MaxCyte: resilient revenues show ExPERT worth

MaxCyte remains well positioned to benefit from the maturation of the advanced cell therapy field. As the leader in non-viral cell delivery and engineering, it has become the partner of choice with its ExPERT flow electroporation platform; a key element in the development and manufacturing of many of these potentially transformative cell and gene therapies. During FY20, MaxCyte delivered impressive revenue growth despite some operational challenges posed by the COVID-19 pandemic. FY21 is expected to show stronger growth as the core business continues to progress and milestone receipts reflect progress in partner pipelines, although COVID-19 impacts may continue should the pandemic persist. This improving visibility prompts us to revisit our valuation methodology resulting in a substantial upgrade to £1bn (1217p/share) vs £310m (402p) before.

Maxcyte’s FY20 trading statement revealed 21% revenue growth to $26.2m (FY19: $21.6m), ahead of our $23.8m forecast, with H220 revenues up 15% to $15.3m (H219: $13.2m), despite some COVID-related headwinds. This reflects the important role of the ExPERT flow electroporation platform in the growing next generation cell therapy field. Continuing system development, notably an expanded range of disposables, supports broadening of applications, encouraging potential wider adoption. Licenced partnered programmes, a key driver of our valuation model, now exceed 140 with more than 100 of these under clinical licence. Potential pre-commercial milestone payments now exceed $950m, vs >$800m previously.

Completion of the strategic review of the proprietary CARMA Cell Therapies subsidiary will now focus management on out-licencing CARMA manufacturing processes and associated IP. No further investments will be made into CARMA development or in its first therapeutic candidate, MCY-M11, consistent with the company’s stated aim of minimising internal investment into the division. The manufacturing know-how (including around achievement of rapid one-day production turnaround), clinical data, and IP relates mainly to mRNA-transfected, unstimulated cell therapies and will be made available to potential partners via licence in the coming months. The costs of discontinuing the CARMA programme, mainly MCY-M11 preclinical and clinical activities, are expected to be c $4m and will be incurred in H121.

Looking ahead, FY21 is set to maintain this momentum as MaxCyte continues to benefit from sustained demand for its enabling technologies for production of transformational cell therapies. COVID-19 uncertainties remain, but FY20 resilience has demonstrated strong underlying demand and has established new and highly effective ways of working (such as virtual demonstrations and support). Rapid growth in the cell therapy market should translate into new strategic partnerships (the pipeline entering 2021 is the strongest and most diverse ever) and into increased milestone receipts given the progress in the growing base of clinical and commercial licence partners. We view the improved visibility in partner pipelines as a main determinant of share price progression and, despite arguably employing overly conservative assumptions, as a key driver of our valuation model.

New clinical/commercial licence secured in 2021

An example of the continued demand for MaxCyte’s flow electroporation technology is the recent non-exclusive clinical and commercial licencing deal with Myeloid Therapeutics, a private immunology company, that launched in January 2021 with $50m in funding. The licence provides access to MaxCyte’s technology and use of the ExPERT platform to advance its engineered cell therapy pipeline.

Myeloid Therapeutics has a proprietary platform technology, ATAK, which harnesses and reprogrammes myeloid cells and has generated an R&D pipeline that includes ATAK CAR monocytes and ATAK primed monocytes to treat cancer and other diseases. The lead pipeline assets include a cell therapy programme for T cell lymphoma (MT-101) and a primed monocyte approach to treat glioblastoma (MT-201), both of which are expected to enter the clinic in H121.

In common with existing non-exclusive clinical/commercial licences of this type, in exchange for access to its enabling flow electroporation technology platform, MaxCyte is entitled to receive undisclosed development and approval milestones, and sales-based payments, along with other licencing fees.

MaxCyte now has 12 multi-asset non-exclusive clinical/commercial licences, representing over $950m in potential pre-commercialisation milestones. Overall, its technology is licenced for use in over 140 programmes, with more than 100 of these for clinical use. The later-stage deals, largely with well-funded next-generation gene editing and cell therapy companies (both emerging, like Myeloid Therapeutics, and companies that are further along in the clinic, like CRISPR Therapeutics), cover increasingly diverse technological modalities for engineering novel cell types (eg, T-cells, myeloid cells, and hematopoietic stem cells, HSCs). This emphasises the versatility of MaxCyte’s technology, gives it broad sector exposure diversifying risk, and increases the probability of meaningful future pre-commercial milestones and potentially post-commercial sales-based payments.

Advances at partners also advance MaxCyte’s prospects

2020 was a year of commercial, operational, and financial advances for MaxCyte. Our analyses show that this was also the case at its partners. Across the industry, the number of clinical trials underway with gene-modified cell therapies continue to increase, with their originators also benefitting from significant capital inflows during the year. This is continuing into 2021 with Editas Medicine’s c $231m secondary offering, and Vor Pharma’s $177m NASDAQ IPO. This positive funding environment provides important impetus to pipeline momentum and, as MaxCyte’s partners are usually led by proven and respected management teams and operate in highly competitive areas, there is significant motivation to drive clinical development forward.

Our September 2020 Update detailed the status of various pipeline programmes that we believe to be covered by MaxCyte licences. Following Q320 reporting and key industry conferences in Q420, we have reviewed these. Pipeline visibility has dramatically increased, particularly at publicly listed partners, with disclosures including expectations for clinical progress as well as preliminary data for the most advanced programmes. This data, while early, provides some insight into the ability of these prospective programmes to offer real benefit to patients. The novelty of the approaches and the unmet need in the indications they intend to address mean that several have received regulatory designations (orphan drug; FDA Fast Track; EMA PRIME) which could facilitate accelerated development and approval pathways. We summarise recent updates and anticipated news flow for these underlying pipeline programmes in Exhibit 1.

Exhibit 1: Recent and upcoming news flow at disclosed clinical/commercial licence partners

Source: Trinity Delta, Company websites;  Note: ALL = acute lymphoblastic leukaemia; AML = acute myeloid leukaemia; B-ALL = B-cell ALL; CLL = chronic lymphocytic leukaemia; DL3 = dose level three; MAD = multiple ascending dose; MM = multiple myeloma; NHL = non-Hodgkin lymphoma; RCC = renal cell carcinoma; r/r = relapsed/refractory; SCD = sickle cell disease, SLL = small lymphocytic lymphoma.

Increased visibility on progress and the promising data generated to date provide us with added confidence that MaxCyte will receive milestones of greater size for programmes entering Phase II or III development, contributing to an acceleration in the company’s revenue growth over the next few years. Clinical attrition rates mean that it is inevitable that not all programmes will ultimately reach the market; however, the success of even only a small proportion has the potential to transform MaxCyte’s medium- and longer-term revenues.

Milestones are one of several revenue streams that MaxCyte is eligible to receive coupled to the success of each partner programme. While the precise timing of receipts is difficult to predict, milestones are triggered with progress into and through clinical development and are relatively modest (mid-six figure to low-seven figures) when compared to developmental milestones under other types of non-enabling biotech licencing agreements. Thus, in the coming years, milestone receipts should become more frequent, and hence their aggregate contribution become less lumpy, accelerating rapidly as the fastest growing revenue source.

MaxCyte has not explicitly broken out the deal economics of its licences beyond the limited disclosures presented in Exhibit 2 and its headline statement that its 12 clinical/commercial licences represent over $950m in pre-commercialisation milestones. For the majority of the partnerships, the economics of these licences are back-end weighted, we assume with approval representing the largest relative milestone, after which MaxCyte also becomes entitled to post-commercial sales-based payments. We highlight that MaxCyte’s clinical/commercial licences are multi-asset, and our modelling assumes that the NPV of each programme under a commercial licence is on average c $10m at the start of clinical development, after considering the development and commercial risks.

Exhibit 2:  Revenue potential to MaxCyte from a single product

Source: MaxCyte, Trinity Delta

Disclosures do not break out the structure of potential post-commercialisation revenues included in the partnership agreements. These revenues could come from various sources: broader instrument roll out, disposable processing assembly use, and product revenues (royalties and/or sales milestones). ExPERT system annual leasing costs are typically of the order of c $250k/instrument for clinical use vs c $150k/instrument for research use, while consumable costs depend on the number of cells to transform and range from $200-1,500 each. These revenues will be influenced by the cell therapy manufacturing process and the size of the addressable market (in terms of patient numbers). Production of allogeneic cell therapies should have lower cost of goods vs autologous cell therapies, which theoretically should support lower pricing. The quanta of sales-based payments (low single digit royalties and/or milestones) are also contingent on patient numbers. However, pricing and reimbursement will have the major bearing.

The list pricing of currently approved cell therapies is high, reflecting their ability to effectively cure chronic conditions or currently untreatable diseases, at least in a proportion of patients. At present these are autologous cell therapies. At launch, the US list price for oncology drug Yescarta (Kite Pharma/Gilead) was $373k, while Novartis’ Kymriah had indication specific pricing of $475k (B-cell ALL) and $373k (DLBCL, diffuse large B-cell lymphoma). Approved gene therapies have commanded even higher pricing. Spark Therapeutics’ (Roche) Luxturna, a ‘one-and-done’ gene therapy for inherited retinal disease, is priced at $450k per eye in the US, although outcomes-based rebates have been agreed based on long-term durability measures. Bluebird bio’s beta-globin gene therapy Zynteglo (Lentiglobin) for transfusion-dependent β-thalassaemia, a probable comparator for CRISPR Therapeutics’ CTX-001, is priced at $1.8m as part of a proposed value-based payment model (Exhibit 3).

Exhibit 3: Bluebird bio value-based payment model for Zynteglo

Source: Bluebird bio, JP Morgan 2019 presentation

At this stage, it is too early to speculate on pricing and reimbursement strategies for the programmes enabled under a MaxCyte technology licence. However, if clinical development is successful, and approval is granted, it is reasonable to expect that these novel cell and gene therapies will be expensive in absolute terms, but with pricing supported by compelling health economics outcomes data.

US raise widens investor base and boosts cash resources

Post-period, in February 2021, MaxCyte successfully raised £40m gross (c $55m) via an over-subscribed private placement of 5.74m new shares price at 700p per share (4.5% premium to prior day close). This sizable raise will strengthen MaxCyte’s balance sheet, which held cash of $34.8m at end-December 2020, fund ongoing system development to consolidate MaxCyte’s leading position as an enabler of cell-engineering and support its growing stable of partnerships.

The raise also has strategic importance. It provides further external validation of MaxCyte’s rising industry-wide reputation and brings several new US healthcare specialist investors onto the register, which will be helpful in ensuring a smooth NASDAQ dual listing later in 2021. Existing cornerstone investors, Casdin Capital and Sofinnova Partners (which invested in May 2020), lead the round and were joined by new investors including D1 Capital Partners, T. Rowe Price Associates, ArrowMark Partners, Baron Capital Group, and First Light Asset Management.

Valuation and Financials

MaxCyte generates solid recurring revenues from technology licences and the sale or lease of flow electroporation systems and consumables, which are boosted by less predictable and currently lumpier (albeit significant) milestones. Aggregate milestone receipts are expected to smooth over time as partners advance into the clinic. The company has delivered a five-year CAGR of c 25%, and its revenue mix results in pharma-like margins of c 90%. During FY20 and with challenges presented by the COVID-19 pandemic, instrument leases have been a relatively predictable revenue stream which, coupled with growth in milestone receipts as partners advance their R&D programmes, has somewhat offset the impact on instrument sales cycles.

We have updated our forecasts for FY20 revenues of £26.2m and year-end cash of £34.8m, and higher FY21 spend in connection with the NASDAQ IPO. Changes to our estimates are shown in Exhibit 4. In the coming years we expect acceleration of revenue growth with increased placement of instruments and use of disposable processing assemblies, coupled with both greater and smoother aggregate milestone receipts.

Exhibit 4: Summary of changes to estimates

Source: Trinity Delta

Our MaxCyte valuation is based on a sum-of-the-parts model which consists of a three-phase DCF of recurring revenues, an NPV valuation for the potential pre-commercial milestone revenue stream, and, given the increased visibility of both pipelines and R&D progress at various partners, also a pipeline rNPV of the royalty stream from the most advanced programmes. The recent update on the CARMA Cell Therapies division prompts us to remove this from our SOTP model, although we recognise the significant intangible value represented by the platform, know-how, and intellectual property.

Our revised SOTP model (Exhibit 5) yields a valuation of £1bn ($1.3bn) or 1217p/share vs £310m ($403m) or 402p/share previously. This valuation can be broken down into the various components: recurring revenues of £197m (240p/share), potential pre-commercialisation milestones of £108m (131p/share) and potential royalty stream/consumable cash flows of £632m (769p/share).

The significant uplift in valuation reflects MaxCyte’s dramatic revenue transition within the next five years, as programmes under commercial licence progress through clinical development, towards potential approval and launch. As we indicated earlier, pre-commercialisation milestones are back-end weighted and the potential post-commercialisation revenues include instrument leasing/sales, consumable sales, and post-approval product royalties and/or sales milestones.

The key changes to our valuation include upgraded recurring revenue forecasts for the core Life Sciences business given recent strong performance (despite COVID-19 operational impacts) and a promising longer-term outlook, and from the increasing number and maturity of the assets covered by the clinical licence agreements. The latter is manifest through revised assumptions in our milestone rNPV (now based on 100 programmes vs 80 previously, with a number of these also having advanced into clinical trials) and in our indicative rNPV of the potential royalty stream (Exhibit 6). We have also removed CARMA Cell Therapies from our valuation, formerly valued at £139m (138.7p/share) and updated pro forma cash.

Exhibit 5: Sum-of-the-parts valuation model of MaxCyte

Source: Trinity Delta

Exhibit 6:  Indicative rNPV of royalty streams from programmes under licence

Source: Trinity Delta, Evaluate Pharma. Note: * launch dates and revenue forecasts to 2026 based on consensus forecasts; # peak sales based on consensus forecasts. Consensus obtained from Evaluate Pharma (accessed 4/2/21)

We have attempted to provide an indicative rNPV of the potential royalty stream from the products under MaxCyte clinical/commercial licence where we have some visibility on timelines, data, and/or consensus forecasts. Where consensus sales forecasts or peak sales are available (source: Evaluate Pharma) we have based our valuation modelling on these. We apply a 12.5% discount rate and assume that MaxCyte receives a 4% royalty. Taxation at 20% is applied from 2024 onwards. Risk adjustments reflect the phase of clinical development but have been flexed upwards if preliminary data is available. We have identified another ten programmes that are on the cusp of the clinic or IND filing (see Exhibit 1), but which currently have limited visibility. We ascribe a placeholder value for these and other assets under licence.

Our valuation approach leaves ample room for upside as MaxCyte continues to execute on its strategy. Pipeline progress at existing partners should translate into continued growth in instrument and consumable revenues. MaxCyte has begun to benefit from milestone receipts from these deals but is still to receive the more substantial payments associated with later-stages of development, as well as the commercial phase revenues as discussed earlier. As these partnerships mature, we expect further step-changes in MaxCyte’s revenue potential.

Other sources of potential upside include the prospect of new partnerships, including those supported by CARMA IP and manufacturing know-how. MaxCyte has stated that its strategic partnership pipeline entering 2021 is larger than it has ever been and encompasses increasingly diverse technologies for engineering novel cell types. Broader alternative cell therapy industry trends such as the rate of new company formation and the supportive funding environment, coupled with MaxCyte’s reputation, expertise, and leading position, support our view that further licence deals will be secured. As research programmes advance and approach the clinic, clinical/commercial licences are likely to be signed. However, the rate, timing and magnitude of new deals is unpredictable as it is dependent in part on the progress and funding of emerging cell therapy companies.

Our current valuation cannot adequately capture the scale of the future opportunity for MaxCyte, instead it reflects the embedded value now based on available public information. For example, our partner pipeline rNPV explicitly captures potential post-commercialisation revenues from only 10 of the 100+ programmes currently under clinical licence. As each strategic partnership typically covers multiple assets, there is further embedded value in the partnership outside of the programmes we have identified. Progress of additional licenced programmes into the clinic as well as the realistic prospect of further clinical and commercial licencing deals provides optionality.

In our view, MaxCyte is a unique and relatively low risk play on the whole cell therapy field, providing broad exposure across a diversity of cell types and cell engineering technologies, indications, and partners, both listed and private.

We continue to believe that MaxCyte remains well positioned to benefit from the evolution and maturation of the advanced cell therapy field. As the leader in non-viral cell modification, it has become the partner of choice with its ExPERT flow electroporation platform enabling the development and manufacturing of many of these potentially transformative cell and gene therapies.

Exhibit 7: Summary of financials

Source: Company, Trinity Delta  Note: Adjusted numbers exclude exceptionals. No new commercial licensing deals are included in our forecasts.