Quanterix Corp

NASDAQ:QTRX

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and thank you for standing by. Welcome to the Quanterix Q2 2024 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to our first speaker today, Francis Pruell, Head of Investor Relations.

[Francis Pruell, executive]

Thank you, and good afternoon. With me on today's call are Masoud Toloue, Quanterix's President and CEO; as well as Vandana Sriram, our Chief Financial Officer.

Before we begin, I would like to remind you of a few things. This call will be recorded and a replay will be available on the Investors section of our website.

Today's call will contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act. These forward-looking statements 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 uncertainties that we face are described in the filings with the Securities and Exchange Commission.

To supplement our financial statements presented on a GAAP basis, we have provided certain non-GAAP financial measures. These non-GAAP measures are used to evaluate our operating performance in a manner that allows for meaningful period-to-period comparison and analysis of trends in our business and our competitors.

We believe that such measures are important in comparing current results with other periods' results and assessing our operating performance within our industry. Non-GAAP financial information presented herein should be considered in conjunction with and not as a substitute for the financial information presented in accordance with GAAP.

Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures set forth in the appendix of the presentation posted to our website and in the earnings release issued today.

Finally, any percentage changes we discuss will be on a year-over-year basis unless otherwise noted.

Now, I'd like to turn the call over to Masoud Toloue.

[Masoud Toloue, executive]

Thank you, Francis. Starting with our second quarter results, total revenue of $34.4 million grew 11%. Despite a constrained capital funding environment and overall muted growth in the tool space, demand for Simoa sensitivity continues to expand by double-digits.

This quarter's results were driven by 35% growth from our Accelerator lab where customers can access our tech without the CapEx, 7% growth from our consumables business and very early signs of progress with partner enablement and diagnostics. Second quarter non-GAAP gross margin of 52.3% was solid as we continue [ and ] invest in our assay development, which we expect will yield future growth.

Our balance sheet remains strong with nearly $300 million of liquidity. Cash usage in the period was approximately $5 million. Vandana will touch on these results and our updated guidance in more detail.

Recall, our 3 core growth objectives are: one, high growth in menu, specifically maintaining our leadership position in neurology and growing into immunology and oncology adjacencies; two, the ubiquity of Simoa in all labs, where we are allocating heavy resources and investment into pushing forward a new frontier for multiplex ultrasensitive protein detection that we expect will culminate in a new platform; and three, a leadership position in diagnostic testing for Alzheimer's disease.

Starting with menu. We commercialized 3 new assays this quarter for a total of 8 in our first half of '24 and are on track to complete 20 by end of year. In neurology, we're building on the successful launch of BD-Tau and plan to launch an N4PD assay in Q3, which combines BD-Tau with additional relevant markers in a neurology-focused multiplex test. We also expect to launch several exciting cytokine panels in the back half of '24, which we will discuss later this year.

Simoa has a clear leadership position in neurology, and our menu continues to accelerate this lead, powering exciting research, clinical trials and neurotherapies.

Starting with neurology. In a recent June publication of Nature Medicine, researchers using Simoa were able to demonstrate that plasma extracellular vesicle tau and TDP-43 were effective biomarkers in both frontal temporal dementia and ALS, suggesting new modalities for evaluating disease progression and clinical trial targeting.

Next, in oncology, in the International Journal of Molecular Sciences, researchers using Simoa show that NfL and GFAP were promising targets to evaluate brain metastases in patients with lung cancer. Patients with brain metastases showed higher serum NfL and GFAP compared to those without, suggesting these biomarkers can effectively identify patients at high risk and potentially improve the efficiency of MRI screenings.

Staying on NfL, there's a growing recognition by the FDA that this biomarker is important in drug development and clinical trials. In May, the foundation for the National Institute of Health received acceptance from the FDA for its intent to qualify NfL as a biological indicator of frontal temporal degeneration.

This builds upon the agency's 2023 accelerated approval of Biogen's drug tofersen for treatment of ALS, which relied in part upon extended review, evaluating trends in reducing NfL levels. More recently, in Q2, NfL was again used as an effective biomarker by Annexon Biosciences. Annexon announced positive top line results for their pivotal Phase III trial in Guillain-Barre Syndrome, a condition in which the body's immune system attacks the peripheral nervous system.

Utilizing data generated by our Accelerator lab, Annexon was able to demonstrate that their Phase III trial met its primary endpoint. In addition, Annexon established their therapy delivered improvements compared to placebo with other secondary pre-specified endpoints, one of which demonstrated early reduction in the biomarker NfL between weeks 2 and 4 of therapy.

Moving forward, we expect more clinical trials will incorporate monitoring NfL levels and will be ready to support our customers as the market leader for this biomarker.

Simoa's leadership among key opinion leaders, researchers and pharma was evident at the Alzheimer's Association International Conference, or AAIC, last week. Simoa has helped build the field of highly sensitive biomarker detection in neurology as evidenced by our technology cited in approximately 150 posters and platform presentations at the conference. Our platform is entrenched with academia and pharma and we continue to work with our customers to generate data for key publications and evidence for pivotal clinical trials.

The highlight of our week at AAIC was important new data on our multi-marker approach to Alzheimer's testing. Our presented data was derived from BioHermes and CANTATE trials, 2 independent and diverse cohorts and highlighted that combining Amyloid Beta 42/40, NfL, and GFAP with p-Tau 217 and using an algorithm can improve the accuracy of diagnosis compared to a standalone p-Tau 217 test.

We believe the future of Alzheimer's agnostic therapy selection with blood-based biomarkers will follow a multi [ analyte ] road map.

30% of approximately 7 million symptomatic Alzheimer's patients in the U.S. today have pathologies other than Alzheimer's. We believe these patients will benefit from the diagnostic clarity that multi-marker test can provide. We will launch a multi-marker LDT later this year and we'll share further data on our test at CTAD this fall.

Staying on diagnostics, I want to make a clear point on why Simoa is best-in-class for early detection of Alzheimer's disease. To date, the Simoa platform has provided numerical results for every single Lucent p-Tau 217 patient sample tested. Other competing platforms are not able to provide results for up to 30% of patients due to limits of those platforms' sensitivity.

To be clear, that means for every 1,000 patients visiting a neurologist to get blood testing, up to 300 may not get a numerical result if a platform other than Simoa is used.

It is well understood that amyloid progresses over time. Someone with family history and early memory concerns should get blood-based testing. Of the blood-based test available, we believe Simoa is best for measuring this early to late progression for the simple reason that there is a numerical value to measure each time someone is tested in the clinic.

Our commercialization efforts for Alzheimer's diagnostics are also progressing. Within the quarter, we engaged 4 new partners, representing both large hospital systems and reference labs with broad geographic reach. More specifically, we announced 3 new partnerships in the U.S., including Mount Sinai, Banner Health and UCSF, which see approximately 5 million patients annually. We also announced the partnership with KingMed, which has 49 labs set up in Mainland China, Hong Kong and Macau.

These partnerships build upon our previously announced relationships and our early steps in building the infrastructure for Alzheimer's testing.

Vandana will now discuss our financial performance in more detail.

[Vandana Sriram, executive]

Thank you, Masoud. I will now go over our second quarter results and our updated guidance for 2024. As Masoud described, Q2 was another strong quarter of executions with double-digit growth compared to the prior year.

Total revenue for the second quarter of 2024 was $34.4 million, an increase of 11% compared to the prior year. Accelerator lab revenue was $10.1 million, an increase of 35% as demand remains robust for Simoa sensitivity. Consumable revenue was $17.4 million, an increase of 7% and instrument revenue was $2.5 million, a decrease of 29%.

In terms of revenue stratification, our customer mix in the period was approximately 55-45 between pharma and academia at 85% of our assay and Accelerator sales, [ both ] for neurology disease states. In addition, we recognized $0.7 million of revenue in the quarter related to enabling our diagnostics partners to perform LDT testing by selling them instruments, consumables and licenses.

Revenue from patient testing under our Lucent platform was immaterial for the quarter. Our revenue growth was led by North America and Europe, which grew 15% and 25%, respectively, in the quarter. Our business in the Asia Pacific region was down 36% in the period, as China remains a challenging end market despite its relatively small size in our portfolio.

In addition, we did not have a repeat of a onetime revenue adjustment from Q2 '23 in that region. For the quarter, our total installed base increase mirrored our performance in Q1. While not a surprise, the capital budget environment remains difficult and we continue to expect this overhang to persist through the balance of 2024.

Shifting next to gross margin for Q2. GAAP gross profit and margin were $20.1 million and 58.3% respectively, up $0.9 million and down approximately 340 basis points compared to the prior year. Second quarter non-GAAP gross profit was $18 million and non-GAAP gross margin was 52.3%, up $0.5 million and down approximately 410 basis points, respectively, compared to the second quarter of 2023.

As a reminder, we had several onetime items positively impacting gross margin in the second quarter of '23, which included approximately $1 million of incremental revenue compared to Q2 '24 that flows through at 100% gross margin, an impact of 140 basis points on margin. The remainder of the change in gross margin compared to the prior year is due to investments made in the operations and quality framework as part of our transformation. As a reminder, these investments took place in the second half of 2023.

Moving down the P&L. Second quarter GAAP operating expenses were $33.2 million, an increase of $4.5 million compared to the prior year. Non-GAAP operating expenses were $31.1 million, an increase of $4 million compared to Q2 '23. Within operating expenses, higher spending compared to the prior year was primarily due to continued investments in our R&D and commercial efforts. These investments are targeted towards our clearly defied near-term growth pillars, which Masoud highlighted to start the call.

More specifically, we are allocating resources to our new platform, the build-out of our Advantage PLUS assay menu and our sales, marketing and regulatory efforts in diagnostics. We are making these investments because we see clear signs of demand.

Pivoting to the balance sheet. We ended the second quarter of 2024 with $299.5 million of cash, cash equivalents, marketable securities and restricted cash. Cash flow in the period was a net outflow of $5.1 million. Our liquidity remains strong. And we continue to prioritize investment in organic growth.

Moving on from the second quarter, our updated full year 2024 revenue outlook is a range of $134 million to $138 million, representing double-digit growth of 11% at the midpoint. This revenue range excludes revenue from LucentAD diagnostic testing, which we expect will be immaterial in 2024.

The change in our guidance is driven by a challenging backdrop for instruments. We are assuming that Q3 and Q4 instrument revenue will be similar to the first half of 2024, whereas previously, we had expected an uptick in the second half. We're also taking a cautious approach to forecasting consumables and are assuming that the weak capital environment will have a knock-on effect on consumables pull-through.

These changes in our guidance are partially offset by anticipated strong execution in Accelerator where demand for Simoa sensitivity remains robust. We expect that these updates in addition to normal seasonality in our business will result in Q3 being flat to slightly down compared to Q2 and then an uptick in sequential revenue in Q4.

In total, our updated guidance indicates full year double-digit growth, while also acknowledging a macroenvironment that remains challenging. Throughout this period, we expect to continue to execute on our strategic priorities, setting us up well for strong growth in 2025 and beyond. We are maintaining our GAAP gross margin guidance of 57% to 61% and our non-GAAP gross margin guidance of 51% to 55%.

Finally, we now expect cash usage to be at the higher end of our previous cash burn assumption of $25 million to $30 million, primarily due to the impact of lower revenue. We continue to believe that our research use-only business will be cash flow breakeven at revenue levels between $170 million and $190 million.

I will now turn it back over to Masoud for his final thoughts before opening the call for questions.

[Masoud Toloue, executive]

I want to thank our team for their hard work and another great quarter. Your efforts are making a real difference in moving the shift from sick care to health care. It's an exciting time to be at Quanterix. If you're a super talented individual and want to participate in redefining protein detection boundaries and translating those to early detection of disease, I suggest to give us a call.

Our business is growing double-digits. Our investment and scale will see gross margins expand and the company has line of sight to positive cash flow. This, on a stand-alone basis is an incredibly valuable asset in the growing field of protein tools.

That said, there are now 2 new FDA approved and reimbursed therapies for Alzheimer's. As access to treatment is broadened, we will invest resources and work diligently to ensure access to testing is available.

Let's take some questions.

[Operator]

[Operator Instructions] Our first question today comes from Matthew Sykes with Goldman Sachs.

[Jake Allen, analyst]

This is Jake Allen on for Matt Sykes. So one thing I want to talk about is, given capital equipment weakness over the past year, have you thought about any potential reagent rental or financing options for instruments in order to continue to drive pull-through given the fact that instruments have remained soft?

[Masoud Toloue, executive]

Yes, that's -- fortunately, it's a great option with the instrument and reagent platform that we have. We're seeing good pull-through in our Accelerator program. So it's a good offset for somebody who doesn't have CapEx today. They've been sending our samples to Accelerator.

That said, there's probably 2, or a couple cases where we had reagent rental programs where our customer had large consumable demand. So it's something that we absolutely have been able to offer.

[Jake Allen, analyst]

And then for my follow-up, now that the FDA has approved Lilly's [ Kisunla ], can you talk about your relationship with Lilly throughout their CertuitAD LDT offering? And any feedback you've gotten from Lilly in regards to using blood-based biomarkers to drive therapeutic uptick?

[Masoud Toloue, executive]

Yes. So we're very excited about CertuitAD and the work that both Lilly and Quanterix have done together over the collaboration period, that's culminated in this test. So if you look at the test details that were presented at AAIC, [indiscernible] type spec, high accuracy test with low and determinant zone. And yes, I mean, I think that both teams have a lot to be proud of. It was excellent work.

In the sense of blood-based testing, these are tests to evaluate patients that could be candidates for therapy. So it's a test that we're going to continue to support folks with and hopefully, in the future, expand access.

[Operator]

Our next question comes from Sung Ji Nam from Scotiabank.

[Sung Ji Nam, analyst]

Just a couple on Alzheimer's disease testing. Would love to hear the feedback you've gotten at AAIC on the multi-marker approach to testing? And when you launch this assay, do you expect this to be utilized predominantly over the stand-alone p-Tau 217 assay?

[Masoud Toloue, executive]

Yes, We -- I think that's -- the answer is yes. So we think the future for blood-based testing is going to be a multi-marker test. And at AAIC, Sung Ji, as you alluded, we showed for the first time that additional biomarkers, when we added additional biomarkers to our p-Tau 217 and used the 2-step algorithm. We can reduce the intermediate zone of a 2 cutoff test by three-fold, while we're able to keep the high accuracy of the test.

So what that does is it helps provide more certainty for a greater number of symptomatic patients. And we were very pleased with the results. So there's probably some room for single marker tests. And this multi-marker test absolutely is exciting. We've talked about launching this before the end of the year as a laboratory developed test.

[Sung Ji Nam, analyst]

And then just as a follow-up, it's great to see you guys expanding on your collaborations with the large health care system. Just kind of curious if -- the progress that you're making, how quickly could they ramp up, and also curious, if they're more likely to do the testing internally or are they planning on sending the samples directly to you? Just kind of if you could provide any color just from the ramp-up standpoint?

[Masoud Toloue, executive]

Yes. Just taking a quick look at some of the ones that we've listed this time around. I would say that all of them have the ability to have our platform and have the ability to perform testing themselves. That said, there will be some partners that, if their order intake flow sort of exceeds capacity, they're always able to send things to us at -- in Boston. So I think in this case, there's a lot of partners here that are performing [ them ] themselves, but we have the option of test send out to our lab, and I think that's what makes the Quanterix Simoa offering unique.

[Operator]

Our next question comes from Dan Brennan with TD Cowan.

[Unknown Analyst]

This is Tom on for Dan. Just another housekeeping one on the multi-marker test. So given the improved performance, clearly, you're launching the LDT later this year. But should we expect you to prioritize your FDA submission for that test? Or do we need to see more studies first?

[Masoud Toloue, executive]

Yes, that's a good question. We've submitted a single-marker test that we talked about. We received breakthrough [ designation ] for that single marker. As you know, and we've talked about it kind of in earlier calls, we've completed our clinical trials, BioHermus-1 and CANTATE. So Phase I of those are complete. We're in Phase II and Phase III where we're collecting data, both on the single marker and the multi-marker.

So I would say the effort and the work that we're putting in should provide data for both. And we're going to determine what might be most ideal for the IVD application that we have with the FDA.

[Unknown Analyst]

And then just one follow-up on Simoa. So it was kind of announced in the quarter that 2 large players have signed up a partnership with a different competitor where sensitivity was inferior. So could you speak to the fact that other than sensitivity that large hubs are going to be considering when using a platform partner and maybe how your strategy will kind of differ going forward, if at all?

[Masoud Toloue, executive]

Yes. So very clearly there, the top 3 clinical grade p-Tau 217 immunoassays have been built on Simoa, and that's because it's the one platform that has the ability to quantify levels at the earlier stages of disease. So, while there are p-Tau 217 tests out there that can achieve high accuracy, the important thing to remember is that the best clinical utility is when all patients can receive a result.

[Operator]

Our next question comes from Kyle Mikson from Canaccord Genuity.

[Alexander Vukasin, analyst]

This is Alex on for Kyle. Just to start, I was curious since the FDA approval of donanemab in July, have you [ noticed ] any uptick in interest in your diagnostics portfolio? And moreover, do you believe that we're getting closer to an inflection point in regards to AD drugs? Or could it realistically take a bit longer to get sufficient drugs in the market that could in turn kind of help scale up the diagnostics effort?

[Masoud Toloue, executive]

Yes. So the drug ramp for patients has probably been slower than most anticipated. But now that there are 2 FDA-approved therapies, we expect that ramp to improve from where it has been. And as more and more people are looking to the therapy, then you're going to see obviously testing improve.

And there, I think, whether -- it's been prior calls and prior discussions that it's blood-based testing that's going to be the real key infrastructure for folks that have memory concerns and want the first-line test. Clearly, there's just not the infrastructure for PET and invasive CSF-based tests.

So we think that the first approach is going to be blood. And the tests are good enough that they can be confirmatory. So overall, I think that things should tick up more in 2025 and we're going to be building the infrastructure to be ready for that.

[Alexander Vukasin, analyst]

And just one more. I was wondering if you could just comment on the percentage or perhaps just a higher level of commentary on [ your ] number of customers that have been converted to the new assays and perhaps any feedback that you've gotten from these existing customers? [ Thoughts ] [ would ] be helpful.

[Vandana Sriram, executive]

Yes. So we're still in the process of converting our customers to the new Advantage PLUS assays and also releasing new assays that feed our menu. So both of those activities are going concurrently. That process is ongoing. As of Q1, we had converted slightly less than 5% of our customers to the new assays. As of Q2, that number is now closer to 10%. So good progress, but a little bit slow.

And as we had anticipated, a lot of these assay conversions require customers to complete bridging studies, to complete the number of the assays that they have on shelf, getting through those first, et cetera. So not unexpected, but we do think that this is going to be a transition process that takes us through the remainder of the year at least.

[Operator]

[Operator Instructions] And as we are showing no further questions at this time, this does conclude our question-and-answer session and it does conclude the program. Thank you for your participation today in today's conference. Have a good evening. You may now disconnect.