equivalents and short-term investments and no debt. Our cash position allows us to focus on realizing the long-term potential of our business model.
Let me close by saying that overall we are confident in our updated 2023 revenue outlook and we believe that our modest cash burn and debt-free balance sheet will support our future plans for profitable growth.
Now I'll turn the call back over to Doug.
Thank you, DJ. In summary, we're optimistic about the long-term outlook of MaxCyte and the depth of our partnership pipeline. We're committed to strengthening our opportunity to lead the industry as the premier cell engineering platform technology supporting the development of advanced cell-based therapeutics for patients who may not otherwise have treatment options.
As always we thank our MaxCyte team as well as our board, suppliers, investors, partners and the amazing industry that we have the honor of serving to enable the development and commercialization of therapies for patients and their families.
With that, I will turn the call back over to the operator for the Q&A. Operator?
Thank you. [Operator Instructions] Our first question comes from Julie Simmonds with Panmure Gordon. Your line is open.
Thank you. Good evening. And just a couple of quick questions on the split between cell therapy and drug discovery and whether you -- whether there is any difference in the guidance as far as sort of the effect of this slowdown on the two separate divisions clearly ones more capital and one more recurring in revenue?
So we take a look at our revenue expectations across the entire business and developed our projection based on that. I think some of these sectors are going to be -- some of the subsectors are hit more than others. Obviously, we're very comfortable with what's happening with our SPL partners. People are focused very heavily on their late-stage programs and as capital is constrained a little bit within the industry, people are focusing on the product on or product in the pipeline. So I think in terms of how we thought about this reduction in guidance as a result of looking at the business across all of our opportunities and I hesitate to break it down further.
And then just on sort of the cost side of things. The fact you're taking down the top line does that change the investment plans at all in terms of the scale of the sales and marketing or R&D, or are you expecting that to continue at a similar rate as run rate as now?
So we said last time that we thought, we'd have $200 million at the end of the year, we still are saying that, even though that the revenue expectations are being moderated. So we're being mindful of costs. However, we're continuing to invest in our business and we're not going to let what we consider temporary market conditions take away from our long-term strategy.
Thank you very much.
One moment for our next question. Our next question comes from Dan Arias with Stifel. Your line is open.
Thanks, guys. Thanks for the questions. Doug or DJ on the outlook here, can you just maybe clarify for us how much of what you're doing is due to lower instrument purchase expectations versus lower utilizations of the installed systems? And then how much of – what you're doing is also due to sort of an explicit forecast from your customers or what you're hearing from your customers versus more of just an assumption that things will be tough and a naturally more prudent outlook on the space just given the industry headwinds that we're talking about.
I think it's a combination of factors. We're very close to our customers and potential customers with our sales team and our field applications team. So a lot of this is direct feedback that's sort of factoring into our thinking.
In terms of where we see this again, we're not going to break this out in terms of where we see the softness in the markets. We feel very good about the book of business in front of us and we're optimistic about executing against the goals we set for ourselves. But again, we're not going to break it out and find detail in terms of instrument sales versus PAs and things like that in terms of our people – where we have installed base are we seeing softness.
And I think people are very excited to be working with MaxCyte and what people are scaling back on where they're making capital investments right now and there's been just a general slowdown in capital being deployed in the space and that's why we're just moderating our expectations for the year.
Okay. I don't – I'm not trying to beat a dead horse. I think most people can understand the placement dynamic and why instruments going out the door might be doing so at a lower clip. But by our math the utilization came way, way in this quarter. And you have a business that is hard for people to sort of dig into and understand, just given the nature of it. So is there anything that you can offer us when it comes to the usage of the systems by those that have them that give you comfort that this is a temporary thing and that maybe there is something going on in one corner that's not going on in the other quarter because again, there's not a lot to work with in general when you're modeling this company. And right now it does seem to be particularly in flux. Thanks.
Yes, Dan, it's Doug. So I think one area I do want to focus in on is our SPL partners and they continue to progress their programs through the clinic and towards commercialization. We're not seeing any weakness in that part of the business frankly that continues to be very very strong for us both in placements and in utilization.
I also want to point out that first of all Q1 was sort of inconsistent with expectations. We do recognize that year-over-year this quarter doesn't – it isn't as strong as last year's Q1. I think there was a lot of things that went into that people coming back again after COVID-related disruption and people laboratories of getting back out ordering and things like that. So this is a little bit of a drop from the first quarter of last year but it met our expectations and we don't really believe that there's any real read-through for the rest of the year beyond what we're guiding here now.
Okay. Thank you.
One moment for our next question. Our next question comes from Jacob Johnson, Stephens…
Hey, good afternoon. This is Hannah on for Jacob. Thanks for taking the question. In your investor presentation you highlighted the potential for 50 total SPL pre-commercial milestone events over the next three years. How many of these are 2023 events? And – or are these more weighted towards 2025?
So I think that's a three year total Hannah. And I think when we talked at the last quarterly meeting, we guided towards $6 million in milestone revenues and we're still sticking by that. We've built that plan from really the bottom up. We've looked a little delta a number of different scenarios and we feel really comfortable with that $6 million number.
Thanks, I’ll leave it there.
One moment for our next question. Our next question comes from Steven Mah with TD Cowen.
Great. Thanks for taking the questions. Maybe just to dig in a little bit more on the guide revision. And I'm not sure if you guys disclosed this or not, but could you give us a sense for the customer breakdown that you have? How -- just rough and tough how many are small emerging biotechs versus medium-size versus large pharma?
And if you can't give that breakdown, on the guide revision you mentioned it was impacted by customer feedback. Was that customer feedback across the board across your whole customer base, or was it weighted to one particular demographic?
No. As I did mention, it's -- we're very strong and the SPL partner. Steve thanks for the question. What we're hearing -- so we have a pretty -- well for a small company, we have a pretty good number of people in the field, field application scientists and salespeople who are in the field every day.
And so we're getting that feedback for them collectively. We're monitoring this basically on a daily basis. We're looking at macro numbers. And frankly, I think we may be seeing some stuff that haven't yet, showed up in some of the macro numbers.
So I still think that there's kind of across the board, some belt tightening I think that you're seeing a situation where larger dollar amounts capital items are getting a little bit more scrutinized.
In some cases we're seeing companies establish higher levels of authority to approve certain capital purchases. So I think that the dwell time the cycle time is being a little bit elongated as well just basically across the board.
Okay. That's helpful. And I can sneak one last question in. I appreciate you guys are guiding to a $200 million of cash at year-end. But given that cash the capital markets outlook and generally reduce valuations, how should we think about your M&A appetite? And could you give us a sense of, what an ideal target would be for you guys? Would it be like a technology bolt-on or any color would be helpful. Thanks.
Yeah. It's very active. There's -- we have a lot of sensing going on right now in the marketplace. We've identified a handful of opportunities for the company. As I mentioned before, these aren't going to be I'll call them commodity bolt-ons. They're going to be more in -- we've identified a handful of problems.
I've talked about Process Analytics Technologies. I've talked about some other Adjacent Technologies to our platform which we think will be very attractive for adding into the portfolio.
But again, it's going to be driven by issues facing the industry. And I think that we continue to believe that those issues are product characterization and the ability to adequately identify product potency.
Those are the two main areas that we're taking a hard look at. And anything we can do to accelerate the manufacturing time and provide more consistent manufacturer for these cell therapy drugs.
Great. Thank you.
One moment for our next question. Our next question comes from Matt Larew with William Blair. Your line is open.
Hi. This is actually Madeline Mollman on for Matt. Just thinking about some of the pressures you've talked about with longer capital equipment purchase cycles, more approvals needed things like that.
Are you seeing the discussion of some of your clients moving into SPL, partnerships or SPL agreements taking longer by any -- because of that, or do you think that's impacting people moving sort of through your process at all or taking a longer time there?
We're seeing a lot of really good -- thanks for the question, Madeline. We're seeing really good progress in the SPL partners. I mean we have something that's really important for these companies to move forward. We've just signed two deals this year already and we expect to keep the pace we've historically had which is somewhere between three and five deals.
So we're not seeing any major slowdown of those deals. And typically these companies are driving toward value-generating events and moving something to the clinic is clearly a value-generating event in this environment.
Great. Thank you. And then, sort of a backing up a bit, thinking about your Rockville facility, can you talk about where you see utilization trending this year? And I know in the past you said it has the ability to support multiple commercial products when it fully scaled. What would you consider, like a utilization level that would be considered fully scaled?
Good question. So what we have told -- what we have talked about is that, we built out our manufacturing here. And I don't think we really have a capacity in terms of instrument manufacturing and we've also dramatically increased our manufacturing for disposables.
We also are making -- continue to make major investments in Automation. Automation will translate into more flexibility and more capacity. So we're monitoring our partner's progress. We're monitoring their potential commercial success.
And we're staying well ahead of that. And frankly we can make those automation investments well ahead of the demand of the partners. So we feel very comfortable with how the capacity to support all of our SPL partners, as they move into commercialization.
Great. Thank you.
One moment for our next question. Our next question comes from Mark Massaro with BTIG. Your line is open.
Hey guys. This is Vidyun on for Mark. Thanks for taking the questions. So, maybe one for DJ, I guess I was curious on the decision to keep the FPL revenue guidance of $6 million. I would have thought that that revenue would tend to be a little more lumpy as opposed to the core business. So I guess could you just walk us through what's giving you confidence there? And in the past I think you guys have talked about some degree of inclusion of approval milestone revenue. So just curious if you're able to break out what that contribution might be? Thanks.
Thanks for the question. So our expectations regarding milestone revenues remain unchanged at $6 million for the year. And the way we think about that is we've got 20 SPLs, we're modeling out multiple scenarios that helps us generate a number that we can get comfortable with.
I can assure you it's probably not a normal distribution curve. We're just looking at it many different ways how we -- what the year could look like. And when we do that the number that was -- that came out of that process on our last call was $6 million and it's still $6 million now. And certainly we do think about some of the later-stage milestones being a component of that. But with or without that there are many different ways and many different combinations of potential payments that get us to $6 billion. But it is lumpy. And something tells me the number will hopefully center around $6 million so that we look smart, but I think it's probably not going to be that number exactly.
Okay, perfect. Understood. And then just a quick one, how should we think about gross margin cadence from here just given the step down in the guide, I think I also heard you talk about more targeted investments. So just any comments you have there?
And so just as a reminder in terms of how the gross margin is determined. We've got different things, different types of revenue, one of which is milestone revenue. And so the lumpiness in that also contributes to the lumpiness or the fluctuations in the milestone revenue as well as the mix of instruments, et cetera. But we feel very good about our margins. We're getting -- we got margins in the high 80s and we think it's going to continue to be at that level.
Thanks, awesome. Thank you for taking the question.
Thank you.
Ladies and gentlemen, this does conclude the Q&A portion of today's conference. I'd like to turn the call back over to Doug for any closing remarks.
Well, thanks operator and thanks everyone for joining today's call. And this is our first quarter 2023 earnings call and I'd like to thank DJ for joining the team and supporting the great work we're doing and look forward to providing an update on the second quarter later this year. So thank you all very much.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.