Good day, ladies and gentlemen, and thank you for standing by. Welcome to the MaxCyte third quarter earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone keypad. At this time, I would like to turn the conference over to Mr. Sean Menarguez, Director of Investor Relations. Sir, please begin.
Good afternoon, everyone. My name is Sean Menarguez, and I'm the Director of Investor Relations here at MaxCyte. Thank you all for participating in today's conference call. On the call for MaxCyte, we have Doug Doerfler, President and Chief Executive Officer, and Ron Holtz, Interim Chief Financial Officer. Earlier today, MaxCyte released financial results for the third quarter ended September 30, 2022. A copy of the press release is available on the company's website. Before we begin, I need to read the following statement. Statements or comments made during this call may be forward-looking statements within the meaning of federal securities laws. Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements.
Actual results may differ materially from those expressed or implied in any forward-looking statements due to a variety of factors, which are discussed in detail in our SEC filings. The company undertakes no obligation to publicly update any forward-looking statements, whether because of new information, future events, or otherwise. With that, I'll turn the call over to Doug.
Well, thank you, Sean, and good afternoon, everyone, and thank you for joining MaxCyte's third quarter earnings call. I will begin with a discussion of our business and operational highlights during the quarter, followed by a detailed financial review from Ron. We will then open the call for questions. I am very pleased with our third quarter result as our team continues to deliver on the company's financial and strategic objectives. MaxCyte's platform continues to be the premier cell engineering technology for the industry, enabling the development of a growing set of advanced cell-based therapeutics. Throughout this year, we have invested in our people and capabilities as we seek to take advantage of the growing end markets and support our customers' and partners' growth. Interest and investment in the cell and gene therapy market remain significant.
In the third quarter for cell and gene therapy, we saw an increase in deal-making in our industry, both financings and partnerships compared to the previous quarter. More specifically in our markets, we are seeing exciting private investments and new company formation focused on novel cell types and complex next-generation approaches. Ron will provide more details later in the call, but I want to highlight that we generated very strong third quarter 2022 results in our core business, with those revenues up 22% year-over-year. As a reminder, when we refer to our core business, we are including sales and leases of instruments and sales of disposables to cell therapy and drug discovery customers. The year-over-year increase in core business revenue was led by an increase of 27% in revenue from cell therapy customers, while revenue from drug discovery customers increased 4%.
Our global customer base has expanded across all stages of development, and we are particularly encouraged by our traction with cell therapy customers at early development stages, including leading academic clinical translational centers. Our robust strategic platform license pipeline continues to strengthen and expand with potential partners at various stages of development across a wide variety of cell types, approaches, and indications. Outside of our core business, we recognized $800,000 of SPL program-related revenue during the third quarter, which puts us at $2.8 million of milestone revenue through the end of Q3 and gives us confidence in our full-year milestone revenue guidance of $4 million.
Our partners' clinical programs continue to make exciting progress, although I note that due to the confidentiality of our partnership agreements, we are not able to answer specific questions related to SPL partners, their clinical progress, or their respective development programs. In the third quarter, we announced a SPL partnership with Vertex Pharmaceuticals, a global biotechnology company that invests in scientific innovation to create transformative medicines for patients with serious diseases. You should note that this agreement does not support programs new to MaxCyte because it is a transfer to Vertex of programs previously under the CRISPR-Cas9 partnership. That SPL, originally signed in 2017, included the rights to use MaxCyte's technology to support gene-edited cell therapy exa-cel, formerly known as CTX001, for hemoglobinopathies. All key elements of the CRISPR-Cas9 agreement transferred to Vertex, including the financial arrangements.
Our total number of strategic platform partnerships now stands at 17, and we are optimistic regarding the potential to add additional SPL partnerships this year at a comparable economics to prior partnerships. Given the strength of our SPL partnership pipeline discussed earlier, we are confident in our ability to continue to add new partners as we look forward to 2023 and beyond. MaxCyte's ExPERT platform is a core enabling technology in our partners' therapeutic development strategies. Our partners are well-funded and leaders in the cell therapy industry, developing a wide-ranging set of innovative gene editing and cell engineering approaches. A key element of our strategy in 2022 has been the ongoing investments we are making to support our customers' and partners' success, as well as MaxCyte's future success and financial growth.
These investments include growing our commercial teams, expanding in-house manufacturing, enhancing our process development capabilities, as well as ongoing product development and reinforcing our business infrastructure. Additionally, we continue to make investments in our application laboratories and teams to support our success in the rapidly growing next-generation cell therapies market as the field expands across broader indications and into novel cell types. In September, we officially completed our move into our new headquarters facilities in Rockville, Maryland. Our new facility is a major milestone in our growth. Critically, this facility dramatically increases our instrument and PA manufacturing capacity to support our customers as they move from research and clinical scale to commercial therapeutic scale. In September, we formally launched our ExPERT VLX large-scale transfection system at the BioProcess International Conference in Boston.
The VLX system expands the MaxCyte ExPERT electroporation platform to offer greater scale for development and manufacture across a broad range of applications such as transient protein manufacture. The VLX offers key benefits, including shortened development timelines, broad compatibility, workflow integration and flexibility to support the bioprocessing market's needs during pre-clinical development and clinical trials. The VLX system opens up a new market opportunity for MaxCyte, which supports our confidence in our long-term revenue growth. Participants in the bioprocessing market often take a conservative approach to new process adoption, and as a result, we are initially focused on early access customers, many of whom are existing customers of our current smaller scale platform as we work to build the capabilities and reputation in this market that have allowed us to capture the value of our technology in other markets.
The investments we're making in 2022 will advance our ability to support new and expanding markets, engage successfully with emerging therapeutic development programs and companies, and support our partners as they move through the clinic toward commercial launch of therapeutic products. We remain confident in the value of these investments to our existing and potential partners and customers. As Ron will describe in more detail, we finished the third quarter well-funded and continue to have a strong balance sheet to support our expected growth. In summary, we are pleased with our third quarter 2022 results and remain excited about the future, especially in the cell therapy market, as we continue to execute on our financial and strategic goals and make investments to drive growth across the business in the long term. I will now turn the call over to Ron to discuss our financial results. Ron?
Thanks, Doug. Hello, everyone. As Doug mentioned, we reported core revenue of $9.9 million in the third quarter compared to $8.1 million in 2021, representing 22% growth. This includes revenue from cell therapy customers of $7.9 million, which grew 27% year-over-year, while revenue from drug discovery customers was $2 million, up 4% year-over-year. Strong growth in PA sales was the key driver of growth in cell therapy revenues for the quarter. We recognized $0.8 million of SPL program-related revenue in the third quarter of 2022 as compared to $2 million in the third quarter of 2021. We remain on track with our forecasted milestone revenue of $4 million for the full year.
Moving down the P&L, gross margin was 87% in the quarter versus 91% in the third quarter of the year prior. Margins are heavily influenced by the highly variable level of milestone revenues as well as the mix of products and customer types, and we saw those effects this quarter. Total operating expenses for the third quarter of 2022 were $17 million compared to $11.6 million in the third quarter of 2021. The overall increase in operating expenses was primarily driven by increased staff in field sales, field science, and manufacturing, as well as product development expenses, and the increase also included growth in sales and marketing expenses, stock-based compensation, and occupancy expenses compared with the same period a year ago.
Furthermore, we have a healthy balance sheet with a combined total cash equivalents, and short-term investments of $233 million as of the end of the third quarter and no debt. As communicated last quarter, our uses of cash include investments in operating expenses and capital equipment, plus approximately $12 million in investments in our new headquarters this year. Based on the growth year to date and our robust pipeline, we are reiterating our revenue outlook for 2022. We expect revenue from our core business of approximately percent compared to 2021 core business revenue. As we discussed previously, the timing of SPL revenues is predicated on our customers' clinical and regulatory progress and therefore is fundamentally more difficult to predict than core revenues, which we manage directly. Noting that, we continue to expect SPL milestone revenue of approximately $4 million for 2022.
Lastly, we believe that our modest cash burn and debt-free balance sheet will support our future plans for profitable growth. We expect to end this year with more than $220 million in cash equivalents, and short-term investments. Now I'll turn it back over to Doug.
Thank you, Ron. In summary, we are encouraged by our third quarter achievements and remain optimistic about the opportunity to lead the industry forward as the premier cell engineering platform technology supporting the development of advanced cell-based therapeutics for patients who may not otherwise have treatment options. As always, we want to take this opportunity to thank our team, board, suppliers, investors, partners, and the amazing industry that we have the honor of serving.
Ladies and gentlemen, at this time, we'll start the Q&A session. If you have a question or comment at this time, please press star one one on your telephone keypad. Again, if you have a question or comment at this time, please press star one one on your telephone keypad. Please stand by while we compile the Q&A roster. Our first question or comment comes from the line of Julie Simmonds from Canaccord . Your line is now open.
Oh, good evening. Whatever time of day it is there. Couple of questions. Firstly on the collaborations that you're doing, clearly it's a larger number than or a growing number. You talked earlier about the stage of those collaborations, some of them being earlier and with academic partners. Now, you've always had a number of those. Are you finding that there's an increase in those as your products, the later stage products are getting closer to market? Is that encouraging people to use the technology at an earlier age? I'm just trying to get a feel for sort of the top part of the funnel versus the bottom part.
Yeah, Julie, thanks. Thanks for the question. Julie's from Canaccord Genuity. Thanks, Julie. Yeah, I think what we're seeing is the pipeline is filling with really in two areas. Well, three areas really. One is cell therapy companies that are in you know late stage pre-clinical development are coming to us. We're also seeing an increase in the new entities being formed around you know more complex cell therapies. We've been talking about our interest in building out these translational medical centers, which we're also seeing some you know good uptake in that as well. I think you just saw some recent work that we had published by a number of investigators, including Dr. Mohamad Mohty.
I think again, we're seeing growth in the pipeline all the way across the continuum development, which is very encouraging for us.
Yeah, that is very good news. Just second question on the VLX. Is there a difference between an early access customer and somebody who's been beta testing it for starters? Then those early access customers, are they helping you with sort of the regulatory pathway for this? Because my understanding is that with the VLX, you're creating transient cell lines, that's sort of the big change in manufacturing that both the customer and the regulators need to get their head around. Is that what the early access partners are helping you with?
The early access partners are in fact the beta testers we've been working with. They are helping us understand more about the regulatory challenges and some of the opportunities we're seeing. They're helpful. We also have our own team of people who are working trying to understand those issues as well. You know, the guidances around using stable cell lines for the production of materials for clinical trials is decades old. We are seeing some potential for other companies who may have used transient produced material for clinical trials and for treating patients. I mean, most of the transient work, most of these vaccines are made in transient cell lines, so there is some precedent there.
Excellent. Lovely. Thank you very much.
Thanks, Julie.
Thank you. Our next question or comment comes from the line of Matt Larew from William Blair. Mr. Larew, your line is open.
Hi, this is actually Madeline Mollman on for Matt Larew. Thanks so much for taking my question. You've emphasized how well capitalized you are and how you've minimal cash burn. I was just wondering, as you think about your capital allocation plans going forward, if there are any specific areas or adjacencies you are looking to move into.
I think, Madeline, thanks for the question. I think what we're interested in is we have a lot of opportunity as we talk to our customers and partners about areas that they want us to add products to. A lot of this would be natural extensions to our product line. The VLX is one of them. I think you've also seen us come out with a number of new disposables and new buffer configurations, so that those are both important for customers. We have an active program going on looking at downstream analytics, in-process analytics, and also some of the pre and post electroporation processes that we think we could adapt to our technology.
Again, I think it's important to note that although we do have a significant cash amount for the company, we don't feel as if we have any urgent need to be investing right now. I think we want to do our homework, make sure we're finding those opportunities that are perfectly fit for what we're trying to achieve.
Great. Thank you.
Thank you. Our next question or comment comes from the line of Dan Arias from Stifel. Mr. Arias, your line is now open.
Good afternoon, guys. Thanks for the questions here. Doug, did I hear you right in you saying that there will be additional SPLs to be added this year, meaning that the number moves higher in the next six weeks here?
Yes, that's what I said, Dan.
Okay, great. And then just maybe on the installed base and the growth that you've seen there, Doug or Ron, any chance you can maybe update us on just placement growth? I think it was right around 25% last year, 500 or so, up from 400 or so. How is the placement rate or the growth rate in placements this year tracking relative to last year's number? If you'd be willing to speak to that.
Yeah. Dan, it's been healthy, and we're happy with the growth this year. We'll report a full year number or an update at the end of the year as we always do. The instrument sales and instrument leases are both important parts of the revenue mix, and they're performing appropriately in accordance with their plan. We hope to report a healthy number at the end of the year.
Okay. If I could stick one more in here. Doug, interesting comment on the new company formation. I'm just curious what you're hearing from these sort of, you know, de novo opportunities, so to speak, where they may not have a history with a viral approach or a non-viral approach. I mean, how is electroporation being viewed by these folks? Is there anything that's sort of standing out as you're learning about these new entities that are popping up?
I think, you know, Dan, it's a great question, and I think what we're seeing is, you know, really novel, exciting new approaches that companies are taking toward, upregulating and downregulating certain pathways. Once you do that, they tend to be quite complex and that falls right into our wheelhouse. Typically, they really don't have an alternative, and they're coming to us out of the box, frankly, to help them with the development strategies.
Okay. Thank you very much, guys.
Thank you. Our next question or comment comes from the line of Maher Masoud from Cowen. Mr. Masoud, your line is now open.
First one, you know, just looking back on the year, you've consistently beat, you know, revenue expectations since the NASDAQ IPO. You know, that's clearly a testament to both operational execution and appropriate managing of expectations. Just as we turn our sights to next year, you know, is there a reasonable or even potentially, you know, conservative baseline growth rate for your core business that we can anchor our 2023 numbers to, or should we stay tuned?
I think the right answer is stay tuned. We're focused on having a successful Q4 and finishing out the year and putting the details on our planning for next year. We'll talk about that in Q4 when we announce full 2022 results.
Okay, got it. Next question, just, you know, again, reflecting on 2022, it would be great to hear, you know, whether your expectations around MaxCyte's 2023 SPL pre-commercial milestone revenue opportunity, I guess that's evolved throughout 2022. Any, you know, additional color just to help guide our modeling of the SPL program revenues year-over-year.
We'll talk quantitatively in the Q1, as I mentioned, but I can tell you that, you know, it's pretty straightforward that as we add SPLs, they tend to come to us when they're late pre-clinical, and so they're gonna move into the clinic and that's gonna build the milestone expectations. You know, moving from, I don't know, we started this year with 14 and we're at 17 now, and as we continue to add that, potential set of milestones grows along with that. It's fairly straightforward.
Yeah. If I can just add, there's also, you know, we're also seeing some progress. Well, some of our partners are publishing progress on their clinical development programs. As we discussed, those milestones tend to be a bit larger as they move further down the pipe.
That's great, and I'll appreciate the graphic on slide 12. Final question, core business is performing exceptionally well. I think in our view, the downstream revenue opportunity still isn't receiving a ton of credit. Just wanted to ask, with the rise in interest rates this year, have you sort of attempted to recalibrate the weighted average NPV estimate per SPL customer?
We haven't redone that analysis. I mean, weighted average cost of capital is, you know, sometimes a matter of opinion. We don't spend a lot of time recalibrating that along with interest rate changes.
Okay. Got it. Thanks a lot.
Thank you. Again, ladies and gentlemen, if you have a question or comment at this time, please press star one one on your telephone keypad. Our next question or comment comes from the line of Jacob Johnson from Stephens. Mr. Johnson, your line is now open.
Hi, it's Hannah on for Jacob. Good afternoon. Thanks for taking my question. On VLX, do you have any updated thoughts on the business model here? Will this be a product sale or lease to customers? What are the key applications that you're initially focused on for VLX?
The key initial application will be for monoclonal antibody production, and that's precisely what our early adopters are using the technology with us. In terms of business model, not debating. It's one of the reasons why we're working so closely with these companies to understand what value we're really bringing. As I think we've discussed this, and there's some real benefits that we provide to these, that whole process. I mean, we're looking to reduce product development timelines, which you know is critically important. I think even more valuable with the current financial situations made under these early-stage companies. It's a technology that needs to be broadly compatible with a number of different input and output workflow to ensure that we can integrate it and ensure also it's flexible.
All those things are components of how we will determine the value that we bring to the market, and we'll, you know, do our best to ensure that we gain as much value as we can, the appropriate value for the technology. We haven't been public on in terms of what the exact model will be. Stacia?
Thanks. I'll leave it there.
Thank you. Our next question or comment comes from the line of Mark Massaro from BTIG. Mr. Massaro, your line is now open.
Hey, guys. This is Vivian on for Mark. Thanks for taking the question. On the SPL side, do you have any updated views on the addressable market? I think in the past you've highlighted potential for 60+ SPLs. Just wanted to get your thoughts there, considering the launch into VLX as well, potentially opening up some more avenues. Thanks.
The VLX is our initial application focus will be in protein production, which is on the drug discovery side of our business, not on the cell therapy part of our business. Just to be clear about that. You know, I think that number that we came out with at the IPO is I think more than 50. I think it's fair to say that we believe that number's gone up a bit more than that, although we're really not reporting against that for the future, but only to say qualitatively that it's larger than it was when public.
Okay. Thanks for the clarification. Just a quick housekeeping question. Could you just remind us where overall headcount stands? I'm thinking Q2 you were actively investing. As far as the move to the new headquarters, I know you also cited a potential benefit from in-house manufacturing. Just curious how that's progressing and any contribution to growth margins there.
We're above 100 at this stage and on brand with the hiring that we anticipated to in conjunction with the investments that we've described. I didn't hear the second question.
What will in-house manufacturing do in terms of cost of goods sold and supporting future demand?
Yeah. Thank you, Doug. As far as supporting future demand, in-house manufacturing is critical to our ability to support the customers that use our technology. That's the primary reason that we moved in-house, because automation is critical to our being able to satisfy that growing demand. One of the ancillary benefits, which is not really a focus, is that when you do automation, you end up lowering the labor cost component of the processing assembly. Which we'll run through the process that you would expect of anyone standing up a manufacturing operation. Margins on the processing assemblies that come out of our shop initially are probably lower than they are from our outside manufacturing.
As we build up our capabilities internally and get up to the speed that's possible inside our clean room, we'll get some benefit on the margin side. Those effects are very small. It's not relevant to the change in margins that you saw this quarter, for example.
Got it. Thanks for taking the questions.
Thank you.
Thank you.
I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. Doug Doerfler for any closing remarks.
I will. Thank you, and thank you all for your interest in MaxCyte and your continued support. It's really an honor to be part of our important and exciting therapeutic modality that we're developing with our partners. We look forward to answering individual questions after this presentation and meeting with investors during the next several days. Thank you again for your support of MaxCyte. Thank you very much.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.