Investment case

MaxCyte is increasingly acknowledged as an industry leader in non-viral cell engineering. 20+ years of development underpins the ability of its ExPERT flow electroporation platform to provide high transfection rates, consistent reproducibility, and high versatility in introducing a wide range of molecules into a wide range of cells. This proven technology has become the non-viral transfection method of choice for most of the leading cell therapy companies. Its three different marketed systems (ATx, STx, GTx) are based on this underlying technology but address different market segments; a fourth system, VLx, released end-2021, provides potential for expansion into bioprocessing and enhances its position in the allogeneic cell therapy market. 500+ instruments are placed, with a client base including 20 of the top 25 pharma companies globally. These are used to transfect cells to: assist drug discovery; manufacture products (eg antibodies, vaccines, and viral vectors); and develop cell and gene therapies. MaxCyte listed on AIM in March 2016, and completed its NASDAQ IPO, raising c $200m, in August 2021.

Valuation

Reflecting the inherent differences of the revenue-generating core business and the nascent clinical pipeline, we value MaxCyte using a sum-of-the-parts model with a three-phase DCF for the various elements of the core life sciences business, an rNPV for potential pre-commercial SPL milestones, and a pipeline rNPV that captures sales-based payments or royalties under the SPLs. We have updated our model for the progress seen in the core business and the various rNPV components. Our revised valuation, still based on conservative assumptions, values MaxCyte at £1.06bn ($1.37bn) or 1,045p / $13.58 per share.

Financials

The $185m (net) NASDAQ IPO boosted end-September 2021 cash to c $256m. Funds will be deployed to consolidate and develop MaxCyte’s existing leading position as the non-viral transfection partner of choice and have been earmarked for investment across several areas including R&D, manufacturing, and increased headcount, plus general working capital to support the planned expansion. The goal is to drive at least 25% sales growth in the core business over the medium term, led by increased instrument use by cell therapy customers supplemented by a rising stream of pre-commercial milestones and ultimately sales-based revenue as MaxCyte’s well-funded clients drive their pipelines into and through the clinic.

Sensitivities

As a key enabler for many cell therapies, MaxCyte retains much of the associated upside potential but with considerably lower downside risk as clinical exposure to any one client programme is limited by the number, breadth, and diversity of its alliances. Milestone revenues are still inherently lumpy given the early stage of the company’s cell therapy base, but set to smooth as their frequency increases and the many recently signed relationships mature into the milestone-generating clinical stage, and as more SPLs are added. The core business of selling and leasing flow electroporation equipment and selling related consumables is fast-growing but has a far lower risk profile than its typical biotech company clients; although the ability to sustain its leading position vs the competition is a sensitivity.

MaxCyte: on the cusp of a revenue transition

MaxCyte’s ExPERT flow electroporation platform is established as a key enabling technology for many next-generation cell therapies. This effectively makes the company a unique diversified play on the whole cell engineering field, providing broad exposure across cell types, technologies, indications, and approaches. The $201.8m (gross) NASDAQ IPO, completed August 2021, is an important strategic move. It has broadened the investor base and allows sustained investment in expanding MaxCyte’s leading position in enabling engineered cell therapies and in support of the growing stable of Strategic Platform Licence (SPL) partnerships. Although high revenue growth in the core life sciences business is expected to continue, we expect the SPL contribution (milestones and sales-based payments) to underpin a transformation in the medium- and longer-term revenues. Our updated model yields a £1.06bn / $1.37bn valuation (1,045p / $13.58 per share).

MaxCyte is the provider of choice for biotech companies using non-viral cell engineering, enabled by its proprietary flow electroporation platform and service. Our May 2020 Outlook outlined how cell and gene therapies represent the third wave of innovation in drug development, after small molecules and biologics. However, the cell therapy revolution remains in its infancy; innovation is still at a relatively early stage, albeit starting to progress rapidly. Several next-generation cell therapies are now or shortly will be in pivotal trials, with the first potential approval expected as early as 2023. Engineered cell therapies are an attractive and well-funded area, with MaxCyte already working with an impressive roster of both emerging and established companies. These programmes, coupled with industry trends towards non-viral transfection, should support growth prospects over the medium- and longer-term.

First generation engineered cell therapies (six now approved) are all autologous CAR-T therapies using viral vectors to deliver their payloads into cells. Next-generation cell therapies are more varied: ie allogeneic off the shelf therapies, targeting other proteins, using other primary cell types, and/or applying more specific gene editing. These latter therapeutic modalities require greater precision in development and manufacture, which, coupled with cost, speed, and scalability advantages, means non-viral ex vivo delivery is used. Electroporation is currently the lead delivery technology compatible with multiplex engineering, allowing sequential gene editing rather than single edits in a way that viral vectors cannot.

MaxCyte’s technologies and services span the drug development process from research to commercialisation. The core life sciences business delivers pharma-like gross margins of 85-90% through recurring revenues (instrument sales and leases and disposables sales) from drug discovery and cell therapy customers. However, increased scalability and the potential for capture of meaningful downstream economics (milestones, royalties or equivalent) under its 16 SPLs could result in a step-change in the revenue profile. These latter payments will represent a larger proportion of MaxCyte’s revenues over time and will have minimal associated COGS. The 2022 outlook is highly promising. Ongoing investment into engineered cell therapy companies supports a robust and diverse pipeline of new SPL opportunities, while progress at existing SPL partners suggests potential for several IND filings for novel ex vivo engineered cell therapies, and significantly, initiation of the first pivotal trials for lead assets, triggering near-term milestones.

IPO proceeds provide growth capital

MaxCyte raised $201.8m gross ($184.7m net) in its August 2021 NASDAQ IPO, via the issuance of c 15.5m new common shares at $13.00 per share. This equity raise, coupled with two prior crossover rounds with US life science specialist investors totalling c $80m (in February 2021 and May 2020) and no debt, provides the company with a significant balance sheet to invest in several strategic expansion initiatives, which could include organic and inorganic growth opportunities. These initiatives aim to bolster the operational infrastructure and accelerate MaxCyte’s revenue growth. The focus remains on fully supporting partner programmes, that are enabled by MaxCyte technology, through clinical development, the regulatory process, and ultimately commercial launches.

Through its extensive relationships MaxCyte is well placed to understand customer needs across the spectrum of research, clinical, and commercial activities. Its solid balance sheet (c $256m in cash and equivalents at end-Q321) permits increased investment in several areas to align MaxCyte’s capabilities and products with existing customer requirements and enable expansion into new applications and potential new markets. Specifically, net IPO proceeds and existing resources will be directed towards:

• Research and development ($20-30m): including commercialisation of the VLx platform (and associated consumables) for rapid large-scale cell engineering and bioprocessing under the ExPERT brand, supporting new product development (including next-generation versions of the ExPERT platform) and process development;
• Manufacturing ($20-30m): investment in expanding capacity and capabilities to support increased demand for instruments and disposables as partner programmes advance through the clinic and towards commercialisation, and in manufacturing automation;
• Increased headcount ($10-20m): expansion of sales and marketing, business development, and field application scientist teams to drive organic growth in the core Cell Therapy business, cultivate new opportunities for SPLs and non-commercial translational research relationships, and support further expansion in new geographies (eg Asia-Pacific) and into new applications (including in large-scale bioprocessing and in innovative cell and gene engineering approaches); and
• Working capital and general corporate purposes (the balance): additional capital increases the company’s financial flexibility and could also be used for opportunistic strategic investments, partnerships, or acquisitions of complementary businesses, technologies, or services.

These initiatives should enable MaxCyte to achieve continued strong organic top-line growth in recurring revenues; the company has delivered a five-year CAGR (2017-2021) of c 23%, with the revenue mix delivering a pharma-like gross margin of c 89%. Significant opportunities also exist to address existing customer needs and enable expansion into new applications and complementary technologies through new product launches and potential investment or M&A in upstream and downstream technologies.

The non-viral transfection partner of choice

MaxCyte’s proven ExPERT flow electroporation platform is versatile and reproducibly achieves high transfection rates, as well as addressing various industry challenges (Exhibit 1). These platform features, coupled with non-exclusive access to extensive intellectual property, regulatory support provided through MaxCyte’s FDA Master File (and equivalent Technical Files for non-US jurisdictions), and specialist field application support, has made MaxCyte the non-viral transfection partner of choice for most of the leading cell therapy companies (private and public), as well as academic institutions.

Exhibit 1: ExPERT platform addresses industry challenges

Source: MaxCyte

As of end-December 2021, the company had an installed base of >500 sold or leased instruments at various customers. The revenue model differs between the Drug Discovery and Cell Therapy businesses. The former, Drug Discovery, has a blue-chip client base of the top ten global pharmaceutical companies, and 20 of the top 25, which use the STx and ATx ExPERT models for research purposes, including protein biomanufacture and cell-based assay development. These instruments are sold for between $69k to $119k each (dependent on platform scale and capabilities), generating additional revenue through single-use disposables (processing assemblies, or PAs) at a cost of $200-$1,500 each (depending on volume of cells processed, and whether the PA is research-use only, RUO, or GMP).

The Cell Therapy business, focused on developing highly innovative new drugs, is growing at a higher rate and underpins much of MaxCyte’s revenue growth potential. The GTx, designed for cGMP manufacturing and supported by the FDA Master file and non-US equivalents, is the system of choice in Cell Therapy. The instrument can be sold but once the developer intends to use the platform for human use, they enter into an SPL agreement at which point MaxCyte receives a recurring annual technical access fee (or lease) in exchange for access to MaxCyte’s FDA Master File and for freedom to operate with the instrument on human samples. The annual lease fee depends on whether use is for preclinical ($150k) or clinical ($250k) development, with the latter also necessitating a strategic platform licence (SPL) providing MaxCyte with a share of downstream economics. Again, the disposables used are an important revenue contributor.

MaxCyte’s 16 SPL agreements are typically multi-programme, including preclinical and clinical annual instrument licence fees as outlined above, plus pre-commercial milestones and post-commercial sales-based payments. MaxCyte has SPLs with a diverse range of partners (spanning from emerging to clinical stage companies) which cover increasingly varied technological modalities for engineering novel cell types (eg T-cells, NK cells, myeloid cells, engineered hematopoietic stem cells, HSCs, or engineered tumour infiltrating lymphocytes, TILs). This emphasises the versatility of MaxCyte’s technology, giving the company broad sector exposure, diversifying risk, and increases the probability of receiving meaningful future pre-commercial milestones and potentially post-commercial sales-based payments.

Exhibit 2: Building a large and diverse portfolio

Source: MaxCyte

MaxCyte’s most recent disclosures (as at end-2021) confirm that potential pre-commercial milestone payments under its first 15 SPLs exceed $1.25bn (assuming all programmes under licence achieve regulatory approvals). These SPLs also cover over 95 clinical programme licences, of which more than 15% are clinical stage (ie they have at least an FDA cleared IND, or investigational new drug application). So as not to divulge commercially sensitive information on contract economics, future updates are expected to be made on an annual basis (Exhibit 3).

Exhibit 3: MaxCyte key metrics (as of December 31)

Source: MaxCyte   Note: *Amounts presented as of 31/12/20 include one SPL entered into and additional INDs cleared in January 2021, **number of licenced clinical programmes under SPLs are by number of product candidates and not by indication

The rapidly growing next generation cell therapy field is attracting considerable investor attention and funding given the potentially transformative nature of many of these therapies. MaxCyte’s ExPERT platform is set to play a key role in supporting this, as demonstrated by the number and breadth of existing SPLs, and the potential for securing additional future SPLs. The addressable market is significant and growing, with management estimating the total market opportunity for the ExPERT platform (based on the potential for current SPLs) was c $9bn in 2020 and is expected to grow to more than $24bn by 2026 at the time of the NASDAQ IPO. This increase will be driven by both growth in the ex vivo cell therapy pipeline, and by the accelerated adoption of non-viral delivery technologies due to new indications and novel approaches than require more sophisticated or complex engineering.

MaxCyte’s understanding of its customer needs gives a solid foundation to its multifaceted growth strategy, and the balance sheet boost from its NASDAQ IPO provides substantial resources to invest in accelerating this growth. Priorities for management include:

• consolidating its leadership position and establishing ExPERT as the standard non-viral delivery technology for cell therapies by ongoing technology platform investment and in potential new instruments or processing assemblies to meet the evolving needs of customers and in high-growth cell therapy market segments;
• expansion of strategic marketing activities to drive increased adoption and market penetration of the ExPERT platform with existing and new commercial and research partners, and secure further SPLs with a focus on both near-term conversions and longer-term collaborations, eg with industry and academic centres which could drive innovation in non-viral extracellular delivery technologies, acquire exposure to novel cell and gene engineering approaches, and provide a first-mover advantage that could help accelerate the development and commercialisation of emerging therapeutics;
• commercialisation of the VLx system under the ExPERT brand to exploit opportunities in large-scale bioprocessing (including production of viral vectors, proteins, and monoclonal antibodies) and enable scale up for allogeneic cell therapy applications; and
• exploration of opportunistic strategic investments, partnerships, or M&A to build on the organic growth of the current product offering. This may include complementary technologies or services, or enable access to new markets or applications.

We continue to believe that MaxCyte remains well positioned to benefit from the evolution and maturation of the advanced cell therapy field. The release of VLx in late 2021 and its pending commercial launch not only provides access to a new market segment, as its ability to transfect up to c 200 billion cells (ten times the number of cells and/or volume of the GTx/STx) in less than 30 minutes is highly applicable to bioprocessing, but will also facilitate rapid manufacture of clinical trial material for pivotal studies and future commercial supply. As MaxCyte is currently working towards securing GMP compliance for the VLx and associated consumables as well as working with beta partners to build out supporting application data in large-scale bioprocessing, we believe the potential for meaningful revenue generation from the VLx opportunity is from 2024 onwards.

MaxCyte’s current 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. Despite some recent high-profile clinical development challenges, there remains a compelling opportunity for such advanced therapies. Assuming clinical studies can confirm safety and comparable efficacy and duration of effect to existing therapeutic options, the lower cost and more rapid manufacturing (with the feasibility of one-day manufacture already demonstrated by MaxCyte) would provide significant health-economic benefits for payors and patients.

Pre-commercial SPL milestone potential stacks up

MaxCyte’s 16 SPLs are expected to underpin the company’s medium- and longer-term prospects, both in terms of recurring revenues (instrument licensing fees, disposables/consumables and later, sales-based royalty and/or milestone payments), and, importantly, pre-commercial success-based milestones. The profile of these multiple potential revenue streams mean that MaxCyte is on the cusp of a dramatic revenue transition within the next five years, as programmes under SPL advance through development, towards potential approval and launch (Exhibit 4). At present, there is revenue concentration by customer, although this is expected to diversify: in FY20, 15% of total FY20 revenues came from one SPL partner, with c 40% of revenues derived under the six largest SPLs. However, we note that MaxCyte has not indicated whether these revenues are derived from milestone(s) and/or core business activities.

Exhibit 4: Typical single product revenues from representative SPL deal

Source: MaxCyte

The coming years should see the triggering of a growing stream of pre-commercialisation milestones as individual programmes achieve key development hurdles such as IND filing, dosing of an agreed number of patients in Phase I, initiation of pivotal trials, and BLA approvals in specified regions. Pre-commercialisation milestones are back-end weighted, typically ranging from mid-six figure $ amounts at IND filing to mid-seven figures for BLA approval milestones. Potential post-commercialisation revenues are contingent on the level of commercial success of a programme, and include instrument leases, consumable sales, and post-approval product royalties and/or sales milestones.

We highlight that development progress will also boost non-milestone revenues. The transition from preclinical to clinical development sees a step-up in annual instrument leasing costs, and the increased volumes of drug product required for larger clinical studies (and ultimately commercial supply) will also increase consumables usage.

While MaxCyte delivers consistent growth across its core Drug Discovery and Cell Therapy revenue streams, SPL-derived revenues will come to the fore in the mid-term as milestone stacks build, reflecting partner progress. However, we note that timing of receipts will continue to be lumpy given the inherent uncertainty regarding clinical and regulatory timelines. In line with our philosophy, we take a deliberately conservative approach with respect to our modelling. Nevertheless, and consistent with management commentary around the level of SPL milestones recognised in 2021, we also acknowledge the potential for upside surprises as development milestones at partners may be achieved earlier than anticipated. Despite these known uncertainties, success with even a fraction of the programmes in MaxCyte’s diverse SPL portfolio would be transformative. Clinical progress with partner assets, increases visibility, which will be reflected in our reviewed valuations.

SPL pipeline progress reflects diversity of approaches

MaxCyte’s growing and diverse SPL portfolio covers a variety of modalities with development stage cell and gene therapy development companies. There are 16 multi-product SPLs, with four new SPLs secured in 2021 (Myeloid Therapeutics in Q1, Celularity in Q2, Sana Biotechnology in Q3, Nkarta Therapeutics in Q4) and one to date in 2022 (Intima Bioscience). SPL partners are typically well-funded and, with many now publicly listed, pipeline visibility is improving. This increasing visibility is, in our view, a major determinant of MaxCyte’s share price progression.

The most clinically advanced programmes – CRISPR Therapeutics’ CTX-001 sickle cell disease/ß-thalassaemia gene therapy and CTX-110 allogeneic CAR-T therapy, and Allogene’s ALLO-501A allogeneic CAR-T therapy – have been the focus of recent news updates which mirror the inherent risks within drug development.

On the positive side, CRISPR Therapeutics has indicated that first regulatory filings for CTX-001 are possible in late-2022 (implying potential for BLA approval in 2023), and the Phase I CARBON trial of its lead oncology asset, CTX-110, has been expanded into a registrational trial with patient dosing in this pivotal arm having started in Q122. However, Allogene Therapeutics has had more of a rollercoaster ride. In October 2021 FDA placed a clinical hold on Allogene’s entire allogeneic CAR-T pipeline following detection of a chromosomal abnormality in a patient enrolled in the ALLO-501A Phase I ALPHA2 study. Following an investigation that concluded this abnormality was unrelated to the gene editing or manufacturing process, and had no clinical significance, the clinical hold was lifted in January 2022. Resumption of studies of the five AlloCAR T programmes is underway (ALLO-715, ALLO-605, and ALLO-316 have begun enrolling patients) as are final discussions with the FDA regarding plans to initiate the first pivotal/registration-intent Phase II trial of ALLO-501A in mid-2022.

Exhibit 5: Recent news flow at disclosed clinical/commercial licence partners

Source: Trinity Delta, Company websites; Clinicaltrials.gov  Note: * = confirmed as MaxCyte-enabled programmes, note that for Allogene specific allogenic CAR-T programmes have not been explicitly identified; ALL = acute lymphoblastic leukaemia; AML = acute myeloid leukaemia; B-ALL = B-cell ALL; CLL = chronic lymphocytic leukaemia; DL3 = dose level three; IV = intravenous; IT = intratumoral; MM = multiple myeloma; NHL = non-Hodgkin lymphoma; ODD = orphan drug designation; PTCL = peripheral T cell lymphoma; RCC = renal cell carcinoma; RMAT = regenerative medicine advanced therapy; r/r = relapsed/refractory; SCD = sickle cell disease; SLL = small lymphocytic lymphoma; TDT = transfusion-dependent ß-thalassaemia

Exhibit 6: Upcoming news flow at disclosed clinical/commercial licence partners

Source: Trinity Delta, Company websites; Clinicaltrials.gov  Note: * = confirmed as MaxCyte-enabled programmes, note that for Allogene specific allogenic CAR-T programmes have not been explicitly identified; ALL = acute lymphoblastic leukaemia; AML = acute myeloid leukaemia; B-ALL = B-cell ALL; GBM = glioblastoma multiforme; LBCL = large B cell lymphoma; MAD = multiple ascending dose; MDS = myelodysplastic syndrome; MPN = myeloproliferative neoplasm; MM = multiple myeloma; NHL = non-Hodgkin lymphoma; RCC = renal cell carcinoma; r/r = relapsed/refractory; SCD = sickle cell disease; TDT = transfusion-dependent ß-thalassaemia

We note that as a key enabler for multiple ex vivo cell therapies, MaxCyte retains much of the upside potential associated with the sector but with a considerably lower risk profile. Drug development carries inherent risks, including failure or delay in clinical development or the regulatory process, and the highly innovative nature of the cell therapies under development by MaxCyte’s partners means they carry a higher than typical risk. However, MaxCyte’s exposure to any one programme or partner is limited by the number of SPL partners, the diversity of the underlying technologies, and the range of indications addressed. Given the nascent stage of the engineered cell therapy field, we also expect there to be rationalisation of pipelines based on clinical and commercial considerations, especially as several programmes may be addressing the same targets. Rationalisation should not always be considered a negative, as the pioneering programmes affected could provide important validation and generate scientific learnings for subsequent pipeline programmes from the same company.

At this stage in MaxCyte’s development, there is also an asymmetry. Downside exposure to the fortunes of a single SPL programme or partner is limited by the growing size and diversity of its SPL portfolio but, conversely, the success of a single programme could transform its revenue profile. The April 2021 amendment to the economics of the CRISPR Therapeutics and Vertex Pharmaceuticals for CTX-001 provides an external indication of potential programme value. The additional 10% of profit secured by Vertex in exchange for bearing an extra 10% of costs, plus a $900m upfront milestone and a further $200m payment on regulatory approval, implies a $10bn+ product valuation.

A second external assessment of CTX-001’s value is the $7bn rNPV assigned by Evaluate Pharma’s NPV Analyzer. As a reminder, CTX-001 is the most advanced SPL asset, and is currently on track for BLA filing in late-2022 which suggests first approval is possible in 2023. MaxCyte has indicated that milestones for BLA approval are typically mid-seven figures, and in our modelling, we also assume a 2% blended royalty to capture post-commercial revenues that could include sales royalties, disposables use, and/or other sales-based payments.

Growing pipeline visibility unveils milestone potential

Milestones are one of several revenue streams that MaxCyte is eligible to receive coupled to the success of each partner programme. The company has not explicitly broken out the deal economics of its multi-asset SPLs beyond the limited disclosures presented in Exhibit 7 and its headline statement that its 16 SPLs represent over $1.25bn in pre-commercialisation milestones. However, given the increased visibility of pipelines at some SPL partners (due to development progress and the growing number that are public companies) we have attempted to assess what MaxCyte’s SPL programme revenues from milestones could look like in 2022 and 2023 (Exhibit 8).

Exhibit 7: Revenue potential to MaxCyte from a single product

Source: MaxCyte, Trinity Delta

Our appraisal of milestone potential is based on the public disclosures about development timelines from SPL partners with respect to assets that we believe could be covered by a SPL (but this has not been confirmed by either MaxCyte or the respective partners). We have made no independent assumptions about the progress of assets from one stage to another, apart from assuming progression from IND submission into Phase I studies. We believe the summary presented in Exhibit 8 provides a useful illustration of the potential near-term milestone stack that could build over the next 24 months.

Exhibit 8: Potential milestone stack under MaxCyte SPLs (2022-23)

Source: Trinity Delta, Company websites   Note: We assume milestone receipts of $500k each on IND filing and early Phase I, $1.5m on initiation of pivotal trials, $3.5m on regulatory approval.

However, we draw attention to several important caveats: SPL deal economics are not explicitly broken out and there may be differences both between and within SPLs; the precise quantum of each milestone is unknown; and timing of receipt is difficult to predict as the triggering event is undisclosed and/or timelines may shift. Due to limited disclosure, this illustration does not include all assets under SPLs, nor does it encompass the later clinical and regulatory stages (except for CTX001) which largely fall outside the time horizon considered. This is a key point for two reasons.

Firstly, for the majority of SPLs, economics are back-end weighted, with approval likely representing the largest relative milestones (potentially per indication and/or per region), hence the more meaningful milestone receipts post-2023 are not captured. Secondly, as mentioned earlier, there is also likely to be a degree of pipeline attrition. Interestingly, data from BIO’s Clinical Development Success Rates and Contributing Factors 2011-2020 report (published February 2021) indicates that clinical transition probabilities for drugs with novel modalities is typically higher than standard biologics, and that haematology has one of the highest likelihoods of approval of all disease areas. For example, while CAR-T therapies have a more modest 44.2% probability of successful transition from Phase I into Phase II (vs 52.5% for biologics), the later stage of development are likely to be more successful, with a 17.3% likelihood of approval at the Phase I stage vs 9.1% for biologics.

Leading the field and filling the funnel

MaxCyte’s revenue profile is likely to be transformed through progress under existing SPLs in the mid-term and continuing to grow the SPL stable remains an area of focus. Investment in the company’s business development footprint and activities is expected to increase the number of SPLs; active discussions are ongoing with several additional target partners (Exhibit 9).

Exhibit 9: Estimated non-viral delivery market (clinical assets US only)

Source: MaxCyte  Note: as per S-1 filing

The pipeline of opportunities remains the strongest and most diverse to date. Pipeline growth across the cell therapy market, increased investment in originator companies, and a switch by some cell therapy companies away from viral towards non-viral approaches has translated to commensurate growth in both the number of potential SPL partners and the number of discussions underway. At the time of the IPO, management estimated that the c 50 potential SPL partners (ie companies currently developing engineered cell therapies) will more than double to c 140 by 2026 based on its assessments of cell therapy pipeline growth, the rate of new therapeutic delivery entrants onto the market, and the ongoing industry shift towards non-viral delivery (Exhibit 10).

Exhibit 10: Gene-modified cell therapy programmes by delivery approach

Source: MaxCyte

MaxCyte’s relationships with a broad range of customers/partners include leading biopharma companies, to cutting edge engineered cell therapy drug developers, to academic and government research institutions (such as the US National Institutes of Health) focused on translational research. It is seeking to expand its customer base across the spectrum. While securing additional SPL partners is a key focus, closer cooperation with translational researchers presents a strategic opportunity for the application development team to work towards enabling and support new technological modalities, potentially embedding relationships at an earlier stage.

Fundamental to maintaining MaxCyte’s success in securing new drug discovery and cell therapy customers and to converting SPL prospects will be successfully convincing partners of the technological advantages over alternative methods, from established companies (eg Lonza, Thermo Fisher, Mitlenyi Biotec, Bio-Rad, and Harvard Bioscience) to newer entrants (such as Intergalactic Therapeutics and Kytopen, which recently raised Series A rounds of $75m and $30m respectively). MaxCyte is well-positioned vs existing competitors, but longer-term, the emergence of alternative clinically validated non-viral approaches, or GMP-grade platforms delivering equivalent performance to ExPERT could increase competition and potentially introduce pricing pressure.

A key theme that has emerged from our research is that relationships matter. MaxCyte has sustained and established positive relationships with companies across the engineered cell therapy industry, which are built on the reliability of the ExPERT platform in consistently providing high transfection rates of a wide range of molecules into varied cell types, coupled with customer-centric design features and skilled field application support. Once MaxCyte’s technology (and FDA Master File or equivalent) is embedded in the manufacturing of clinical drug candidates, it is highly unlikely that supplier or delivery strategy is switched due to the time penalty, risk, and regulatory hurdles. MaxCyte’s current SPL partners include several non-viral genome editing companies. Our review of their peer group indicates that Lonza’s nucleofector technology is the second-placed electroporation delivery mechanism (used by Poseida Therapeutics and Ziopharm Oncology), two companies use proprietary technologies (Cellectis, Precigen), while SQZ Biotech has a captive non-viral microfluidic technology.

MaxCyte’s strategic and financial momentum appears set to be maintained as it continues to benefit from sustained demand for its enabling technologies in the production of transformational cell therapies. While COVID-19 uncertainties remain, 9M21 resilience demonstrated strong underlying demand from its current customer base, a growing SPL portfolio, and the start of several initiatives to accelerate organic growth. These themes also underpin the revenue growth seen in unaudited FY21 revenues. The rapidly growing, and well-funded, cell therapy market (as illustrated in the Alliance for Regenerative Medicine H121 Report) should be a source of new SPLs and translate into increased milestone receipts given the progress seen at SPL partners. IPO proceeds allow for increased investment in several areas to align MaxCyte’s capabilities and products with existing customer requirements. MaxCyte’s footprint will expand as several hires are made across the business (R&D, S&M, business development, application development etc) to support commercialisation of its partner’s potential products (the first could be approved in 2023) and enable expansion into new applications and potential new markets, further consolidating its position as a preferred industry provider of non-viral transfection services.

Sensitivities

MaxCyte is in an unusual position. Being a key enabler for multiple ex vivo cell therapies, it retains much of the upside potential associated with the sector but with a considerably lower risk profile. Its core life sciences business is steady yet fast-growing, which coupled to the number and breadth of its SPLs, means there is limited exposure to the clinical readout from any one client programme. Nonetheless, although mitigated by this diversity, the usual industry risks (developmental, clinical, and commercial) do still apply.

The engineered cell therapies being developed by MaxCyte’s partners are typically highly innovative and hence carry a higher than typical risk. But, MaxCyte’s exposure is limited by the number of partners, the variety of technologies being employed, and the broad range of indications. It should also be noted that the gene-editing technologies are well characterised, and there is a growing body of clinical data suggesting that they can be safely used in cell therapies produced ex vivo. Despite this, progress with such cutting-edge sciences is seldom smooth and, given their high profiles (both within the industry and financial markets), a well-publicised setback with a partner’s programme could affect sentiment.

The dynamics of the cell therapy market are such that many companies will look to challenge MaxCyte’s leading position in the field of non-viral modification of cells ex vivo. It already faces competition from companies such as BTX, Lonza and Thermo Fisher Scientific, and many others may look to enter the market. However, MaxCyte’s patent portfolio (121 granted and 66 pending patents), trade secrets, and deep knowledge, established client relationships, and unrivalled field support are significant barriers to competition. In recent years, MaxCyte has strengthened its leading position by striking major collaborations with most (virtually all) of the key cell therapy companies.

Substitution risk is inherent to all high technology platforms. Cell engineering has progressed rapidly in the past decade with a notable shift in emphasis from viral transfection to non-viral techniques. There is a tangible risk that a novel approach may supercede flow electroporation as the production method of choice. For example, there is a growing research focus on exploring in vivo gene editing approaches, although the challenge of delivery to the right cell(s) remains. However the lead times within the drug industry are such that the impact of a technological substitution within our forecasting horizon is slight. For context, it has taken MaxCyte over 20 years to achieve the appropriate levels of technical, production, and regulatory competence for its platforms.

The COVID-19 pandemic has affected MaxCyte operations, especially marketing, but the company has implemented business continuity plans to maintain its activities as best it can. The sales cycles for the core life sciences division have been longer than normal and some clinical trials with associated milestones might be delayed. Fortunately, MaxCyte has a strong client base and most of its major partners are very well funded. There could be longer term consequences of the COVID-19 pandemic, to which MaxCyte might have to adapt. However, these will be no different to those faced by other industry players.

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. Updating inputs to include new monies raised through the NASDAQ IPO, plans to support increased investment, progression of existing SPL programmes, and new SPLs secured, yields a valuation of £1.06bn (£1.37bn) or 1,045p / $13.58 per share. Exhibit 11 summarises the components of this and underlying assumptions.

Exhibit 11: 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; 35% tax rate from 2024, and $1.30/£1 FX rate

Our valuation can be broken down into three key revenue streams:

• recurring revenues from the Core Life Sciences (Cell Therapy and Drug Discovery) business of £150m/$195m (146p/$1.93): our DCF-based valuation captures both the high level of recurring income and organic revenue growth (ie as research programmes progress; manufacturing is scaled up etc) as well as the increased investment into R&D and SG&A.
• potential SPL pre-commercial milestones of £124m/$161m (122p/$1.59): growth in SPLs and pipeline progress suggests more substantial receipts should begin to accrue (increased frequency of early-stage milestones; potential for larger late-stage clinical/regulatory payments). Increasing visibility will present opportunities to revisit our assumptions.
• potential SPL sales-related royalties and/or milestones and consumable cash flows of £586m/$761m (579p/$7.53): the key driver of MaxCyte’s valuation, which will be de-risked with clinical and regulatory progress.

Exhibit 12 breaks down our indicative rNPV of the potential sales-related revenue stream from the products that we believe to be under MaxCyte’s SPLs where we have some visibility on timelines, data, and/or consensus forecasts (source: Evaluate Pharma). We apply a 12.5% discount rate and assume that MaxCyte receives the equivalent of a 2% royalty, although we acknowledge that there is variability in the structure of sales-based payments across SPL customers. In addition to specific deal terms under each SPL, various other factors will influence the revenue potential of each programme depending on the size of the target indication, COGS, pricing and reimbursement, specifics of the enabling technology and service provided by MaxCyte. Taxation at 35% is applied from 2024 onwards.

Risk adjustments reflect the phase of clinical development but have been flexed upwards if preliminary data is available. Conversely, we conservatively push out the launches of the two Allogene programmes by one year to reflect the potential for delay caused by the FDA clinical hold and remove one discontinued Precision programme. We have identified another c 20 programmes that are on the cusp of the clinic or IND filing, but which currently have limited visibility and ascribe a modest placeholder value for these and other undisclosed SPL assets.

Exhibit 12:  Indicative rNPV of royalty streams from programmes assumed to be 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 26/1/22)

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 SPLs but is yet to benefit from the more substantial payments associated with later-stages of development, as well as sales-related revenues following successful approval(s). As SPLs 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 SPL pipeline rNPV explicitly captures potential post-commercialisation revenues from only nine of the 95+ clinical programmes currently under SPL. As each SPL typically covers multiple assets, there is further embedded value outside of the programmes we have identified. Progress of additional SPL programmes into the clinic as well as the realistic prospect of further SPLs 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’s FY21 revenue has largely been underpinned by growth in sales and licence of instruments and high-margin disposable sales to cell therapy customers. Unaudited FY21 revenues indicate total revenues of more than $33.7m (+>28% growth in total revenue, +>37% core revenue growth). As Q321 revenues of $10.1m ($6.8m, +50%) benefitted from earlier than anticipated SPL milestone receipts, no milestones were received in Q421. H121 revenues were $13.6m, up 25% on H120 ($10.9m). MaxCyte now breaks down its revenue into three segments: Cell Therapy, Drug Discovery, and Programme-Related Revenue.

Cell Therapy revenues stood at $9.49m in H121 (+53% on H120: $6.19m) and $6.2m in Q321 (+38% on Q321: $4.5m) with increased instrument sales/leasing reflecting continued high levels of capital investment by companies operating in MaxCyte’s target markets. This in turn translates into high levels of disposable sales with continued clinical development progress at cell therapy partners. Growth in Drug Discovery revenues (H121: $3.6m vs H120: $2.95m, +22%) were largely driven by growing traction with sales of new disposables (multi-well processing assemblies). Q321 drug discovery revenue of $1.9m was up sequentially on Q221 ($1.8m), but slightly down on the strong Q320 comparable ($2.0m, -5%). Both revenue segments have a high degree of visibility given the high recurring revenues from instrument leases and disposables sales and had particularly strong performance in Q221: overall Cell Therapy and Drug Discovery sales were up 59% and 60% respectively over Q220.

Programme-Related income from SPLs amounted to $508k for H121 (H120: $1.75m), followed by a strong Q321 with $2.0m of milestones received (Q320: $252k). This highlights the inter-period variability in individual milestone triggering events. The increasing number of SPLs and underlying assets, and their preclinical and clinical development progress, should result in a smoothing of milestone receipts in future as the number of discrete trigger events grow in frequency. SPL revenues are an important contributor to gross margin of c 89%. MaxCyte’s gross profit for H121 was $12.9m (H120: $9.8m) and $9.2m for Q321 (Q320: $6.0m).

Exhibit 13: MaxCyte quarterly revenue progression by business segment

Source: MaxCyte, Trinity Delta

Greater and smoother aggregate milestone receipts are expected over time as programmes under SPL advance into and through the clinic; MaxCyte’s economic benefit from milestones is still in the earlier phases, as these are back-end weighted on clinical success and regulatory approval. In the coming years we also anticipate increased placement of instruments, an uplift in leasing revenues with the preclinical to clinical shift, and growing use of disposable processing assemblies as existing programmes move into later-stage clinical trials, although milestone receipts will be the fastest growing revenue source. MaxCyte is getting nearer to the point when the more significant milestones may start to accrue, with management indicating there is potential for meaningful milestone revenue over the next 12 to 18 months. However, precise timing is dependent on programme decisions and progress at partners: we model $5m in SPL revenue for FY22. FY22 revenue guidance should be forthcoming with the Q421 and FY21 results announcement in late-March. We intend to revisit our forecasts at that point.

H121 operating expenses of $22.9m were 48% up on H120 ($15.9m), with increases in R&D and SG&A spend. Increased expenditure was mainly attributable to a $5.8m uplift in compensation costs (reflecting increased headcount) and SBC (on account of share price appreciation) in addition to a $1.4m increase in legal and professional service expenses which included costs related to preparations for the NASDAQ IPO. R&D expenses rose more modestly to $9.3m (vs $8.3m), although this masked a $0.8m decline in CARMA-related spend, with all preclinical and clinical activities largely completed by end-Q121. Net loss for H121 was $11.5m vs a net loss of $6.1m for H120.

For Q321, operating expenses stood at $11.6m (vs $8.9m). Compensation costs continue at a higher level (+$3.4m) for the reasons outlined above, and legal, public company, and professional service expenses rose $1.2m. R&D costs were lower at $2.8m (Q320: $4.5m) on account of a $2.5m decline in CARMA-related expense. Net loss for Q321 was $2.7m vs a net loss of $3.1m for Q320.

Total cash, cash equivalents and short-term investments stood at $255.9m at end-September 2021, which includes c $185m in net IPO proceeds. These funds are earmarked for investment across several areas including R&D, manufacturing, increased headcount, and general working capital and corporate purposes to consolidate and expand MaxCyte’s leading position as an enabling technology for next-generation therapies. Consequently, we have updated our FY21 and FY22 forecasts to better reflect R&D expenditure in the ExPERT technology platform and product offering, the increase in S&M costs as COVID-restrictions lift, strategic initiatives are implemented and business development activities widen scope, as well as the impact of maintaining a dual-listing on G&A costs. Changes to estimates are shown in Exhibit 14, with our financial summary in Exhibit 15.

Exhibit 14: Summary of changes to estimates

Source: Trinity Delta

Exhibit 15: Summary of financials

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

Contact details

MaxCyte Inc
22 Firstfield Road, Suite 110,
Gaithersburg, MD 20878
USA

www.maxcyte.com

Top institutional shareholdings

Source: MaxCyte   Note: as of March 1, 2022