MaxCyte: poised to be a lynchpin in cell therapies

MaxCyte is increasingly acknowledged as the industry leader in non-viral cell delivery and engineering. The high transfection rates, versatility, and reproducibility has seen its proven ExPERT flow electroporation platform become the non-viral transfection partner of choice for most of the leading cell and gene therapy companies. With over 140 programmes licensed (>100 with clinical licences), a growing stream of pre-commercialisation milestones is expected to arise over the medium-term. Milestone receipts will reflect partner progress and timing of receipt could continue to be lumpy given the inherent uncertainty around regulatory timelines. Yet, despite the known uncertainties, success with even a fraction of these programmes would be transformative. As partners’ clinical trials progress, visibility rises and will be reflected in our revised valuations. In our February 2021 Update we raised our valuation to £1bn ($1.3bn), equivalent to 1217p/share. We believe this is based on realistic and still conservative assumptions.

Maxcyte’s FY20 results were well-flagged at February’s trading statement. The 21% revenue growth to $26.2m (FY19: $21.6m) was ahead of our $23.8m forecast, with H220 revenues up 15% to $15.3m (H219: $13.2m), despite some COVID-related headwinds. Growth was driven by solid gains in recurring high-margin revenues in the cell therapy business. Milestone payments from progression of partners’ programmes in clinical trials made an undisclosed contribution. This growth contributed to a 121% increase in EBITDA to $2.9m (FY19: $1.3m), before CARMA expenses of $11.1m (FY19: $11.7m), although the main driver was lower expenses due to reductions in travel and marketing spend as pandemic-related restrictions curtailed certain operational activities. Increased milestone contributions were a key factor behind the 100-basis point improvement in gross margin to 89% (FY19: 88%). This strong performance sees the five-year revenue CAGR (2016-2020) reaching 23%.

The ExPERT flow electroporation platform is set to play a key role in the growing next generation cell therapy field, as demonstrated by the 12 strategic platform licenses currently in place. Partnership agreements now cover more than 140 therapeutic programmes, with over 100 having clinical licences. Potential pre-commercial milestone payments now exceed $950m, which compares with over $800m at H120. These programmes are expected to underpin MaxCyte’s medium- and longer-term prospects, both in terms of recurring revenues (consumables and later, sale-based payments), and, importantly, success milestones.

The strategic platform 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, which gives it broad sector exposure diversifying risk, and increases the probability of meaningful future pre-commercial milestones and potentially post-commercial sales-based payments.

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). MaxCyte has generated strong underlying growth from its current customer base, with an increasing number of therapeutic programmes progressing into later stages of preclinical and early clinical development. Rapid growth in the cell therapy market should also 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.

In our view, MaxCyte is a unique and relatively low risk play on the whole advanced cell therapy field, providing broad exposure across a diversity of cell types and cell engineering technologies, indications, and partners, both listed and private. Exhibit 1 summarises recent updates and anticipated news flow for the various pipeline programmes that we believe to be covered by MaxCyte strategic platform licences. We view the improving 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.

We also believe that MaxCyte remains well positioned to benefit from the evolution and maturation of the advanced cell therapy field. Its focus on immuno-oncology and inherited disorders means that industry attention on developing allogeneic cell therapies and those for monogeneic disorders represents a significant opportunity where non-viral cell modification is highly applicable. As the leader in this field, MaxCyte has become the partner of choice with its ExPERT flow electroporation platform enabling development and manufacturing of many of these potentially transformative gene modified cell therapies.

MaxCyte is well placed to understand its clients’ and partners’ needs across a spectrum of activities, from multiplex engineering to workflow management to scale up. Its solid balance sheet coupled with plans for a NASDAQ IPO later in 2021 provide the resources for investment in several initiatives that should further accelerate MaxCyte’s growth, with the ultimate aim of improving efficiencies, increasing efficacy, and reducing time to patient. These include those that support existing customers (eg development of new processing assemblies enabling increased capacity as candidates move through development), as well as those addressing potential new markets (such as with the VLX system for large scale bioprocessing).

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

Source: Trinity Delta, Company websites; Clinicaltrials.gov 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.

Valuation

Our sum-of-the-parts valuation model for MaxCyte consists of a three-phase DCF of recurring revenues, an NPV of potential pre-commercial milestone revenues, and a pipeline rNPV of potential royalties from the most advanced programmes. This model (Exhibit 2) yields a valuation of £1bn ($1.3bn) or 1217p/share, which 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).

MaxCyte is on the cusp of a dramatic revenue transition within the next five years, as programmes under commercial licence progress through clinical development, towards potential approval and launch. 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.

Exhibit 2: Sum-of-the-parts valuation model of MaxCyte

Source: Trinity Delta Note: discount rate of 10% for Life Sciences business; 12.5% for milestones and royalty stream; 20% tax rate from 2024, and $1.30/£1 FX rate

Our conservative 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 yet to benefit from the more substantial payments associated with later-stages of development, as well as the commercial phase revenues. As partnerships mature, we expect further step-changes in MaxCyte’s revenue potential.

Our current valuation cannot adequately capture the scale of MaxCyte’s future opportunity, but instead reflects the current embedded value 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/commercial licencing deals, including those supported by CARMA IP, provides optionality. However, the rate, timing and magnitude of new deals is unpredictable given the dependence in part on the progress and funding of emerging cell therapy companies.

Financials

MaxCyte posted FY20 revenues of $26.2m, up 21% (FY19: $21.6m), despite some COVID-related headwinds, with growth driven by recurring high-margin revenues from instrument leases and disposable sales in cell therapy. At end-December 2020 more than 400 flow electroporation systems had been placed worldwide. Milestone payments from the progression of partners’ programmes through preclinical and clinical development made an undisclosed contribution, although certain one-time milestone events were a factor in one customer representing 15% of FY20 revenues. MaxCyte has delivered a five-year CAGR (2016-2020) of 23%, with its revenue mix resulting in the delivery of pharma-like gross margin of 89% for FY20 (FY19: 88%).

Greater and smoother aggregate milestone receipts are expected over time as partners advance into the clinic; MaxCyte’s economic benefit from milestones is still in the relatively early phases, as these are back-end weighted on clinical success and, we believe, regulatory approval. In the coming years we also anticipate increased placement of instruments and growing use of disposable processing assemblies, although milestone receipts will be the fastest growing revenue source.

Total operating expenses decreased as the impact of the COVID-19 pandemic on marketing and travel costs offset investment in the technology platform, leading to an EBITDA pre-CARMA of $2.9m (FY19: $1.3m). FY20 spend on CARMA Cell therapies was $11.1m. Completion of the strategic review of the CARMA Cell Therapies subsidiary in early 2021 achieved the company’s aim of minimising internal investment into the division, resulted in a shift in focus to out-licencing CARMA manufacturing processes and associated IP with no further investments made into CARMA development or its first therapeutic candidate, MCY-M11. 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.

MaxCyte continues to increase its investment in the ExPERT technology platform and product offering to meet the needs of its customers and partners. We have updated our FY21 forecasts to reflect these R&D plans, the likely increase in sales and marketing spend as COVID-restrictions lift, and additional G&A expenditure related to NASDAQ IPO preparations. Changes to estimates are shown in Exhibit 3. Current cash and equivalents of c $85-90m ($34.8m at end December 2020 plus the $55m gross raise as covered in our February 2021 Lighthouse), coupled with potential as yet undetermined proceeds from the proposed NASDAQ dual listing should enable sustained investment to further consolidate and expand MaxCyte’s leading position as an enabler of engineered cell therapies and support its growing stable of partnerships.

Exhibit 3: Summary of changes to estimates

Source: Trinity Delta

Exhibit 4: Summary of financials

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