MaxCyte: Modest yet fiercely ambitious

MaxCyte remains well positioned to benefit from the evolution and maturation of the advanced 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. MaxCyte delivered impressive 30% revenue growth and a positive EBITDA (pre-CARMA) of $0.6m in H120 despite operational challenges posed by the COVID-19 pandemic. The FY20 revenue outlook has improved (‘modestly ahead of current market expectations’), although COVID-19 still limits visibility. FY21 is expected to show stronger growth as the core business continues to progress and milestones receipts reflect progress in partner pipelines. We upgrade our valuation to £310m (402p/share).

So far, 2020 has been a year of commercial, operational, and financial advances for MaxCyte. We explore MaxCyte’s continued growth prospects, which supports our valuation rationale, in the context of the market in the body of this note.

H120 financial performance was robust despite COVID-19 and underpinned by growth in the number of licenced partnered programmes (120+ in total, 90+ for clinical use). Three new clinical/commercial licences were signed bringing the total to eleven, augmenting the diversity of technological modalities covered and potential pre-commercialisation milestones to >$800m.

New clinical/commercial partners include leading allogeneic cell therapy company Allogene Therapeutics (founded in 2018 by the former CEO, and Head of R&D at Kite Pharma), CRISPR-Cas9 gene editing pioneer Caribou Biosciences, and novel immunotherapy company Apeiron Biologics. Partners also presented encouraging albeit early clinical data at key 2020 scientific conferences: Allogene Therapeutics at ASCO and CRISPR Therapeutics at EHA.

The $30.5m (gross) equity raise in May 2020 strengthened the balance sheet, providing funds to invest in developing and futureproofing MaxCyte’s product offering. It was led by two specialist life sciences NASDAQ cross-over investors, Casdin Capital and Sofinnova, which will be strategically important contributors to the success of a planned NASDAQ dual listing. The forthcoming NASDAQ IPO is likely to be a valuable future positioning point as further long-term commercial partnerships are sought with the leading cell therapy players, which are typically US based and NASDAQ listed.

Behind the scenes activity includes plans for the CARMA Cell Therapies business to become self-funded by end-2020, with Locust Walk appointed to explore options to achieve this: we await an update in due course. Enrolment and dosing of the no-preconditioning part of the relapsed/refractory ovarian cancer and peritoneal mesothelioma Phase I trial of Maxcyte’s lead CARMA asset MCY-M11 should complete in H220. Feasibility of rapid one day manufacturing has been confirmed, and the fourth cohort is being dosed. The study scope was recently expanded, with two eminent clinical centres set to enrol a parallel patient cohort (including preconditioning, and multiple treatment cycles); this cohort is expected to report preliminary data in 2021. This could further enhance efficacy and reflects the clean safety profile seen to date.

Onward march of progress in cell therapies

Cell therapies are expected to become a major new class of therapeutic agent; and MaxCyte’s unrivalled expertise with flow electroporation puts it right at the heart of it. Cell therapies are not only highly technical in concept, they also involve complex manufacturing processes requiring intricate and demanding solutions. These production challenges are being addressed by companies that are highly committed, well-managed, and properly resourced.

MaxCyte’s ExPERT equipment range, coupled with proven processing skills, has resulted in a stream of collaborative partnerships with cell therapies’ leading players. MaxCyte is the clear leader of non-viral cell modification, with its proven flow electroporation platform able to transfect any molecule(s) into any cell efficiently and reproducibly. This, coupled with the proven ability to reliably and consistently manipulate cells for clinical purposes, is attracting the leading cell therapy players to strike collaboration partnerships.

MaxCyte’s stable of research and clinical/commercial licences continues to grow (Exhibit 1). The latter are largely with well-funded next-generation gene editing and cell therapy companies covering increasing diverse product candidates. These range from gene-edited stem cells for genetic disease, to CAR-T cell therapies, to siRNA product candidates, both emphasising the versatility of MaxCyte’s enabling technology and increasing the likelihood of meaningful future milestone receipts.

Exhibit 1: The growth in licenced cell therapy programmes

Source: MaxCyte, Trinity Delta

To date, eleven multi-asset non-exclusive clinical/commercial licencing deals have been signed, with potential pre-commercialisation milestones now exceeding $800m. More detail is presented in our May 2020 Outlook. These deals are back-end weighted, as is typical with most licencing agreements, so the most significant potential payments to MaxCyte are contingent on the programme reaching approval. Approval is a major inflection point. We highlight that the disclosed deal economics do not break out potential post-commercialisation revenues from the leasing/sale of instruments, use of disposable processing assemblies, and post-approval product revenues (royalties and/or sales milestones). Exhibit 2 illustrates the revenue potential to MaxCyte from a single product.

Exhibit 2: The structure of a representative commercial licensing agreement for a single product

Source: MaxCyte

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.

Industry and partners show momentum

MaxCyte’s technology is currently licenced for use in over 120 licenced programmes, with over 90 of these licenced for clinical use. Industry trends, coupled with MaxCyte’s reputation, expertise, and leading position, mean that further licence deals are expected. For example, as research programmes approach the clinic, clinical/commercial licences are likely to be signed. However, the rate, timing, and magnitude of new deals is unpredictable as it depends in part on the progress and funding of emerging cell therapy companies.

Broader trends support our view that MaxCyte will continue to secure further licencing deals and that the company provides investors with broad exposure to the cell therapy sector. Each non-exclusive partnership diversifies risk and contributes to the overall value of MaxCyte’s commercial opportunity.

Investment into cell and gene therapy companies is once again accelerating. The H120 Alliance for Regenerative Medicine sector report indicates that with $10.7bn of capital raised in the first half, 2020 is on track to exceed 2018, the prior record year for financing in the sector with $13.3bn raised. This reflects investor interest and commitment to these next generation therapies, and the development progress being made by both existing and emerging cell and gene therapy companies. These companies are usually led by proven and respected management teams and operate in highly competitive areas, so have the impetus to drive their pipelines forward. This is also echoed by industry pipeline data which shows an increase in the number of clinical trials underway with gene-modified cell therapies (Exhibit 3).

Exhibit 3: Growth in global gene-modified cell therapy clinical trials

Source: Trinity Delta, Alliance for Regenerative Medicine

Our analyses reveal that MaxCyte’s partners are also contributing to the clinical progress across the sector. Exhibit 4 provides a snapshot of the current pipeline status of programmes that we believe to be covered by MaxCyte licences.

Exhibit 4: Disclosed cell/gene therapy pipeline programmes with commercial licence partners

Source: Trinity Delta, Company websites; Note: r/r = relapsed/refractory; NHL = non-Hodgkin lymphoma; ALL = acute lymphoblastic leukaemia; MM = multiple myeloma; SCD = sickle cell disease, CLL = chronic lymphocytic leukaemia; SLL = small lymphocytic lymphoma; AML = acute myeloid leukaemia

It is difficult to predict the timing of milestone receipts by MaxCyte, and while revenues include milestones these are not broken out. What is known is that they are triggered as programmes progress into and through clinical development. Thus, in the coming years, the contribution from milestones should become more frequent, and hence less lumpy, and accelerate rapidly as the company’s fastest growing revenue source.

Promisingly, MaxCyte’s partners are advancing on several fronts (clinical, regulatory, and financial) and have ample near-term news flow. Exhibit 5 highlights some of the key upcoming catalysts and also shows that a number of these partners have benefited from the significant capital inflows so far in 2020.

Exhibit 5: Well-funded partners with upcoming news flow

Source: Trinity Delta, Company websites; Note: Market caps of companies at close on 17 September 2020.

Solid balance sheets should support pipeline momentum which should also increase visibility of the progress of the underlying programmes, particularly at publicly listed partners. Indeed, we are seeing more meaningful news flow which, while early, provides some insight into the ability of these prospective therapies programmes to offer real benefit to patients. This is also supported by the favourable US and European regulatory environment which offers potential for accelerated approval pathways. We present selected recent clinical and regulatory achievements below.

Clinical progress in clinical/commercial licence portfolio:

• Allogene Therapeutics: Initial data from the dose escalation portion of the Phase I/II ALPHA trial of ALLO-501 in relapsed/refractory NHL was presented at the American Society of Clinical Oncology (ASCO) 2020 meeting. 22 patients were safety evaluable, and 19 for efficacy. Seven complete responses (CR, 37%) and five partial responses were observed (overall response rate, ORR = 63%). Higher response rates were seen in CAR-T naïve patients (n=16) with an ORR of 75% and CR rate of 44%. Nine of the 12 responding patients (75%) remained in response at data cut-off with a median follow-up of 3.8 months. ALLO-501 with lymphodepletion was well tolerated with no dose-limiting toxicities, no GvHD (graft-vs-host disease) or Immune Effector Cell-Associated Neurotoxicity Syndrome. This data will help inform trial design and dose selection for the potentially pivotal Phase II of ALLO-501A in 2021.
• Caribou Biosciences: FDA IND clearance of CB-010 (September 2020) means the Phase I ANTLER study in relapsed/refractory B cell NHL should start by end-2020.
• CRISPR Therapeutics: New and follow up data from the CTX001 CLIMB-11 and CLIMB-121 Phase I/II trials was presented at the European Haematology Association (EHA) meeting (June 2020). Data was presented on two β-thalassaemia patients who have not required a blood transfusion since treatment (five and 15 months), and one SCD patient who has not had a vaso-occlusive crisis since infusion (nine months). Five patients with β-thalassaemia and two sickle cell disease (SCD) patients have been treated to date and have successfully engrafted.
• Precision Biosciences: announced the dosing of first patient in two trials, the Phase I/IIa trial for PBCAR20A for relapsed/refractory NHL, CLL and SLL (April 2020) and the Phase I/IIa trial of PBCAR269A for relapsed/refractory multiple myeloma (June 2020).

Regulatory progress in clinical/commercial licence portfolio:

• CRISPR Therapeutics: Grant of FDA Regenerative Medicine Advanced Therapy Designation for CTX-001 for the treatment of severe haemoglobinopathies (May 2020).
• Editas Medicine: FDA grant of Rare Pediatric Disease Designation for EDIT-301 for the treatment of sickle cell disease (August 2020).
• Precision Biosciences: Two allogeneic CAR-T therapy programmes granted Fast Track Designation by the FDA: PBCAR0191 for B cell malignancies (August 2020) and PBCAR269A for relapsed/refractory multiple myeloma (September 2020).

The increased visibility on progress and the promising data generated to date provide us with added confidence that MaxCyte will receive seven-figure milestones for programmes entering Phase II or III development, contributing to an acceleration in the company’s revenue growth over the next few years.

Valuation

MaxCyte generates solid, and sustainable, revenues from technology licences and the sale of electroporation systems and disposables, which are boosted by less predictable and currently lumpier (albeit significant) milestones. On top of this, CARMA Cell Therapies offers considerable upside potential. We value MaxCyte using a sum-of-the-parts model which consists of a three-phase DCF of the recurring revenues of the life sciences business, and rNPV valuations for the potential milestone revenue stream and the CARMA life sciences division.

Following H120 reporting we have revisited our assumptions, and our sum-of-the-parts model now yields a valuation of £310m ($403m) or 402p/share, vs £260m or 340p per share previously. Our core valuation of the Life Sciences business is £203m (264p/share), which comprises £109m (141p/share) for recurring revenues and £69m (90p/share) for potential milestones. The uplift in valuation results from our revised forecasts for the life sciences division on the back of strong recent performance (despite COVID-19 operational impacts) and a promising longer-term outlook, and from the increasing number and maturity of the commercial licence agreements. For the latter, we now base our valuation on 80 programmes, up from 60 previously. An overview of our valuation model and assumptions is presented in Exhibit 6.

Exhibit 6: Sum-of-the-parts valuation model of MaxCyte

Source: Trinity Delta

Our valuation approach leaves ample room for material upside as MaxCyte continues to execute on its strategy. New partnerships are clearly one potential source, and pipeline progress at existing partners should translate into continued growth in instrument and consumable revenues. There is also potential for receipt of in excess of $800m in pre-commercialisation milestones, and likely commercial phase instrument, disposable and milestones/royalty revenues in the future too. The structure of the deal which achieves CARMA self-financing could also unlock upside. We conservatively value CARMA Cell Therapies at £107m (139p/share).

Financials

MaxCyte posted H120 revenues of $10.9m, up 30.1% (H119: $8.4m), maintaining the strong growth shown in FY19 (+29.7%). Gross margins, already at pharmaceutical-like levels, improved 2.4% to 89.7% reflecting the product mix of high-margin recurring annual fees from instrument sales and growth in clinical milestones. 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 $0.6m (H119: $1.4m loss).

The relative success of operational initiatives implemented in response to COVID-19 (eg virtual marketing and field support), coupled with visibility on core cell therapy recurring revenues, have prompted management to raise FY20 revenue guidance to ‘at least modestly ahead of current market expectations’.

Better than we anticipated H120 revenues means we now forecast positive EBITDA (pre-CARMA) for the full year FY20 and continue to expect EBITDA profitability in FY21 while MaxCyte continues to increase its investment in the technology platform and product offering to meet the needs of its customers and partners. COVID-19 impacted MCY-M11 Phase I patient accruals, and with the expanded trial, we expect CARMA spending to be back-end weighted. Given the expectation of self-funding by year-end, we forecast only a minimal investment in FY21. The overall impact of the changes in our estimates are shown in Exhibit 7.

Exhibit 7: Summary of changes to estimates

Source: Trinity Delta

MaxCyte’s end-H120 cash position of $38.2m (vs $16.7m at end-FY19) included the $30.5m (gross) equity raise (May 2020 Lighthouse).

The May equity offering was led by two specialist life sciences cross-over investors, Casdin Capital (New York) and Sofinnova (Paris), who will help underpin MaxCyte’s plan for a NASDAQ IPO during 2021. The recent strategic hire of former sell-side analyst Amanda Murphy as CFO also supports this plan. We view forthcoming dual listing on NASDAQ positively. A NASDAQ listing can be an important positioning point when seeking to form additional long-term commercial partnerships with the leading cell therapy players, which are typically US based and NASDAQ listed.

Exhibit 8: Summary of financials

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