Hi, my name is Yuko Oku, and I'm on the Life Science Tools and Diagnostics team at Morgan Stanley. Before we begin, I'd like to remind our listeners that important disclosure information can be found at morganstanley.com/researchdisclosure. It's my pleasure to host Quanterix, and speaking on behalf of the company, CEO Masoud Toloue and CFO Vandana Sriram. Thank you for joining us today.
Yuko, thanks for having us.
Maybe to start, for those unfamiliar with Quanterix, maybe we can start with the core underlying technology. Can you describe how Simoa technology is differentiated versus other proteomics technologies that are currently out there?
Yeah, Simoa technology is unique in the market because when we. It's basically for protein detection, and the application in protein detection is looking at proteins and measuring them digitally, as opposed to everything else, which is in analog mode. So the core IP was invented by Dr. David Walt, who is the founder of Illumina and Quanterix, and you're able to look at these molecules in these femtoliter wells in a digital signal, which gives you exquisite ability to separate signal from noise. And being able to do that versus, you know, an analog method, you can look at things at a much higher level of sensitivity than other competing protein detection technologies.
So in a broad sense, what that translates to is that, you know, historically, when people are looking at protein in disease states, someone gets sick, they go to a physician's office, and then they get their blood drawn, and then proteins are analyzed. And that sort of level of protein detection is probably something that a lot of other folks are good at in analog. But what Quanterix and what Simoa enables is that you're now able to measure levels of protein in a healthy patient, and we're really changing that paradigm from sick care to healthcare. And, you know, that's, those are a lot of the markers that we focus on.
Okay. Thank you for the introduction. And since you've taken the CEO seat, you, made significant progress towards unlocking the translational market, can you walk through the transformation process the company has completed at the end of 2023, and how will this assay redesign help you more effectively scale the business for future growth?
Yeah, you know, Quanterix has had an incredible history of fast growth. We've had over 3,000 publications using the technology with over 500 biomarkers being identified uniquely with our platform. And, you know, it really started in the research side, or the research environment, where people are taking the technology and looking for new things that just frankly didn't exist before or identifying new biomarkers that, you know, talk about disease in new ways. And that was all on the research side. And as the company matured and as you got those 3,000 publications, a lot of the customers began asking the question: "Hey, this was a really interesting research finding. What are the ramifications in the clinic?"
And those began to be pharma customers, saying: "Hey, can I use these biomarkers as a proxy for brain health, or for, this infectious disease, or this cytokine pathway? Can I use it as a signal for the efficacy of my therapy?" And there, this transfer from, "Hey, it's an important research application," to, "There's a clinical, value for it," became more and more important to the company. And so, at the company, we decided that, we're at a very early stage of what's going to be a lot more use of the Simoa platform in clinical settings and these longitudinal studies. So we began a process where we scaled, looked at our capacities and began scaling the company, specifically on the reagent side.
So we redeveloped the assays for longitudinal studies, clinical grade, high quality, for one, you know, operational purposes, but two, to better serve the needs of our more clinical customers. And in the last, you know, two, three years, that really meant two things. First, from a, you know, obviously operational efficiency perspective, we've increased the operational output of our reagent manufacturing team by over 300%. We can now do 4 million tests a year, developed right through our lab in Boston. We've increased the capacities of our Accelerator program by 75%. We can do, you know, 750,000 tests a year through the Accelerator program.
And since 2022, we've had, you know, started with gross margins around 29%, and now, you know, for the first half of the year, we're at 53%. That's the first benefit. The second benefit, which is probably, maybe even arguably more important than that, is, you know, in the last several years, we hadn't launched a lot of new products and applications, and now we're launching 20. So what we did was we built a product development engine that made it a lot easier to take really exciting markers in the field and build assays off them. So that template, and that engine was created, and so we went from something like, you know, a couple of years ago, zero new NPIs and assays to where we are this year, you know, on the order of 20.
Great. And maybe starting with your base business, you updated your guidance during Q2 and highlighted instrument weakness, along with many of your other peers in the industry. What are you seeing in terms of the demand for Simoa versus overall macro capital instrument weakness?
Yeah, so the one thing I'd like to first call out is, you know, even in what is definitely a tough macro environment, Quanterix was able to grow double digit in the second quarter, and we did 11% growth. And this was our fifth consecutive quarter of double-digit growth. So, you know, on the one hand, we're seeing instruments being constrained by some of these macro factors, but on the other hand, we continue to see really strong demand for Simoa sensitivity. You know, Masoud talked about how our technology is unique and how the need for sensitivity is what drives our business. What we saw was instead of that demand coming through from instruments, our customers used our CLIA-certified Accelerator lab instead, and the same volume came through in a services stream.
So what's unique about us is the fact that we have this differentiated business model, where our service lab is very effective in capturing some of this weakness in instrument demand and converting it to services. As we look at our pipeline and as we look at our commercial metrics, it gives us comfort that while the overall macro environment is constrained for capital, the demand for Simoa sensitivity remains strong. We continue to see really strong interest, good pipeline, and we also continue to see that fueling our double-digit growth.
Great, and Masoud, you talked about this, but you're introducing approximately twenty new assays this year, which you already commercialized eight in the first half. Of the assays that you recently launched or are launching this year, which assays are you most excited about?
Yeah, that's like saying, you know, which of your children you like the most. And, like, there's consequences back when I go back to the company, too, so, thanks for the question. Like, I think what we're super excited about these days are maintaining the lead in neurology. So we like, you know, in the neurology biomarker space, Quanterix is synonymous with the best markers and the latest. And so we recently launched a really innovative marker called BD-Tau, where it only measures proteins in the brain versus peripheral sources of Tau. So very excited about that.
We think that improves testing, that improves the way Tau is measured in the body and there's we think serial effects for this, and we're excited what this will deliver in the next several years. We developed a multiplex with that BD-Tau that we're also very excited about. And we plan on probably several new markers in that set of twenty on the neuro side, that just the market hasn't seen yet or hasn't used, you know, yet. The second thing that we're very excited about is, I would say, have been some of our immunology markers. In the next several months, we're gonna be releasing multiplex-based immunomarkers, which are gonna sort of be very important in neuroinflammation, as neuroinflammation becomes an important pathway.
But also are gonna be used for other disease states, where people are looking at these inflammatory markers as proxies for signs of disease. And there, you know, the key is going to be at the healthy patient, a healthy patient that's, you know, becoming sick, and early stages of detection. So we think that expands the opportunity. Right, right now, 70% of our business is neuro, 20% is immuno and oncology, and we think we can do more on that side.
Great. And you have improved upon the Quanterix assay with a new Advantage Plus assay, which deliver extended shelf life, and improved availability. But switching to the new assays has been slower than anticipated, with about 10% on the new assay as of 2Q. Could you elaborate on what you're seeing on this front? And as customers switch to the new Advantage Plus assays, are you seeing any destocking dynamic as customers go through that inventory of the older version of the assay?
Yeah, you know what? I would say the Advantage Plus is gonna be the new gen assay that we have. I wouldn't, you know, pay attention too much to this dynamic other than, you know, we have a lot of great customers that have these longitudinal studies. I think, you know, probably at the beginning of the year, we would have liked to snap our fingers and add everybody on the new assays. And, you know, some of our customers have given feedback and said, "Hey, look, I'm in the middle of a long clinical trial. Don't make me switch now." And, you know, we're doing the right thing and giving them some time to transfer over. But ultimately, everyone's gonna be transferring onto this new assay. Obviously, the improved margins and improved capabilities that you talked about would be benefits.
You have highlighted a new platform that will have a higher plex to target adjacencies outside of neurology, such as immunology. Can you talk a little bit more about that?
Yeah, you know, we. It goes to, like, at a very high level, the core strategy of the company, which, you know, when you have a really exquisite, unique, differentiated technology, where using that technology, you can identify things in patients, things in research areas that other platforms can't detect, the core goal is you gotta get this into as many hands as you can. And as a company, we've been so focused on the neuro side, and that's been growing, and we're gonna continue to lead in that area. But oftentimes, the question comes up is, "Hey, could we be doing something more in immunology and oncology if we took our platform?" and we put it into more hands, what other new discoveries for healthy patients, are they going to be able to perform?
And so when we talk to the oncology and immunology patients, they say, "Hey-" or customers, they say, "Hey, we love the one-to-four plex that we offer. We would really like if you would double that," and for applications. And there we see by, you know, making changes and updating and, you know, with the new platform, we've been able to penetrate that market even more effectively and get to our final goal, which is Simoa in all hands or Simoa in all labs.
Maybe switching over to diagnostics. You have FDA breakthrough designation for standalone p-Tau 217 test. Can you talk about the FDA pathway for both the single marker, p-Tau test and also the multiplex test?
Yeah, we're very excited about that. You know, the breakthrough allows us to communicate in an expedited fashion with the FDA. That's been super positive. We're in the middle of two advanced prospective trials that you know are going to read, and we're going to be able to present that data for our single marker test. You know, we're very forward-thinking of the and foreshadowing the importance of the multi-marker. We began with the single marker p-Tau 217. We think it's best in class versus you know other detection methods of Tau. But when we look in sort of the initial clinical trial data, we find that if when you add three or four markers to that p-Tau 217, we're able to get even better results.
We're able to reduce our intermediate zone by threefold, and we're doing work to see if it can be a differential diagnostic. So, you know, to sum, we started with the single marker. We plan on doing more work on the multi-marker and also seek regulatory approvals.
So, you know, more and more proteomics players are focusing on this p-Tau 217 opportunity. I was wondering if you could describe the competitive landscape, and how do you anticipate Quanterix to remain differentiated?
Yeah. So I think the first way to think about p-Tau 217 is that, you know, it's, it's an important marker, and Quanterix and a lot of this sort of neuro space has been built using this technology. And it's not surprising that other systems or platforms will try to, you know, measure and detect 217 . I think what we're finding in the data is that the Quanterix single plex 217 has a sensitivity that's an order of magnitude better than other methods of detection.
And how that translates, as we're finding, is that every patient that comes in through a neurologist door will get a p-Tau 217 reading, while other platforms and technology, up to a third, won't get any reading because the sensitivity, because that technology is below the limit of detection, or that result will be below the limit of detection. So it's simply you want a result for all patients and get a result for you know, everyone with a p-Tau 217 or, you know, two-thirds of your patients. And that, I think, is the differentiator with other technologies. As we've said, our single marker test is just the beginning. We're already working on, you know, the five marker test. That data looks, you know, very encouraging, and we're working there.
You know, we're also looking at ways where sensitivity is going to help with new methods of collection on blood collection. You know, we're confident about that, and we're already working on second and third gen.
Can you also talk a little bit about the IP portfolio for your test?
Yeah. You know, we have incredible portfolio of IP, and I think you're referring to our Tau patent. And look, it, this also reflects back, you know, several years ago, you know, Quanterix uniquely was able to look at Tau and through this work, identify that Tau was going to be important or very ultra-low levels of Tau was going to be important in Alzheimer's disease. So that was the impetus for the patent. We feel very confident about that, and we'd rather do partnerships and collaborations with folks and give access to our test, but we'll rigorously defend the patent if you know, a collaboration wasn't forthcoming.
Despite significant progress in scaling manufacturing with output improving 300% in 2023, the AD market is large, right?
Yeah.
So you started talking about this providing smaller result for all patients. So how is this resonating with your customers and KOLs?
I think that's the key, that's the key point. It's, you know, there will be a lot of other tests in the market, but when we are working with the prescribing neurologists or neurologists in these large hospital systems, that's a differentiator. You know, it's... When you start, a result for every patient means, there will be people you need to monitor. And say you have early detection of disease, but you have a family history, and, today you get a result with Simoa, and you need to follow up in three months and then six months because there's a family history or subjective cognitive impairment. That ability to have that early result and monitor over a period of time is pretty powerful, and I think as more people get testing, t hey're gonna understand that, you know, need for that platform or our platform.
And so I think this becomes a very important point as people are making decisions between platforms.
You also announced a number of new partnerships, KingMed, Mount Sinai, Banner, and UCSF. Could you describe how they tie into your overall diagnostic commercial strategy?
Yeah, you know, like, the key thing when it comes to our clinical strategy is we want to build infrastructure for testing, and that infrastructure doesn't exist today, in the market. And but there's a lot of demand for that testing and eventually, therapies. And so as a first step, you know, there's probably a few ways we could have approached this. One, send everybody to our lab, but a much faster way to get access would have been, giving people, on-prem ability to do the testing. And so what we've been focusing on are prescribing neurologists and getting those hospitals our Simoa platform, along with reagents to offer testing, there at their sites. And so that's been a key strategy.
It's a global strategy, and we expect to continue to expand these partnerships in the back half of the year.
And Simoa HD-X is your highest throughput system and one that's likely to be workhorse as you penetrate into the clinical market. When thinking about enhancements upon that system, what areas are you focused on?
Yeah, you know, it's a super unique platform in the sense that it's high throughput. You put a blood tube in, and you get a result out. And that's gonna continue to be the workhorse in our translational markets, pharma, CROs, and in the clinic. And I think the throughput and the fully sample-to-answer automated aspect of it are, you know, big positives in the market. When we start thinking about, "Hey, what are we interested in doing as second gen and in the future?" I think there's been a focus on multiplex and our desire to increase the number of analytes you can look at with a single tube of blood. That'll probably be the direction as we make changes.
Could you describe the throughput on that system and whether you think that you might need to work on that side of the equation?
Yeah, you know, so in a single shift, you can look at several hundreds of samples with data points coming in as early as 30 minutes. So, from that capacity, we think it's one of the highest throughput research or diagnostic systems already on the market. When we do calculations on, hey, number of patients and testing, and we have about 20 of these in our CLIA laboratory, and, yeah, I think we determined that we have capacity for several years. And-
Great.
And that 75% increase is something that we can triple with additional shifts if necessary. So from a throughput perspective, it's a very high throughput system. And it... that's probably not our first next gen change.
Maybe moving on to financials. You updated your revenue guidance range to $134 million-$138 million versus prior over $139 million-$144 million, due to the constrained capital environment. You're assuming second half instrument revenue to be similar to the first half, and the challenging capital environment will have knock-on effects in consumables. Taking that together, could you provide your assumptions around instrument and consumable mix embedded in the guide?
Yeah. So as we, you know, shaped the guide in the beginning of the year, our expectation was that we'd have a somewhat constrained first half, but start to see some of that open up in the second half, as it relates to instrument placements. That's important for us for multiple reasons. You know, when we sell an instrument, we normally have some level of upfront consumable supply. There's a small amount of training, installation, et cetera, that goes with it as well, and then that instrument generates more revenue in the future. So as we, you know, looked at that environment, it's apparent to us that the rest of 2024 seems to be fairly constrained from a capital perspective as well.
Again, we're really confident that the demand for Simoa sensitivity is okay, and, you know, I talked about some of the things we measured there. But based on what we could see at, at that point in time, we determined it was prudent to take down the instruments number, as well as the knock-on effect that comes from consumables. We continue to expect Accelerator to have really strong performance through the second half of the year, but in the current environment, it doesn't look like instruments will recover through 2024. Got it.
You also steadily improved gross margins since starting your transformation process. Can you talk about how gross margin plays out for the rest of the year and over the medium term? Is there opportunities to expand that further?
Yep. Yep. So gross margins have been on a bit of a trajectory. We ended 2022 at about 39% margin, and, you know, if you do a quarter-over-quarter compare, second quarter of 2022, we were at about 29%. Against that, in 2023, we drove that all the way up to 51%, and this year our guide basically contemplates going from 51% to 55%. And year to date, we're tracking at about 53.4%, so we're, you know, right kind of in the middle of that spot, in, in that sweet spot. Keep in mind that all of this is happening in a year where we're also putting out a lot of new products, and, you know, whenever you have new products, there's inherently some amount of learning curve.
So notwithstanding the learning curve, we are starting to see margin expansion, partly from all of the things that we did in transformation and partly just from volume. We have a tremendous amount of leverage in the business, and we're now starting to see some of that come to fruition. So as we look at future years, 2025, 2026 and beyond, we definitely see line of sight to this business really being 60% plus at the portfolio level, with individual pieces of the portfolio having slightly different margins. But we definitely look at a 60% margin rate for the portfolio as something that is very achievable and very doable within the current footprint. Volume is a key factor over there. We continue to drive our team to, you know, productivity and better manufacturing practices, and we'll continue to drive that over the next couple of years.
Great. And then can you also talk about cash flow break even for your RUO business and some of the investments you're making into the growth priorities?
Yep. And that's another area where, as a result of the margin improvements and as a result of the transformation, we've started to see some immediate gains. We did about $57-ish million of cash burn in 2022 and brought that down to about $17 million in 2023. And as we looked at 2024, we saw the core business cash burn improve, but we made the conscious decision to invest another 20 plus million in our strategic initiatives. We have a balance sheet that's right at about $300 million of cash, so we certainly have the runway to do that, and we prioritized 2024 as a key investment year.
As we look at our profile going forward, for the research use business, we believe that at the $170 million-$190 million range, the business should be cash flow break even, while also supporting these two pillars around assay development and instrument. All of that is contained within that envelope. So we see line of sight to that. That's probably, you know, if you do the math, maybe a couple of years away. On the diagnostics front, we do expect to keep investing. We committed to invest $20 million between 2024 and 2025, and we do expect that'll take a little more time to get to cash flow break even. But it's a, you know, very significant market, so we really believe that's the right place for us to be investing.
Maybe in the last couple minutes here, could you speak to the focus for Quanterix for the remainder of the year and outline your next key goals for 2025?
Yeah. So, you know, coming off of, you know, what's been a really good year and the last several years and, and the transformation and, and the work we're doing, we really hone in on one key strategy, which is ubiquity of the platform. And we're investing in growth at Quanterix. So our three core strategic initiatives are, number one, menu. We have a thousand instrument base. We hadn't launched a lot of NPIs in the future, we're gonna do twenty. We're gonna keep that rhythm, and we're gonna bring the most innovative markers in neuro and immunology to market. Core strategy number one. Second, growth core is, you know, we got to add to adjacencies.
70% of the neuro, we're gonna be heavily focused from a marker standpoint into growing into immunology and oncology, and that's gonna be both on the assay and also platform front, where we're investing. Then third, you know, we have this incredible opportunity to do testing and really identify patients who could be candidates for Alzheimer's therapies. You know, the company wants to do its part in ensuring that this testing and the infrastructure for testing is in place, and we want to take a leadership role there. Those, I would say, are our core growth drivers in 2024 and the next couple of years.
Great! Well, with that, thank you very much for joining us today.
Thanks for having us.
Thank you.