Okay, welcome back to the 2023 Stifel Healthcare conference. We are on the life sciences and diagnostics track here. Our next company is MaxCyte. Happy to have CFO Doug Swirsky and Director of Business Development Sean Menarguez. Guys, thanks a bunch for spending some time with us here. Thanks for having us. My pleasure. You know, maybe just as a starting point on the big picture, DJ or Sean, can you talk about, based on the estimates that you guys have, what the split of cell therapy is when it comes to electroporation versus viral vector methods? Because I think for a lot of folks, it's just a good grounding point on the part of the market that you're focused on. I think before we get started, I just want to make sure, just mention that we're going to make potentially some forward-looking statements under federal securities laws, so consult our filings for risks. In terms of the split, you know, if you back up, the market in general, you have about 25% of the market, which is, I guess, focused on in vivo cell therapy approaches, and then the rest being ex vivo. T hen for ex vivo, I think about 40% is non-viral c ertainly, the initial approaches in cell therapy were done with the virus, and I think, you know, non-viral approaches, which, you know, electroporation and MaxCyte dominates, is about 40%. Okay. And when you look at the cell therapy market in segments, are there specific considerations when, and I don't mean to get too technical on you guys, and so, you know, it's, if it's just a level of detail that we don't need to discuss, then by all means, just tell me so. W hen you think about the different cell therapy types, are there considerations that go into the process that we would be aware of, and when it comes to working on a CAR T versus a TCR, et cetera? Well, you know, we've developed over 100 protocols across multiple cell types, and I think that's one of the things that we offer, you know, to our customer base, is that experience across a breadth of cells. Maybe, Sean, you can talk a little bit more about some of the approaches. Yeah, and from a market-leading use case, it's T cells, especially with the commercial autologous CAR Ts. And then across the breadth, you also have HSCs. exa-cel is an HSC-engineered therapy b ut if you really look at the portfolio as well, it's... You have your T cells, you have your B cells, HSCs, you have PBMCs, you have TILs, NK cells. So it really has the portfolio, which is kind of enabling of the MaxCyte platform to be really agnostic to the different types of cells. Over the 20 years, we've built this, over 100 protocols w e have an applications team in-house and scientific support, where when we engage with a customer, whether it be a novel cell type like macrophages or gamma delta T cells, now derivatives of T cells, we have that infrastructure and know-how and expertise built up, kind of working with these customers over the years. Okay. Okay, so the point is, if you're a cell therapy company who is not using a viral vector, you're using an electroporation technology, regardless of the type of cell that you're working on, you're. It's open for business for MaxCyte t here's no limitation in any one way. Certainly, I mean, there's probably some things we haven't seen yet, but that's the benefit of having the field applications team. Y ou know, we're providing a pretty comprehensive solution to our partners because we're not just delivering an instrument and saying, "Good luck. Yeah. Okay. One of the things, Dan, too, is not just the cell type as well, is the gene editing modality with—that's going into the cell, too. So we're agnostic from a non-viral approach, like a transposon, whether it be a CRISPR knockout, et cetera i t's very agnostic from, you know, from that side as well. Okay. One of the questions that we get frequently relates to the Drug Master File that MaxCyte has and how that confers an advantage to you. Can you spend a second on that and just what it means for competition? And is it something that truly is a conversation topic for customers that makes a difference when it comes to... Because it feels like it is, but it's also one of those things that's nebulous enough to where it's hard to tell really how much an advantage it actually is. Sure. You know, I come from the developer side, so I understand the importance of reducing risk in a drug development program. For our Drug Master File, first off, it's been in place since 2002, and since then, it's been referenced, you know, for 45 clinical trials. And so there's a base of experience and comfort there, that people can look at that path, you know, to the clinic, leveraging our technology. I t is true that, you know, someone else can have a Drug Master File, can start developing that around, you know, their instrument, but they have a lot to catch up to in terms of, you know, being able to offer, you know, what we can in terms of something, again, that's been referenced so many times, it's been in place for a long time. I think it's a great way to reduce risk for our partners. Sean, anything to add? Yeah, and one of the things as well is the clinical validation piece b eing on the IR side of things and our business development, you know, the partners in our logo slide, that's a lot from the commercial side as well and looking at kind of a risk aversion process and going with folks t hat are clinically validated as well. We have across, not just with the U.S., different technical files for different geographic regions as well. With CMC considerations, electroporation is a critical manufacturing step s o having that package in place when you submit your IND or submit it for your pivotal package, having a master file in place is a benefit to customers and partners. I know it's hard for you to speak about what other companies are going to do or what they might plan to do, but should we envision other companies having a master file of their own? Is this a process that, you know, when you look at your competitive landscape or the things that are going on in the industry, one might expect? You know, it depends where their focus is gonna be, and I think a lot of the competition is focused on sort of earlier stage, you know, and discovery work. You know, for folks that are gonna support something that's gonna head to the clinic and beyond, I think having a Drug Master File makes sense b ut again. You know, I just don't see that same range of support that they're prepared to give their customers than that we can w hat we do with our partners and the field applications team, and working with them to solve problems, I think supporting them from a quality and regulatory point is really important w e make sure that, you know, any sort of audits they have are non-events. Yeah. What does the competitive landscape look like when you, when you look at who is being used by non-MaxCyte customers? Lonza is a competitor T hermo Fisher is a competitor w here do you run into them most? I think it's important to recognize, you know, we have a healthy degree of respect for competition. We sort of created this whole industry of, you know, electroporation and, you know, built a leadership position in that over, you know, a couple of decades plus, but we can't be complacent s o we do know that there are other systems out there. I think we offer a ton of advantages for developers in terms of, you know, a de-risked approach, the scalability of our platform, you know, in terms of the range of disposables and instrumentation that can take somebody from, you know, early work, you know, through to, you know, hopefully soon commercialization, with, you know, a partner potentially getting an approval very soon. W e do run into competitors, and, you know, we can't say that we're not going to see some impact from that, but I think this year in particular, it's been a down year w e think that's the macro, but we also have been able to enter into five additional SPL partnerships during that time. And, you know, we're going to see that y ou know, obviously, we've Kytopen that's just coming up, and we're seeing them in some, you know, early discovery work. We've chosen to focus on sort of the clinic w e made that decision early in the company's history, and i think companies have a long way to catch up to us in terms of, you know, doing clinical trials and again, working towards supporting commercialization. O ne of the things too, is when we engage with a partner, they evaluate all options. You know, we are a premium price model. They're going to explore all alternatives, whether it's electroporation or non-viral means, like chemical, or lipid-based with LNPs as well. And it's a testament to signing, you know, five so far this year of kind of the competitive landscape. When you guys look at the drug development pipeline in aggregate, is the wind blowing harder behind the back of the electroporation companies versus the viral vector manufacturers? I mean, I'm sure someone internally is charged with trying to understand what the project work looks like at a high level. Yeah. Do you feel like there's expansion in the electroporation side beyond viral vector, or is everything sort of moving at the same rate? Viral vectors are here to stay. They're gonna, there's gonna be a role for viral vectors in cell and gene therapy, you know, for the foreseeable future. Y ou know, where we offer the most value, I think, is where the industry is going in terms of, you know, programs that are going to be more complex. You know, multiplex editing, you know, numerous things that are happening within a cell from an engineering point of view. You know, to import properties s o if you've got something you're developing for cancer, you know, it's not just, you know, going to be one modification to the cell. We've got a partner in the clinic now, I think, with four edits, and in some cases, they're combining, you know, viral with non-viral approaches to do everything they need to do in that cell. I think that, you know, non-viral is not going to completely displace viral, but, I think for a more complex ex vivo cell therapy, you know, I think we're going to continue to see non-viral have an increasing role. Okay. But just to be fair, during the IPO process, that was one of the pitches, right? Is that the non-viral side of the equation was growing faster? The amount of drugs that were being developed using those technologies was outpacing the viral side, and so it made you kind of feel good about the direction that you guys were heading in a nd then the pie chart, you're, you're, you're being very careful not to say that viral is going away or suggest that you're taking share, but is it fair to think about your portion of the business, where you play most- Well, I- ... advancing quicker? Sure. No, 100%—do we think that non-viral is going to have an increasing share of the market? Sure, because I think the low-hanging fruit in cell therapy is probably, you know, being captured, and things where you can go in and do one thing to a cell and have a product. And so as you move to more complex approaches, you know, you do need to look outside of viral systems in order to incorporate all the edits you need to make to the cell to create a viable product, both autologous and allogeneic. And I think a good example of that, Dan, would be with the autologous CAR Ts that are commercial now at hose are, you know, viral-only approaches to transduce the CAR. Now we're seeing next-generation versions of autologous CAR Ts. Two examples of the partners we signed this year is Vittoria and Lyell. They're doing next generation, multiple edits on the cell to knock out certain pathways to help with persistence, to boost antitumor activity, etc. And that's a consistent theme, as DJ was saying, that increase the complexity, which is a limitation of viral vectors to be able to multiplex, which has accelerated that adoption of non-viral. Yeah. Okay. Maybe sticking with just sort of the activity that's taking place overall in the industry, it's pretty clear if you're talking to you or other bioprocess-related companies, that there is a prioritization process taking place in the industry p rograms are just kind of being backburnered in a lot of ways. Can you talk about how that's evolved for you guys and whether that's something that you're seeing on the SPL side? Obviously not... Well, maybe not obviously, but it doesn't feel like it's on the, the molecules that you're in with first. But I'm curious whether some of the other products that might be in the pipelines of your SPL partners are no longer as much of a priority as maybe they had been in 2021. Yeah. I mean, our business wasn't as strong this year as we had anticipated, and I think part of that is that the portfolio rationalization that's taking place b ut what has supported us through this is what you just alluded to, which is in many cases, you know, what we're working on with a partner is their first or second product a nd so as they rationalize their pipeline, as they dedicate resources to, you know, those key programs, it's going to incorporate our technology. I do think there's some pent-up demand, but I think the industry has been challenging for us, but it's also, you know, again, shined a light on the fact that our partners are still finding ways to move forward using our technology because we are, in many cases, supporting their lead program. J ust the way that the, the business has evolved this year, it started as more of a CapEx issue in, in the beginning portion of the year, and then the process assemblies piece faded a little bit in the middle of the year. How, how are those two portions of the business moving in terms of velocity? I know we'll find out what the 2024 outlook looks like in a couple of months, D o you feel better about one side of the equation versus the other at this point? I think if you look at how things unfolded for the year, clearly, earlier in the year, we were very comfortable that the sales of the, the PAs were still strong, particularly among our SPL customers i think, you know, Q3 was soft in that area, and that was sort of the big change. That's why we had to pre-announce and, and give people an outlook for where things were coming out for the year in light of that. I think going forward, we do anticipate that... W e're not gonna provide guidance, you know, going into 2024. Can't call when the bottom is gonna be. How do we feel about instruments? You know, we've got a good book of business i 'm sure, you've got some questions maybe on whether or not, you know, how we feel about the guidance we've provided for 2023. We've got good visibility into where we stand with instrumentation, and, you know, I think a lot of times when we look at that, we say, you know, "Has the opportunity gone away? Has it just been delayed? Is that still a good lead?" And how closely, you know, do we have a good sense of where that potential or current customer is with making a purchase? Yeah. T hat, that is my next question, is just thinking about Q4 in the middle of the guide for the base business being $29 million. That implies basically flat sequential growth from quarter- to- quarter, but the business is in a pretty uncertain place right now. How is the confidence in just hitting that Q4 number? Sure. We're very confident that what we've provided a nd again, we provide full year guidance. I know you're backing into Q4 to do that, which I get y ou know, just to be clear, we're providing full guidance for the year, $28 to 30 million of core revenue. W e've got really good visibility. I know we probably don't have as much credibility as we'd like sitting up here w e did cut guidance three times, you know, this year. I think it's important to acknowledge that and take responsibility for, you know, maybe, you know, missing the mark with respect to guidance and feeling better about the business and being optimistic that things would improve because a lot of it is the macro. L ooking at Q4 and why we're confident for 2023 guidance in general is, one, there's really three buckets. One is the lease revenue. We have very good visibility into what those are, so we think that's pretty much locked down. In terms of PA sales, we're taking a conservative view, right? We've seen traditionally some uptick in Q4. We're not even counting on that when we established our guidance w e wanna make sure that we're gonna hit it. W e've sort of abandoned some of the, you know, the regression analysis and the more detailed modeling to come up with our PA sales forecast and just basically relied on what did we sell last week on a daily basis. Maybe that's what, you know, the rest of the year is gonna look like. T hen the final piece is instrument sales. W hen we think about the guidance we provided and sort of the batting average we need to have for the rest of the year on potential instrument sales, it's... You know, we really don't need to do much from opportunities that we've got very well identified, that are in various stages of the sales cycle. W e feel very good about the number t here's not much time left in the year to fumble the ball in the, you know, as we go, but of course, there's always risk. Yeah. But we feel good about it. Okay. That's fair and clear. Just thinking about the moving parts within your customer base and maybe particularly on the PA side, is there a concentration amongst—I know because this landscape is diverse, and there are companies that are struggling right now, and what happens in one week might look very different than what happens in three weeks later, three weeks' time. A re there some customers that are changing the performance of the business on a quarterly basis that might make it look different than it actually is if you step back and look at the overall customer base? In other words, is there some concentration on the PA side, actually, or on the instrument side, that's having an oversized impact this year? On the PA side, it's primarily in the preclinical aspect of things and those early-stage customers. And we saw softness in Q3 with some delayed clinical timelines, but over the course of the year, the clinical PAs have held up well. And that's really the cell therapy, where primarily it's, you know, pre-revenue, early-stage biotechs that are really impacted from the financing aspect. Drug discovery overall has held up fairly stable compared to the weakness in cell therapy. The phenotype of those customers are, you know, your Big Pharma and academics- Mm-hmm. which, you know, would be would have would react differently from a financing aspect. A nd on the instrument side as well, we are seeing continued traction in academics. You know, one of the focus areas of the company the past couple of years is really focusing on those key translational centers, to really seed into SPL partners. One example of that would be Vittoria t hat came out of the work out of UPenn as well. So we're seeing still strong traction in there, so to help on kind of the academic push. Okay. I 'm sorry to be just kind of sticking on a topic, but as we try to understand the moving parts this year, you didn't mention it just now, Doug or you, DJ, has not mentioned it on the conference calls. So it's, it seems fair to say that there's not a customer or a handful of customers that are changing their business activity so much that you can point to that one thing and say, "This is why we missed the quarter," or, "This is why the outlook is different. Yeah. Obviously, we see into the entire book of business, and we know where every order is coming from, and we can compare it to what our expectations were for a particular relationship. I don't think we're prepared to say: Well, we know exactly what happened. Yeah. There's a particular customer that, you know. Because there are some things that happened w e had a partner that was gonna move towards a continued development of a product, and they decided to partner that program, and so we'll be working with the successor to that program. And so that means that some aspects of that program, you know, were delayed, but I can't point to that as the reason why we had a disappointing year. I think the macro environment's been very challenging. I think overall, the business, you know, we probability weight things. We look at all the opportunities we have, and we just never know y ou know, the head of commercial's got a bell outside his office, and occasionally I, you know, you know, hear that ring because a big sale comes in. But it's hard to predict where that's gonna come from. We just track all the opportunities. Yeah. Okay. Maybe just talking a little bit about the SPLs and CRISPR Vertex in particular t hat's a pretty big validation moment that we have coming up for you guys. Can you talk a little bit about how you think the business evolves post that? at a high level, just as a, as a validation of MaxCyte's technology and where you can play in it? And then maybe more granularly, what happens if exa-cel gets approved and what the path towards usage might look like after that point? Okay. L et me take the easy part of that question which is the validation, as you mentioned. I think it's a huge moment for the industry, right? First, you know, you know, CRISPR program, right? First, non-viral, cell-engineered, you know, program. I think tremendous validation for the field, for bringing additional excitement into this industry and, hopefully at some point, some additional capital. For us, being able to have worked with that partner from the early days and see it all the way through to the finish line, you know, it's a tremendous, you know, event for us. It's something that when we go out and we tell people about, you know, working with MaxCyte, and the support we can provide, and being able to, you know, leverage our quality and regulatory expertise on this aspect, this step in the process, I think it's really important for us. I think it makes it a very easy choice for folks that are, you know, in a position to find the right system and to work with the right group to help de-risk their program i think it's going to be tremendous for us. It's harder to talk about what this means financially to us w e've talked generally about what this means in terms of, you know, in general, for our partners, you know, we anticipate, you know, being able to participate, you know, low to mid single digits, you know, in the downstream economic success of their program t hat's comprised of, you know, the leased instruments, it's includes, royalty or sales-based payments, it includes, the obviously, the PAs, which with an autologous product, you know, is a nice piece of this, for exa-cel. We're not going to get ahead of where their, you know, guidance they might provide in terms of how much they expect to do and what that ramp-up's gonna be, and we'll rely on other folks to sort of guide the market to what the adoption is going to be. We're looking forward to additional revenue coming in from having a partner with an approved product, but I think we want to be careful, you know, we're not setting expectations for 2024 and beyond, but we also want to be careful not to get ahead of them in terms of expectations for, you know, how the commercialization process will go for their product w e're excited. Okay. And maybe in general, just on the SPL business, I mean, you've set this target for three new relationships or projects a year y ou're at five to date in 2023, so you're obviously, you know, ahead of the game when it comes to what you've set out to do. Can we think about that three per year being a reasonable target going forward or? does the industry being what it is and the time that it might take to get back onto our feet, does that make that equation different or that number different? Well, look, it's been a very challenging year for folks, and we still did five this year. Yep. I think in terms of, you know, building those relationships, and Sean's a big part of that team now, you know, we're not going to say how many we're going to do in 2024 w e'll probably provide updated guidance on that. But I can tell you that that pipeline of opportunities is as strong as ever. Are you able to leverage what you've done with the exa-cel product, just in terms of scaling up and being able to use that in other places? Does it set you up in a better place down the road for additional exa-cel work? In terms of internal- Yeah. Me being prepared? You know, so we've made a lot of investments o bviously, you've seen that happen. We've invested in, you know, a whole host of activities at our headquarters in Rockville. We can support multiple commercial products from that facility, from what's been built there already, and we continue to invest in additional automation. But we've built out the team, we've built out the facility, and we can do a lot from there s o I think there's a lot of leverage in the investments we've already made, and certainly can more than support the launch of exa-cel, and we can support, you know, other products as well. Okay. Maybe just thinking a little bit about what the business looks like in the future, you're very specific to one part of the application. It seems like there's room to do more as a company over time. How much does the strategy involve thinking about what other applications you can take part in? And is that something that you think about as diversifying your business a little bit, such that if one part of the process or the way that that looks, the landscape looks, your ability to adjust to that is greater? Yeah. I think first and foremost, we wanna continue to be, you know, the best at what we do, a nd have the best system out there, because it is a premium-priced system, and I think we've got a lot of advantages we can offer in working with MaxCyte. W e have had to make a commitment that, you know, corporate development is part of this, looking at opportunities for both inorganic and organic growth as part of this. We did a very successful IPO w e've got a very strong balance sheet as a result, and part of that process was, you know, what do we do with that, with that cash? We're expecting to end the year with over $200 million in cash. W e've told people all along, there's really two reasons why we've got such a strong balance sheet or that we've maintained this balance sheet y ou know, one is we wanna make sure that we can, you know, drive this business towards profitability and have the, you know, the balance sheet to survive, you know, challenging times, which we are in now, and we're still, you know, coming out of this with a very strong cash position. I think the other thing that we're prepared to do with capital that we have is, you know, from a corporate development point of view, are there things that make sense to bring in, into MaxCyte to leverage our team? But we've been very disciplined in that process, and so we have an active corporate development effort w e're looking at stuff, and when the right deal happens that we think, you know, has an opportunity to really, you know, enhance shareholder value, we'll do that. But the money has not been burning a hole in our pocket w e've been very disciplined in terms of how we've evaluated opportunities. Yeah. Any thought on cash burn into next year? I mean, again, this is all caveated by, you know, we'll get the full view in a couple of months for not just you, but everybody b ut just thoughts on how it is that investment tracks and cash burn tracks into next year. F or us, again, you know, we're gonna have pretty consistent year-over-year cash burn, around $27 to 28 million versus, you know, $22 million and $23 million here. I n terms of going forward, we're not prepared to guide for 2024 o ur goal is to, you know, at some point, see those lines cross y ou know, we were on a very good growth trajectory with revenue for a while- And then we hit this year. W e anticipate that at some point, this market's gonna turn around w e've got a great book of business, where I think when capital becomes more readily available in the industry, you know, we're gonna benefit from that pent-up demand. I think there's already a lot of leverage in the investments we've made, and so we do wanna drive towards, you know, an enhanced cash flow position going forward i just don't know when those lines cross. Yeah. But when the market heals itself, so to speak, are those types of growth rates that you're alluding to, that you were pretty consistent with for several periods in a row, be it quarters or years, are those reasonable ones to think about going forward? I think those are achievable. You know, where, where we come out when we're in a position to provide guidance, you know, we'll see. But do I think that, you know, we can return to historical growth rates? I think that's certainly possible. Okay. Maybe on the gross margins, 90% gross margins, there's not a ton of room to grow there, but are there things that you can do incrementally that you think give you the ability to be a couple of basis points higher over time? Is there efficiency that you have yet to realize? I know, DJ, you've only been there for a couple of months, but you know, what do you see when you think about the processes and just gross margin trajectory? Obviously, this is one of the things that I think are very i s compelling about MaxCyte, is that we have, you know, tremendous margins. You know, those margins are also influenced by the product mix. You know, if you're taking a particular quarter, how much was PAs, how much was instruments, how much were, you know, SPL, you know, program-related revenue? Y ou know, clearly, we, we've as we have more program-related revenue off, you know, most of that margin's gonna, you know, that's coming in at 100%. I t's really a product mix question i n terms of the actual, you know, PAs and instrumentation, you know, our goal is to have very good margins w e're not gonna, you know... I don't, I don't know if this is an area where I'm looking to say, you know, "How can we pull another, you know, basis point out of this process?" You know, if, if our margins are gonna be, you know, somewhere in the 80's, we're gonna be very happy with that. Okay. Is the VLX profitability profile different than the other instruments in any way? I think it's a different program, and in terms of the profitability of that, you know, we still anticipate very high margins on both the PAs and the instrument. Okay. What do you think the outlook is for the VLX system as a replacement for existing systems or just growing the market? Yeah, one of the things in talking about diversification as well, is getting into kind of the bioprocessing side of things. We hired a lead to head up the bioprocessing to achieve kind of that growth opportunity. The first use case is with the production of monoclonal antibodies, recombinant proteins, and vaccines as well, working with a handful of early adopters that span from the commercial and academic setting. What the team's been really focused on too is this is a new way to be able to produce transient protein material, and current means right now is small scale with chemical or a smaller scale electroporation. T hen, as they kinda get into that late-stage preclinical, a protein developer is gonna have to commit to a stable cell line. The value prop of the VLX is to create larger scale of that transient protein to get you to that late-stage preclinical, to be able to do your tox studies and in vivo studies. So you get more of a possibility to evaluate more preclinical leads, and then you can make your investment accordingly from a stable cell line. That's what the team's working through, and also defining that value prop as well, from a business model standpoint, 'cause the business model may look different than a big pharma compared to a Series A ADC, to a CDMO as well. And we're working through defining that value prop through the application data, working with these early adopters, and then hopefully in 2024, we'll be able to provide, you know, more color of what that looks like. Okay. Do you think you'll be able to talk about upgrade cycles and existing business versus new business? Or, you know, is that sort of a, we need a couple of years of commercialization in order to really understand how the system is best being adopted? I think a couple of more years to be able to see it- Okay ... through from a commercialization. Okay, we're winding down here, so, maybe just a last question for you, DJ. What are the investment priorities going into next year? Yeah, I mean, we've made a lot of investment already in the business y ou know, we talked about, you know, continuing to evaluate corporate development opportunities in terms of, you know, internally, we'll continue to invest, although a lot of those investments have been made already in automation. We've already built out the team significantly on the sales side, as well as the alliance management side and the field application side. Y ou know, we're excited to leverage what we've already invested into this business and support our customers going forward and, you know, look forward to hopefully a good regulatory event later this year. Okay. I think that's a good place to lose it, leave it. Thanks, Sean. Appreciate it, DJ. Thank you. Thanks for spending some time here. Thanks, Dan. Much appreciated.