Quanterix Corporation
Q4 2020 Earnings Call Transcript

Published: 2 Mar 2021

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Quanterix Corporation Q4 2020 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the call over to, Amol Chaubal, CFO of Quanterix. Please go ahead, sir.

[Amol Chaubal:]

Thank you, Charlie. Good afternoon, everyone, and thanks for joining us today. With me on today's call is Kevin Hrusovsky, our Chairman and CEO. Before we begin, I would like to remind you about few things. Today's call will be recorded and will be available on the Investor Resources section of our website. Today's call will contain forward-looking statements that are based on management's beliefs and assumptions and on information available as of the date of this call. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The risks and the uncertainties that we face are described in our most recent filings with the Securities and Exchange Commission. During today's conference call, we will discuss some financial measures that are not presented in accordance with U.S Generally Accepted Accounting Principles or non-GAAP financial measures.

[Kevin Hrusovsky:]

Thank you very much, Amol. And we did do a pre-announcement. So, basically going to go through the strategy charts, the numbers, we will once again go through them through Amol after I go through the higher-level presentation. But I will discuss just the advances we made in Q4 in 2020, with our focus being primarily on COVID, Alzheimer's, in oncology, but most important is the payer disruption in the way we think this is going to transform our overall value creation opportunity. And we'll ensure to continue our dialogue around powering precision health, which is a phrase we coined about six, seven years ago. And it's actually guiding the proteomics evolution that we think can really become a revolution in the way proteins are being deployed. Let me start on Slide 4, where we basically made some pretty significant advances. I think the whole company has probably put out at a pace of about 200% of previous years. And I think the pandemic has reached each and every one of us from an employee level at Quanterix and enabled us to really go after and help the nation as well as the world battle COVID. And it starts with us giving two UAs in the last several months. One four serology, that's a semi quantitative ability to measure the actual level of antibody, which we think is key with vaccinations, particularly in the durability questions that remain, and also an antigen test that we have also submitted for nasal swab anterior and we've also submitted for saliva. And we expect shortly to submit for dried blood spots which we think measuring the antigen in blood is a very significant differentiator given the long hauler effect, which many individuals, unfortunately, are continuing to be plagued with even months after having had COVID which, we think enables us to be able to measure small trace amounts of the antigen still on many of these long haulers blood. And so this will be key for future therapy trials as well as trying to get health back for many of those that have suffered from COVID. Even with just lack of taste and smell.

[Amol Chaubal:]

Thanks, Kevin. I'm going to provide some additional financial details about our Q4 and full year 2020 performance. We'll be referring to Slide 34 our webcast page 55. As Kevin noted, GAAP revenue in Q4 of 2020 was $26.1 million and included $4.5 million of revenue from RADx Awards. Excluding these non-recurring items our non-GAAP Q4 2020 revenue was $21.6 million a 36% increase versus prior year Q4. Consumables revenue increased by 49% in Q4, and instrument revenue increased by 21%. Service revenues increased 28% in Q4, driven by a 46% increase in accelerator services revenue. GAAP revenue for full year 2020 was $86.4 million and included $11.2 million revenue in connection with a nonexclusive license agreement with Abbott in Q3, and $6.4 million in revenue from our RADx Awards across Q3 and Q4. Excluding these non-recurring items, our non-GAAP full year 2020 revenue was $68.8 million a 21% increase versus prior year, despite challenges in accessing customer sites for installations and customers facing interruptions in their operations due to COVID-19. As previously discussed, we have proactively expanded our accelerator services capacity to support our customers sustain their research and clinical trials. This resulted in a 50% increase in our service revenue driven by an 80% increase in courier Accelerator services revenue. Coming to RADx; we are accounting for our RADx Awards under IS 20 accounting for government grants and disclosure of government assistance. Under IS 20, we expect that approximately half of the total RADx work package to milestone payments of approximately $9 million will be recognized as grant revenue of which approximately half was recognized as grant revenue in 2020. We expect the remainder approximately $4 million to $5 million will be recognized as grant revenue in 2021. The remaining approximately $9 million of contract milestone payments that relate to reimbursement for the purchase of property and equipments will be recorded as a reduction in the carrying value of these assets and will have no grant revenue associated with them in a profit and loss statement. As previously stated, we are not providing revenue guidance. We have recently seen customer activity return to pre COVID levels. However a potential spread of new Corona virus strain may force the new lockdowns resulting in challenges, such as limitations in accessing customer sites or dropping consumables utilization due to interruptions in certain customer laboratories in US and Europe. On a non-GAAP basis Q4 gross margin was 50.8% versus prior year Q4 gross margin of 47.3% an increase of approximately 350 basis points. Our non-GAAP gross margin excludes the impact of our RADx awards as well as non-cash acquisition related purchase accounting adjustments relating to our 2019 acquisition of Oman , thus providing investors with relevant period to period comparison of our operations. We believe we have a significant opportunity for gross margin expansion in the future as we evolve our mix towards high margin consumables, and excellent services, scale our overall business and reduced product costs. On a GAAP basis, our Q4 gross margin was 57.6% and was favorably impacted by our RADx grant revenue verses prior year Q4 gross margin of 43.1%. Our GAAP operating expenses totaled $25 million in Q4 2020. And non-GAAP operating expenses which primarily exclude non-recurring expenses associated with our RADx grant revenue total $22.6 million. During Q4 2020, or cash balance increased by $8.4 million, driven by $10 million milestone payments received in Q4 from Abbott, timing of RADx payments, and proactive working capital measures. We close the year with $181.6 million unrestricted cash balance. And during Q1 2021, we raised approximately $270 million in net proceeds through our public offering. Basic weighted average shares outstanding for EPS total $31.7 7 million for Q4 2020 period. Overall, we are pleased with our Q4 and full year 2020 performance and progress made on our strategic priorities and remained committed to delivering a solid 2021 result in line with expectations. With that I will pass back to Kevin.

[Kevin Hrusovsky:]

Thank you, Amol. We will open up for Q&A.

[Operator:]

Your first question comes from the line of Puneet Souda with SVB Leerink. Your line is now open.

[Puneet Souda:]

Yes. Hi, Kevin. Thanks for taking the questions. The first one is on proteomics. I mean, obviously, there's significant interest here in proteomics and more investment is flowing into early-stage technologies. Obviously, you know, proteins and more importantly, the detection of proteins and in most sensitive ways, it's something you do very well with Synovia . So, just trying to understand how is Quanterix positioned in the continuum of the overall research from, you know, the early-stage sort of screening research, where you're looking at large panels and large number of proteins to more targeted side of things, and then into the diagnostics? Where do you sit into that continuum and what should we be looking out for as a signpost for Quanterix to be positioned even more and proteomics

[Kevin Hrusovsky:]

Very good question, Puneet and it's interesting, I get more questions and all of our one on ones with investors about where they should be making their investments upstream, given all of these new entrants than I do, sometimes even about us, because I think there's a lot of confidence and belief, they understand that we are executed, that have been doing this for a really 20 years with a lot of execution prowess. And we've spent a lot of time studying this landscape before even entering it. As you know, I came out of retirement seven years ago, but most of the 100 people we have in the company now from some of the former companies, and are very experienced that driving execution in a landscape like this. And so we been very measured in the way we've approached it. And what we've been finding is that there is a lot of misinformation around those, there's a lot of people that can say things like, you know, we can see these markers. And what we find out is that when they can see these markers, these would be some of the upstream companies, they're seeing them in a very invasive samples and or, they're basically saying that they can see them, but the challenge is being able to see them through the continuum of health to disease. And when you're healthy, you're at the lowest level, the lowest level of concentration of these proteins. And what really is the magic around where we sit, which is downstream of much of the discovery where the mass spec and many of these new entrants are trying to play a role in discovery. And some of them call themselves unbiased. And I think to a great extent, many of them are unbiased, but they're not really, totally unbiased. Because if a biomarker or a protein is at a really low concentration in a, let's say, a less invasive sample, and the patient is healthy, as an example, what you'll find is, is that their technology won't be able to see it in that condition, which makes it actually biased against sensitivity. So, one of the big areas that I think it's important for everyone to understand is, we are not trying right now to be a discovery house, there are a lot of really good companies entering that we think an invasive samples are going to be really good at discovery. But we really bring our value to it is when you start to then say what you can see in CSF, Let's now see it in blood or see it in saliva, or even see it in breath condensate. That's when we think the utility of that protein goes way up. And you can see it in a non-invasive sample. And then if you can also see it from health to disease, even in the youngest population, where once again, the younger you are many times the protein levels for like an NFL are even lower. So it's that complete continuum, that grunt brings greatness into the discovery opportunities. And most of our customers understand that ultimately, they're going to want to have that sensitivity to allow you to see that very low abundance in that lesson base of sample. Many times to cleaning up the sample with dilution, and getting around false negatives and false positives, is another use of the sensitivity and the being able to quantitate and be able to say how much there is, particularly in COVID when there was a real question around people getting antibodies, well, what's the quantitative level of those antibodies and ultimately, is it neutralizing the actual virus which is seems to be very personalized, the viruses vary a lot of diversity. We're learning from the NIH, between different people, but even within the same person for different weeks that they have the virus. There's so much diversity that you just need to be able to quantitate what you're seeing in order to unravel this mystery of COVID. So this is where I think we play fairly uniquely, with a lot of the drug trials and getting those drugs approved, ultimately, opens up the opportunity to screen people into the drugs to get approved. And that's really where we sit. And right now, we sit fairly uniquely there. And this is where the body of evidence is really nice third party, peer reviewed validated studies that validate our ability. The NFL has been a key franchise, and now we're evolving it into the pTau. And looking at subtypes, you know, used to be that many of the competitors were looking at total Tau and invasive samples, both seen the subtypes and non-invasive samples, dry blood spots is really when you create the utility for that pTau franchise that allow you to differentiate amongst those that have dementia to only those who have Alzheimer's. So anyway, those are some of the pieces of this puzzle. And I think it's a really important question, because there's a lot of money flowing now into proteomics, you just want to make sure that it's flowing with long term value creation, or we could end up in a scenario where people will not be happy with the long-term investment.

[Puneet Souda:]

That's great. That's very helpful. Kevin, I want to touch briefly on the neurology trials. You have done well here throughout 2020. We saw major uptick in trials as Alzheimer's and multiple sclerosis and Parkinson's and other neurology indication trials have ramped up. Any measure you can provide us in terms of, you know, the number of trials that you can potentially get involved in as a result of, more data and more confidence on the Alzheimer's and, and just broadly in terms of Neurology trials, what's your level of confidence, for further growth in 2021, given the sort of base we saw in 2025, which was still a bit of a pandemic impacted year?

[Kevin Hrusovsky:]

We feel very confident about 2021 and 2022, relative to the neurological drug trials and the current level of our very embryonic penetration, that penetration is actually embryonic in a field that needed to start in because in order to conform to the FDA guidelines for biomarkers to be used in a drug trial, you have to have approved drugs to validate and quantitate, the clinical validity of that biomarker for showing drug efficacy. And so AMS has 16 approved drugs that allowed companies like Novartis and Roche to look at previously approved drugs to validate and retrospective trials, biomarkers like the NFL, and then deploy them, and downstream prospective trials for new drugs. And that's why MS really is where it started. And even there, we feel like we're only 10% penetrated. But that's where we see a lot more phase three trials and phase two trials because we've been at that for several years. Alzheimer's is an area where there's no approved drugs and so it's been harder for the Alzheimer companies to prove out these biomarkers, and many times, they're proving them out with existing technologies, like imaging, and like cerebral spinal fluid, spinal tap samples. And those are so invasive and so expensive that they don't translate into longer term utility. And so there's where we enter is by being able to ultimately see this in a blood sample. And then someday in saliva samples, we are unearthing the utility of those biomarkers for longer term diagnostic and health screening purposes as opposed to just to get the drug approved and so many of the Alzheimer trials to date have not utilized our technology for those trials. Like if you look at the Biogen data, it's really based on CSF, highly concentrated samples. But we know that long, they're one of our largest customers as Lily, we no longer term, there's a lot more opportunity for the lesson base of samples, to get recruitment for patients to actually run these trials. And that's where we're bridging up and teaming up now with some of the payer groups to actually enable leading edge drug trials, utilizing what we would consider to be the payer groups membership as a great place for the biomarkers to be deployed, that allows the payer group to really showcase their leading edge capability that almost anybody, when they start to see this are going to want to be part of a peer group because of what they're going to bring as the next generation of medicine for deploying pre symptoms or asymptomatically. So I do think that we're on the first thing for Alzheimer's. And we see tremendous upsurge for the next several years utilizing our biomarker technology for those trials. And we see it for two reasons. One is early recruitment before presentation of dementia when it's easier for a drug to be efficacious. And secondly, to enrich the cohort by removing bodies dementia and removing frontal temporal dementia, using a stratification capability of the technology. And then once the drug gets approved, then we look downstream, a triage and help screen to move patients more efficiently than imaging and or spinal taps into the drug.

[Puneet Souda:]

Okay, thanks for those details. If I could ask a more near-term question. First of all, I mean, that's great to have you no thoughts on the longer term, as you're seeing these trials ramp up. But I think you pointed out 30% to 40% research CAGR here in 2019 to 2023, I believe. But you have a number of growth drivers here, you have easy comparables for 2020, as well. So just tell us like why shouldn't we expect meaningfully higher growth in 2021, versus that CAGR that you pointed out?

[Kevin Hrusovsky:]

Well, first of all, I've warned you Puneet, and I tried to say this to all the analysts, I think 30% to 40% CAGR is plenty to create a lot of value and trying to model things that go beyond that, I think just represents risk. That's not really justified for our investors and so I would almost criticize anyone that starts to throw CAGR, much higher than that. And we feel very comfortable that that's a CAGR we can manage and execute against. Because a lot of value creation of our company is in the narrative of what we're really evolving to on diagnostics. And you really conceived the beginnings of many new investors. And we did a raise back a few weeks ago, I think we had a billion dollars of demand in the 24-hour period because there's a lot of interest of new investors into this category because of the longer-term opportunity. In the short term, I do agree that we've got some good comps because 2020 was something we had headwinds more than we had tailwinds for COVID. And as a result, when you look at the CAGR, or you look at the growth rate in 2021 versus 2020, it probably will be greater than the CAGR, because our gross in 2020 was less than the CAGR, because it was headwinds from COVID. But again, I wouldn't buy our stock based on that, I think that's trying to time it in the short term. And I think that we're going to try to remove any tailwinds, we get some COVID on the diagnostic side, just because we don't, we're going to remove it from and make it a non-GAAP measure. So we don't create hard comps for 2022. So we don't want people to see the tailwinds of what we're doing diagnostics for COVID. That might be short lived, we don't want that to be a reason for people to surge into our stock. It's going to give us the pathway to get into these institutions, these research institutions with the EUA for really screening students and those research institutions. It's going to then give those installations an opportunity for the long haul or effective COVID, which is more of a five-year play. That's where we see this sustainability of COVID value for our investor base.

[Puneet Souda:]

Sure. That's fair, Kevin. Thanks. I'll hop back into queue.

[Operator:]

Your next question comes from the line of Sung Ji Nam with BTIG. Your lines now.

[Sung Ji Nam:]

Hi, thanks for taking the questions. Kevin, thank you so much for all the color around how Quanterix fits into the overall proteomics landscape. Was curious about just your multiplexing capabilities, you guys have obviously made a lot of progress in terms of sensitivity, attaining greater sensitivity, but haven't talked about multiplexing capabilities. No, while in my view, kind of curious as you think about as you know, it's Quanterix fits kind of in the downstream area, compared to maybe some of these early discovery players, is multiplexing not as critical in your view and kind of what is the right multiplexing capability, I guess, that we should think about going forward?

[Kevin Hrusovsky:]

Perfect questions on GN and I think that this is a slide that I'm working on, were working on for future presentations, because it's really interesting in the recent search phase of things, particularly in discovery, where you're trying to identify a linkage between pathology of the disease and protein signatures, you really want to have a very broad multiplex capability. The mass spec is like, been an example of this, it's a very broad-based shotgun looking at a lot of different proteins. And, you know, I see evidence of these new entrants, like shear, and symbolizes not a new entrant, but they're also very capable. I look at, old link knowledge, there's a lot of companies that I think will bring a lot of value to the multiplex shotgun to kind of identify the pathology that's rich, for evolving utility of the biomarker into drug trials, and then ultimately, into diagnostics. And there's where you want the lesson base of sample, and you want to be able to quantitate, and you want to be able to dilute samples. And that's when the sensitivity becomes really important. And so someday, I'm going to have a slide that shows the role of the multiplex, for the different stages of the pipeline. And what you see as to the upstream side where you're doing discovery, you want to have a lot of Plex, but the overall TAM and the value creation is probably not going to be as significant there, it's going to be as it goes down the pipeline, it's used for drug trials, and then it's ultimately used in diagnostics. That's where we think the TAMs get much bigger and the value gets created. And I look at, for instance, today, there are three companies, Roche, Siemens and Abbott, who have nearly $20 billion of TAM on basically 200 proteins, but 100% of that revenue is basically single Plex. So you can see what I mean here, that once you hone in on the protein of interest, you can create a lot of TAN and a lot of value for single Plex. So you get this situation that you do need a lot of Plex in upfront. But once you get into the utility zone, 10 Plex to maybe 20 Plex is probably going to be more than it's needed for a panel that gives you the specificity and gives you the disease specificity and gives you the ability to create utility. And so I think that there will be the number of tests that are run, you'll find that the volume of testing run will be greatest for the high Plex in. But the value of where a lot of dollars sit is going to be in 10, Plex and lower. And again, I think Roche, Abbott and Siemens have demonstrated that with their incredible ability to create a lot of value for very few number of proteins that are all single Plex. Does that help?

[Sung Ji Nam:]

Yes, that's super helpful. Thank you so much for that. And it's fantastic to hear you guys partnering with the payer groups. Just kind of curious, though, are there specific studies that are currently underway where you might have visibility into the timeline of you know, when we might be able to see the data readout?

[Kevin Hrusovsky:]

Yes, I think that what you'll see is probably, it's up to the payer themselves on what they want to publish. And I can't really say at this moment, how public they're going to want to be with the surveillance data that they're collecting. But we are running three different IRB right now and see a lot of opportunities for additional ones that I think are informing them at more of a population level. But eventually, we think that it's getting them introduced to what biomarkers can do. And that then can lead to that slide that I showed at the end, one, two, and three, where you could even see biomarker discovery, as well as teaming up with pharma companies. And I think you might have saw the announcement about two months ago from UnitedHealth Group and Lilly teaming up. That was an example of the pair groups teaming up with pharma to try to get drugs that haven't been able to be approved, approved by utilizing their coat their membership for some of the disease cohorts. So I think that that's where the opportunity really gets started. And then longer term, you know, you'll see them, I think, practicing biomarker surveillance of all their members, probably at a quarterly level, hopefully using home care, but how much they publish between now and when they get to that state. This is kind of their call, and you know, we will be continuing to invite them. There's an independent conference summit called powering precision health, that we will continue to invite the pair groups to and that's incredibly aligned with what they're trying to do with outcomes and it makes it a really easy for their involvement there, and that's probably where you'll see a lot of the readout for some of the learning's that they're getting from their IRB's.

[Sung Ji Nam:]

Great, that's super helpful. And then lastly, for me, just kind of curious on the COVID antigen test. Obviously, very interesting insight into the disease there and it sounds like you guys are using it largely for research applications currently. But do you foresee kind of in the future, if you look at the whole field of infectious diseases, you have capabilities of being able to detect antigen you know, viral antigens at such a high sensitivity could potentially disrupt how clinical diagnostics field might look at detecting viruses and pathogens going forward?

[Kevin Hrusovsky:]

I do think that there are some potential differentiating opportunities in that field of diagnostics COVID. We are trying to treat it as a measure, though, of revenue, we would probably subtract it out because we don't know how long lived it would be given the vaccines and given the timing of the overall COVID. And we do think that it's easy to mislead investors in this part of the landscape. So we do expect there'll be some tailwinds. And one area would be in just looking at anyone would call them long haulers, people that are still suffering from symptoms, many of them six months later, there's still people that don't have recovery of taste and smell. And that's a critical CNS function that could be linked to sometimes longer-term neurodegeneration, or we've seen evidence of stroke and heart attack and other types of issues from those that have had COVID previously, and the innate immune system being fatigued is another area that there's a lot of focus. And so I do think that there'll be an opportunity for some diagnostics, looking at the virus in blood, to ensure that these patients have eradicated all of the virus from their body where they might, if they measure it using the traditional nasal pharyngeal or nasal swabs, the virus may have left the respiratory tract, and it's only in the systemic blood track, or vascular tracking. So there, I do think there'll be a diagnostic option. And then I think the whole field of asymptomatic, so if we could get the right samples in the right IRB run, we think we could play a role there to see the virus before symptoms hit when it's more important to manage, because that's when you're most contagious, that 24-hour period before symptoms. So I think those two areas, there's a potential chance for some tailwinds in '21. But again, we don't want people to buy us based on those tailwinds. It's more an entry for us to get into those research institutions that will really be looking at that long haul effect. Unfortunately, we are going to have to cut off if there's other questions. I got to give a keynote and another meeting here at 5

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.