MaxCyte has reinforced its position as the leader in flow electroporation over the last year. The number of cell therapy licenses has risen by about 10 to over 40 and revenues increased by 32%. A new collaboration was formed to develop CARMA therapies in haematological cancers with Washington University in St Louis. There were also publications detailing the utility of its electroporation systems for CRISPR therapies, which was followed up by MaxCyte’s first commercial license deal in the field. This performance is set to continue as it invests in R&D and marketing. We raise our valuation by 8p to 316p/share.
| Year-end: December | 2015 | 2016 | 2017E | 2018E |
| Sales ($m) | 9.3 | 12.3 | 15.3 | 18.3 |
| Adj. PBT ($m) | (1.4) | (3.2) | (6.5) | (4.3) |
| Net Income ($m) | (3.5) | (3.9) | (6.6) | (4.5) |
| Adj. EPS (c) | (186.4) | (10.0) | (14.8) | (9.9) |
| Cash ($m) | 2.4 | 11.7 | 6.1 | 2.1 |
| EBITDA ($m) | (0.7) | (2.6) | (6.0) | (3.8) |
Update
20 March 2017
| Price | 287.5p |
| Market Cap | £125.2m |
| Enterprise Value | £118.5m |
| Shares in issue | 43.5m |
| 12 month range | 72.5p-292.5p |
| Free float | 67% |
| Primary exchange | AIM London |
| Other exchanges | NA |
| Sector | Healthcare |
| Company Code | MXCT.L |
| Corporate client | Yes |
Company description
MaxCyte uses its patented flow electroporation platform to transfect a wide array of cells. Revenues arise from sale and lease of equipment, disposables and licence fees; with an impressive client list. Additionally, a novel mRNA mediated CAR technology, known as CARMA, is being explored in various cancers, including solid tumours.
Analysts
Mick Cooper PhD
mcooper@trinitydelta.org
+44 (0) 20 3637 5042
Franc Gregori
fgregori@trinitydelta.org
+44 20 3637 5041
Table of Contents
MaxCyte has used the proceeds from its IPO in March 2016 to increase its investment in its flow electroporation platform and expand its marketing efforts. The company is already the leader in the field, and is demonstrating its determination to maintain and exploit this position. This has led to sales increasing by 32.1%, and we forecast sustained strong double-digit growth for the foreseeable future, boosted by additional commercial license deals similar to the recent one with CRISPR Therapeutics/Casebia Therapeutics.
Its flow electroporation systems can transfect almost any living cell with a wide variety of molecules, ranging from proteins, antibodies through DNA to mRNA and siRNA. The patented technology is both highly efficient, with 90% to 95% effective cell loading commonplace, and very scalable, up to 2×1011 cells can be processed in less than 30 minutes under sterile and clinical conditions. These are capabilities unmatched by competing electroporation devices, such as those produced by Lonza and Thermo Fisher Scientific, and has led to MaxCyte’s instruments being used by over 100 companies, including nine of the top ten global players.
To stay ahead of the competition, MaxCyte adapts its core technology to meet the demands created by scientific advances. This is exemplified by its work in the field of the gene editing technology, CRISPR-Cas9. The company ensured it was working with the leading scientists and companies in the field, including NIH, CRISPR Therapeutics and Editas Medicine, so that its flow electroporation devices were optimised to meet their demands.
Key to enabling CRISPR-based therapies advance into clinical development was overcoming the challenge of efficiently and consistently transfecting RNAs and oligonucleotides for CRISPR into specific cells in a reproducible manner. In January 2017, data presented at the Keystone Symposia on Precision Genome Engineering and in a paper in Science Translational Medicine showed that that the CRISPR technology together with MaxCyte’s flow electroporation systems could be used to efficiently correct the CYBB gene that causes the X-linked chronic granulomatous disease (discussed in our note dated 24 January 2017).
This work was carried out as part of a collaboration between MaxCyte and investigators at the National Institutes of Health’s (NIH) National Institute of Allergy and Infectious Diseases (NIAID). Subsequently, MaxCyte signed a commercial license deal in March 2017 with CRISPR Therapeutics/Casebia Therapeutics (the JV between CRISPR Therapeutics and Bayer, which will invest at least $300m over five years in CRISPR-based therapies) for haemoglobin-related diseases and severe combined immunodeficiency (SCID). Samarth Kulkarni, Chief Business Officer of CRISPR Therapeutics, described MaxCyte’s technology as “the leading ex vivo delivery solution for both clinical and commercial use”.
We anticipate that there will several more commercial license deals for CRISPR-based cell therapies, and other treatments that require the ex vivo modification of cells, including in immuno-oncology. MaxCyte has demonstrated with the recent deal its ability to realise the value of its technology through commercial license deals.
During FY16, the number of licenses to use MaxCyte’s technology to develop cell therapies has increased from over 30 to over 40, of which circa 15 have licenses for clinical use (therapeutic uses include various cancers, HIV, pulmonary arterial hypertension and sickle cell anaemia). Companies with clinical licenses include Sangamo and United Therapeutics; however, these might not necessarily be the source of the next commercial licenses, as CRISPR Therapeutics/Casebia Therapeutics decided to secure access to MaxCyte’s products for commercial use ahead of the therapies starting clinical development.
To complement the investment in R&D, MaxCyte has also expanded its marketing efforts and extending its distribution capabilities in 2016, as it said it would at the time of its IPO. In the US and Europe, where MaxCyte uses a direct sales force, it has increased the size of its sales force by 50% and doubled the number of field scientists. In Asia it uses a distributor model and already had established distributors in China, India and South Korea. This network was expanded in September 2016 with the appointment of Kiko Tech and Bio Laboratories to serve Japan and Singapore respectively as the authorized distributors, which are supported by staff including a senior manager. At the start of 2017, there were a total of 32 employees promoting globally.
The market for transfection reagents and equipments was estimated to be worth $676.8m in 2015 and to grow by 7.2% CAGR to $957.9m in 2020[1]. While the main method of transfecting cells is by using biochemical methods (the largest market segment by both volume and value), the market growth is primarily being driven by the increased use of viral (mainly lentiviral and AAV) and physical (principally electroporation) methods as use switches from biomedical research to therapeutic delivery. MaxCyte’s extra sales effort should ensure that its product sales continue to grow well ahead of the market, with strong double-digit growth for the foreseeable future.
MaxCyte’s proprietary CAR (chimeric antigen receptor) technology platform, CARMA, is being advanced on two fronts following the formation on the collaboration in December with the University of Washington in St Louis for haematological tumours. The initial CARMA collaboration with Johns Hopkins Kimmel Cancer Center is advancing towards the IND, and MaxCyte expects a Phase I/IIa study to be started with anti-mesothelin CARMA this year. Interestingly, before then MaxCyte will be presenting the first preclinical CARMA data at the AACR meeting on 4 April 2017 (see below).
CARMA has many advantages over the current CAR-T therapies in clinical development. The clinical appeal is the potential to reduce toxicities (notably on-target, off-tumour effects) as well as addressing new indications (beyond the CART-19 pathways), including solid tumours. From a production perspective, the principal attraction is the significantly faster and much less costly commercial manufacturing process (which could be orders of magnitude less expensive). Further details on the CARMA technology can be found in our initiation note on MaxCyte.
To expand the potential of the CARMA platform into haematological tumours, MaxCyte formed a collaboration with the University of Washington in St Louis in December. The company is working with John DiPersio MD PhD and his team to carry out preclinical studies with CARMA cells that target the CD123 protein for the treatment of acute myeloid leukaemia (AML). CD123 is an attractive target as it is highly expressed on AML cells; however there are also low levels of expression on haematopoietic stem cells, meaning that there is the risk of on-target/off-tumour effects, which, unlike in first-generation CAR-T therapies, can be managed with the CARMA technology.
If these studies are successful and advance without significant complications, we estimate that a clinical trial with CD123-CARMA therapy in AML could be initiated in 2018. This would also open up the field of haematological cancers to the CARMA platform.
In the area of solid tumours, MaxCyte is making good progress, with its collaboration partners at the Johns Hopkins Kimmel Cancer Center, towards the filing of the first IND with the FDA for a CARMA therapy. The preclinical studies are taking a little longer than anticipated to be completed, but MaxCyte still expects to initiate a dose-escalation Phase I/II study in ovarian cancer with anti-mesothelin CARMA therapy in 2017.
The potential of CARMA therapy in solid tumours will become more apparent when MaxCyte presents preclinical data in a poster at the Annual AACR conference on 4 April 2017. The abstract says that a single intra-peritoneal (IP) injection in a murine ovarian cancer model caused a dose-dependent inhibition of tumour growth and increase in overall survival of mice, with greater benefits from multiple weekly injections. There were also no significant off-tumour toxicities observed. This suggests that there are impressive preclinical results, but it will be clearer once the full data is published.
MaxCyte has confirmed this year that it is well positioned to benefit from the growing interest in altering cells to treat currently intractable diseases. Its work on CARMA highlights the utility of its technology in cellular immuno-oncology, and deals with various cell therapy companies, including CRISPR Therapeutics/ Casebia shows its potential n diverse therapeutic fields. This is largely reflected in MaxCyte’s share price, which has increased fourfold since its IPO in March 2016.
We have reviewed our valuation based on a DCF and sum-of-the-parts methodology on the back of its FY16 results, and now value MaxCyte at £138m or 316p per share, an increase of £4m or 8p per share respectively (Exhibit 1). We continue to adopt conservative assumptions in our modelling; for instance, we only include five commercial license agreements (including the recent deal), although many more could be signed in the coming years, nor do we consider potential royalty revenues from the CARMA platform (only risk-adjusted milestones for five deals are included). We feel this is currently appropriate but as progress is achieved, we would expect to revisit the model and anticipate the valuation would reflect this.
There is a lock-in arrangement affecting 68.5% of the outstanding shares and options, which lapses on the first anniversary of the admission of the shares to AIM on 29 March 2017. In addition, all directors of the company and all original shareholders with over 0.5% shareholding have agreed to only dispose of shares in accordance with maintaining an orderly market.
MaxCyte increased revenues by 32.1% in FY16 to $12.3m, a growth rate slightly higher than that in FY15 of 29.7% and ahead of our estimates. This was achieved while maintaining its gross margin at 89% and was driven by its extra investment in R&D (rose by 25.4% to $3.4m, excluding investment of $0.3m and $1.3m in CARMA in FY15 and FY16, respectively) and in sales & marketing (grew by 43.1% to $4.8m). It is worth noting that the R&D expense not only includes spending on its technology platform, but it also contains the costs associated with its field scientists, who play an important marketing role.
The operating loss (before investments in CARMA) in FY16 was $1.4m, compared to $0.5m in FY15. The difference is accounted for by the $0.9m in extra costs of being a publicly listed company post IPO, which was a significant driver behind the increase in G&A expenses of 51.9% to $4.1m.
Overall, the net loss (before cumulative preferred stock dividends) in FY16 was $3.3m ($1.4m in FY15), which led to a cash outflow before financing activities of $2.6m ($0.3m in FY15).
We have increased our estimates as indicated in Exhibit 2, to take into account the recent commercial license deal and the FY16 results. We estimate that the upfront payment was $0.8m, with $0.5m recognised in FY17 and the remainder in FY18. There are concerns that President Trump will slash the NIH budget in the US by almost a fifth, but we do not expect this to have a significant effect on MaxCyte even if it does occur, as the company has limited sales to academia. We continue to expect the company to deliver strong double-digit growth for the foreseeable future.
MaxCyte remains in a well capitalised position with $11.7m in cash, after raising £10m during its IPO (excluding expenses) a net raise of $11.9m. This means that it can continue to invest heavily in R&D and marketing to exploit its leading position in flow electroporation and broaden the use of its devices, both scientifically and geographically. In our view, by following this approach, rather than chasing near-term profitability, MaxCyte is maximising the value of its technology.
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