Akoya Biosciences Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 8, 2023

There are 11 speakers on the call.

Operator

Day, ladies and gentlemen, and thank you for standing by. Welcome to the Okoye Biosciences Incorporated Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a Q and At this time, I'd like to turn the conference over to Mr. Priyam Shah.

Operator

Mr. Shah, you may begin.

Speaker 1

Thank you, operator, and thank you to everyone who's joining us today on this call. I'm Priyam Shah, Head of Investor Relations at Acorna Biosciences. On the call today, we have Brian McKeligan, Chief Executive Officer and Johnny Eck, Chief Financial Officer. Earlier today, Acoya released financial results for the Q3 ended September 30, 2023. A copy of the press release is available on the company's website.

Speaker 1

Before we begin, I'd like to remind you that management will make statements during this call that include forward looking statements within the meaning of federal securities laws, which are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. 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 the forward looking statements due to a variety of factors. For a list and description of the risks and uncertainties associated with the Quest business, please refer to the risks identified in our filings with the U. S.

Speaker 1

Securities and Exchange Commission, including in the Risk Factors section of our annual report on Form 10 ks for the year ended December 31, 2022, filed on March 6, 2023, and subsequent filings with the SEC, including our quarterly report on Form 10 Q for the quarter ended September 30, 2023 filed today, November 8, 2023. We urge you to consider these factors and you should be aware that these statements are considered estimates only and are not a guarantee of future performance. This conference call contains time sensitive information and is accurate only as of the live broadcast today, November 8, 2023. Acoia disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward looking statements, whether because of new information, future events or otherwise. The audio portion of this call will be archived on the Investors section of our website later today under the heading Events.

Speaker 1

Aquino plans to participate in several upcoming investor conferences, including the Stevens Investment Conference, the Canaccord Genuity MedTech and Diagnostics Forum and the Piper Sandler Healthcare Conference. Details can be found under Events on the Investors section of our website. And with that, I will now turn the call over to Brian.

Speaker 2

Thank you, Priyam, and good afternoon or evening to everyone. We appreciate you joining us today. During today's conference call, I will begin by giving you a broad overview of our performance in the 3rd quarter. I will touch upon our business advancements and provide insights into the latest developments in our product offerings. Following that, Johnny will delve deeper into our financials and key business trends and provide an outlook for the future of our business.

Speaker 2

Ocoia had a strong Q3 in 2023, marked by several noteworthy achievements, including Record rating revenue of $25,200,000 representing a strong 34% growth compared to the previous year. Gross profit was $15,300,000 in the 3rd quarter, representing a 40% growth over the prior year period and gross margin has now grown to 60.6% for the 3rd quarter. All of this was achieved while also contracting our operating expenses versus the prior year end quarter. Our ongoing efforts to leverage our cost structure to drive the business towards positive cash flow are well underway as we work to ensure that a more substantial portion The expected revenue growth continues to fall to our bottom line. The cumulative installed base now stands at 11 32 instruments, largest in the field and is a testament to our team's commitment to scaling spatial biology workflows for our customers and setting the standard in the industry.

Speaker 2

McCoy's consistent and sustained growth year after year and quarter after quarter since our IPO in the spring of 2021 can be attributed to our unwavering dedication delivering a top tier portfolio of products that cover the entire spectrum of the spatial biology market From biomarker discovery to translational research to clinical applications, all backed by a strong intellectual property portfolio. Our incremental investments moving forward are strategically targeted, allowing us to maintain operating expenses at a constant level, while we continue to rapidly scale our footprint in spatial biology. We are pleased to report the continued expansion in peer reviewed publications now over 10.70 as of the end of the third quarter, a 55% increase in the prior year period. This volume of accelerating publications is a testament to the great science being done by our customers and we expect this trend to continue. Recent highlights include a published study in the inaugural issue of Gen Biotechnology last month, detailing the powerful results of a study done by the team at the Queen at the University of Queensland to comprehensively map the spatial proteome of head and neck squamous cell carcinoma using a panel of over 100 protein markers run on the SIFENO cycle of fusion.

Speaker 2

Through this effort, these researchers have identified Distinct immune and metabolic signatures to help advance the understanding of the heterogeneity of tumors and the mechanistic basis of variable clinical response. Ocoya is now at the forefront of ushering in the next era of spatial biology or Spatial Biology 2.0. With a focus on delivering faster and more powerful solutions across more than 1100 instruments in the field, Our R and D and operational efforts are now dedicated to further scaling our platforms by introducing significant workflow efficiencies, launching expanded panels and ready to use content, broadening our application menu and expanding our range of partner software solutions. This holistic approach to delivering ongoing improvements to our platforms from sample to answer is transformative for our customers, driving further adoption and accelerating utilization of Aquio's solutions. This spatial biology 2.0 initiative announced at last week's Society For the Immunotherapy of Cancer Meeting or SITC In San Diego, it's grounded in the following principles.

Speaker 2

1st, spatial phenotyping with Whole slide imaging at HIFTRUVA is a requirement, whether it's a discovery, translation or a diagnostic application. 2nd, the time from sample to answer needs to be rapid to support a researcher's ability to expeditiously complete their study. Whether it's a 50 sample discovery project or a 300 sample translational study, time matters. Sample processing times need to be minutes to hours, not days to weeks. 3rd, given the significant investment our customers are making, Scientists expect a future proof solution with frequent improvements and upgrades.

Speaker 2

Some specific examples of Aquoia's Spatial Biology 2.0 deliverables include the following. First, the recent rollout of the PhenoCycler Fusion 2.0 field upgrade represents a significant milestone, setting a new industry standard on the speed of whole slide spatial phenotyping. With this upgrade, customers can now process twice as many samples per week, establishing the phenocarcular fusion as the highest throughput Spatial discovery platform available in the market. 2nd, our Pheno Imager HT 2.0 upgrade Similarly represents a transformative enhancement resulting in an astounding fivefold increase in workflow speed. One of the key new features of the HT 2.0 is its ability to perform real time image analysis directly on the instrument.

Speaker 2

This not only expedites the sample to answer process, but also enhances the overall efficiency of the workflow. These instrument upgrades have been welcomed with great enthusiasm by our customers and we expect the adoption to continue to accelerate. Coupling the integration of these 2.0 instrument upgrades with Acoya's ready to use PhenoCo Discovery and Signature panels provides an accelerated and streamlined solution. Pacoia continues to expand its portfolio of PhenoCo panels, building on our existing content in oncology, immuno oncology and inflammation, while also expanding into new areas like neurobiology and preclinical animal models. Given the rapid expansion in commercial and open source spatial biology software solutions, Icoia continues to prioritize our resources on delivering rapid and real time primary analysis for our customers and partnering with industry leading third party software providers for the downstream analysis.

Speaker 2

Our proprietary file compression algorithm and rapid image analysis deliver our data in a Standardized format called QPTIF. This standardized data format delivers manageable data files Compressed nearly 30 fold to tens of gigabytes and catalyzes the ability of third party software providers to easily develop and support analysis of Eucoia derived datasets. We have established partnerships with leading software providers including Enable Medicine, VisioPharm, Indica Labs, PathAI, Oracle Bio and open source solutions like QPAP. The result is a comprehensive suite of desktop, Cloud based and open source software solutions, ensuring that researchers have the flexibility to select the software solution that best aligns with their specific needs and requirements. At the SITC conference last week that I already mentioned, Aquia had a strong presence as we highlighted our spatial biology 2.0 initiatives.

Speaker 2

It was also clear that spatial phenotyping is gaining significant traction and is becoming central to both early and late stage clinical biomarker efforts, especially in the field of immuno oncology. Aquoia has played a pioneering role in driving these efforts by offering a clinic leading platform that meets the stringent requirements of our biopharma partners Precision Medicine and Companion Diagnostic Groups. Our Advanced Biopharma Solutions CLIA Lab in Marlboro or AVS is increasingly focused on latter stage high value projects and we are confident in our ability to continue to meet The accelerating needs of the spatial biology clinical market. To expand and strengthen our clinical pipeline, Aquoia is actively leveraging the capabilities of our HT2.0 workflow and cross pollinating The best practices from our Advanced Biopharma Solutions CLIA Lab directly to our CRO partners. To date, we have expanded our rapidly growing qualified service provider network, which now includes 18 Industry leading CROs with their direct promotion of a coia based biomarker solutions, our platform adoption And more and more clinical studies is further amplified.

Speaker 2

On the operational front, our focus is on supply chain simplification and manufacturing robustness and efficiency to meet the rapidly growing demand for our reagents. In parallel, We have a dedicated effort to drive meaningful margin improvements on these reagents as they become a larger percentage of our overall revenue year over year. This drives continued increase in our overall gross margin, which we anticipate being above 60% as we exit 2023. In summary, our strategic focus for the remainder of 2023 is centered on 3 key initiatives. 1st, Enhancing applications and workflow efficiency as we usher in Spatial Biology 2.0, including system improvements and upgrades, expanding our PhenoCo menu of offerings and driving increased pull through of reagents on both the PhenoCycler Fusion and PhenoImager HT.

Speaker 2

2nd, accelerating the clinical adoption with clinically directed workflow improvements, Expanding late stage biomarker programs with our top tier biopharma through our ABS lab and leveraging our growing network of CRO partners through our qualified service provider network to drive further adoption in the late translational and clinical markets and third, driving operational excellence and financial sustainability by focusing on improving efficiencies and Cost effectiveness and executing on targeted investments to support our strategic goals and working towards achieving Cash flow positivity in 2025. And with that, I will turn the call over to Johnny to discuss our financial results. Johnny?

Speaker 3

Thanks, Brian. As Brian highlighted, total revenue for the Q3 of 2023 was $25,200,000 a 34% growth compared to the same period in 2022. Our robust year over year growth was achieved globally across our diversified revenue channels and strong portfolio of products and services. Product revenue, including instruments, Reagents and software totaled $18,000,000 for the 3rd quarter, representing 25% growth over the prior year period. Instrument revenue reached $12,000,000 in the 3rd quarter, representing a 27% growth over the prior year period.

Speaker 3

During the quarter, we sold 69 instruments of which 27 were phenocyclers and 42 were from the PhenoImager portfolio. Our total installed base now stands at 11 32 instruments, which includes 327 phenocyclers and 805 pheno imagers. A total of 209 Fusion instruments have shipped Since the full commercial launch at the start of 2022 and we now have a total installed base of 186 for the combined PhenoCycler Fusion System, sold directly as a combined system or as an upgrade to standalone PhenoCycler instruments The majority of PhenoCyclers are being sold in combination with the Fusion and we expect this combination to drive increased reagent pull through with an expanding menu of panels and faster workflows because of the ongoing We project that approximately half the current installed base of PhenoCycler fusions and HTs will have upgraded to the 2.0 version by year end. Reagent revenue reached $5,700,000 in the 3rd quarter, reflecting a 21% increase from the prior year period. The annualized 3rd quarter reagent pull through applicable to both PhenoCycler and HT is now in the mid $30,000 range.

Speaker 3

This is a notable improvement compared to the annualized pull through per instrument in 2022, which was in the low $30,000 range for both the PhenoCycler and the HT. This growth can be attributed to the increased utilization of phenocyclers paired with a fusion and a growing utility for HTs. As we continue to pair more fusions with PhenoCyclers, enhance our instruments through the 2.0 field upgrades with expanded workflow capabilities And refine our operations planning and supply chain, we are strategically positioning reagents to play a more significant role in our revenue mix as our customers increase their usage. Service and other revenue totaled $7,200,000 for the quarter, an increase of 62% over the prior year period. Services have been a substantial growth segment for us as our installed base and warranty revenue rapidly expand and as our lab services continue to drive additional higher scale studies.

Speaker 3

Gross profit was $15,300,000 in the 3rd quarter, representing a 40% growth over the prior year period and gross margin was 60.6 percent for the 3rd quarter. As we optimize our operations and leverage our manufacturing investments, We expect to further drive the expansion of our gross margins, which we project to be above 60% as we exit 2023. Operating expenses for the quarter totaled $26,800,000 as compared to $27,600,000 in the prior year period, indicative of a flattening or reduced spend pattern as we had previously indicated. Throughout 2023, we have had consecutive quarterly contraction in our spend while we continue our meaningful top line growth. As Brian highlighted, our efforts to leverage our cost structure to drive the business towards profitability are indeed well underway.

Speaker 3

We ended the quarter with approximately $78,600,000 of cash and cash equivalents with the ability to draw an additional $11,300,000 on our existing debt facility, bringing our total available capital to $89,800,000 Common shares outstanding and fully diluted shares, including the impact of outstanding options and unvested restricted stock awards, are $49,100,000 as of September 30, 2023. In summary, we are thrilled to report another exceptional quarter with record breaking revenue of $25,200,000 marking a strong 34% growth over the prior year period. Aquia's installed base has now reached 11 32 instruments, solidifying our position as the industry leader in spatial biology. Our strategic focus remains on the rapid expansion of our installed base, while driving reagent revenue growth and increasing pull through across our systems to realize the scalability of spatial biology. We've also implemented important organizational changes to enhance efficiency, drive gross margin improvement and achieve cost advantages all while maintaining strong top line growth.

Speaker 3

As such, we are confident in our ability to sustain strong growth throughout 2023 and beyond while driving towards the goal of cash flow positivity in 2025. We are pleased to reaffirm our 2023 revenue guidance range of $95,000,000 to $98,000,000 given the direction of our business and the favorable trends we are observing in the dynamic spatial biology market. Back to you, Brian.

Speaker 2

Well, thank you, Johnny. We're pleased to report a strong quarter and we look forward to executing on our strategic objectives throughout the remainder of the year as we drive the business towards positive cash flow. We're thankful for the hard work of our fellow dedicated Aquinas as well as for the support of our customers and shareholders. Aquio remains well positioned for growth and we're excited about the opportunities that lie ahead as we deliver new space of solutions from the discovery to the clinical markets. At this point, we'll turn the call over to the operator for questions.

Speaker 2

Operator?

Operator

Please stand by while we compile the Q and A roster. Our first question or comment comes from the line of Keha Sawant from Morgan Stanley. Mr. Sawant, your line is open.

Speaker 4

Good evening, guys. This is Edmund. Thank you for the time.

Speaker 2

Hey,

Speaker 4

Hey, Brian. Just to start on the 2.0 rollout progress, I think on the call you guys mentioned expect about 50% of both platforms to be upgraded by year end. Yes. I recall you just previously had noted that it would be a little faster for the female imager because it's a software upgrade or something. Has there been any changes or What caused the change in expectation here?

Speaker 2

I don't think there's any change. I think that's kind of what we had expected. It Certainly could potentially accelerate. So approximately 50% across the board by year end is kind of what our expectations have been. So it's really in line with what We have planned.

Speaker 4

Got it. And given the fact that the RNA chemistry isn't going to be capable until the customers have the 2.0 rollout, is it fair to assume that you won't be releasing Anything that provides R and A context until next year. And if you could, could you provide some color on what this initial Panel would look like would it be I think Brian you've mentioned you plan on designing panels for more targeted experiments on the scale of 30 to 100 samples. So would it be more of a mid plex range RNA co detection capability?

Speaker 2

So at a high level, Edmond, our objective It is to look at RNA as an absolutely complementary analyte to our HiPlex protein profiling. And then with respect to the details of the RNA rollout, We'll be providing some more specific announcements on our RNA strategy in the near future. So we're going to hold off on a little bit more detail at this point.

Speaker 4

And then the final question. On the call, Brian, you mentioned some clinical driven workflow improvements DHT, is that from the 2.0 rollout that's ongoing right now?

Speaker 2

There's a couple of parts there. It's a good question. Overwhelmingly, the 2.0 rollout really does Simplify the primary informatic analysis by doing it in parallel, having your data come off sort of ready for Kind of what you call tertiary analysis, which is to get the meaning of the understand the sort of the value of your study. That's part 1 and that's certainly that workflow improvement It's certainly meaningful. There's also some additional workflow improvements and expertise that's coming out of our partnership with Acrobon that we're going to be able to leverage as part of some of our forthcoming partnerships.

Speaker 2

And some of those things include kind of reporting additional workflow improvements, reagents, etcetera. So that those improvements are I think more second order, but really clinically relevant and embedded within our conversations with many of our biopharma partners As we see our pipeline of opportunities and projects move farther and farther downstream.

Speaker 4

Got it. Thank you for the time.

Speaker 2

Thank you, Edmund.

Operator

Thank you. Our next question or comment comes from the line of Lucas Baranowski from UBS. Mr. Baranowski, your line is now open.

Speaker 5

Actually, it's Jim Sowerbyer calling in. Thanks for taking the question and congrats on the quarter. So maybe just start off first On the gross margin, it sounds like 60% rate exiting the year. Just any color there on What is the some of the puts and takes on the margin improvement and just thoughts on the path to positive cash flow?

Speaker 2

Yes. John, do you want to take that?

Speaker 3

Sure. Yes. As you saw, our Q3 results of 60.6% gross margin is really indicative of where we think the business When we operate the way we've been preparing to do, we expect to see those improvements in the next year as we take advantage of initiatives that we're Putting in place now to bring in house some of our some manufacturing capability, improve our supply chain, which drives efficiency, You'll recall in prior quarters, some of the headwind on gross margin was related to scrap and excess and yields and things like that. And so we're taking action on many of those items, which will allow our gross margin to improve over the next year or so, Coupled with the fact that as our revenue mix changes over time more to reagents, which Or a higher margin product for us that will supplement the cost efforts that we're putting in place as linked to gross margin.

Speaker 5

Thanks. And apologies, I was a little late joining the call, but I think last quarter you talked a little bit about Some of the broader market demand like China, maybe a pullback in some capital purchases. Just any updates there on thoughts on the market and just as you look out to the Q4 even next year?

Speaker 2

Yes, it's a really good question. I think as we look across the market segments, obviously, a 34% growth year over year and a 31% growth full year to date. I think those are solid growth numbers. As we drill in a little bit, it's really interesting to look at The largest market for us really is the Americas. And that market year over year, We've been able to grow in the mid-forty percent range year over year in the Americas.

Speaker 2

EMEA is doing pretty strong at the mid-twenty percent. Like others, APAC has been a challenge. That said, we've still been able to grow in mid single digits in APAC, certainly well below Our hope and expectations coming into the year, but given the strength in the Americas, the continued performance in the EMEA And the ability of the APAC team to continue to get some growth out of the business, that's what's enabled us across the board To continue to grow this quarter at 34% year over year.

Speaker 5

Got it. Thanks for taking the question.

Speaker 2

Thanks, Louis.

Operator

Thank you. Our next question or comment comes from the line of David Westenberg from Piper Sandler. Mr. Westenberg, your line is now open.

Speaker 5

Hi, thanks for taking the questions.

Speaker 6

This is John on for Dave. So on the interest rate environment, do you feel that that's impacting any capital equipment like the appetite for capital equipment? And considering that you have more affordable platform, do you think that's helping you? Thank you.

Speaker 2

Yes. I mean, I certainly we're seeing more diligence around capital purchases. So there's a slight lengthening and visibility around platforms like ours. It hasn't We've gotten to a point where it's impacting our ability to perform. And I do think certainly the affordability of our platform certainly helps.

Speaker 2

I think the other way that we look at it is the meaningful throughput of our instruments really allows our customers as you think about amortizing costs Over a number of samples per unit time, it's really helped our business and that's particularly true as you look at groups, Whether they're CROs or Core Labs or research based CROs that want to leverage our platforms as a business opportunity for them across multiple users. The fact that we can do 60, 80 samples a day, 300 samples a week on the HT And 20 to 30 samples on the pheno saccharin infusion that throughput coupled to the affordability of the amortization of samples per unit of time has really allowed us to take those platforms and continue to grow in areas where it's being used as a service offering.

Speaker 6

Got it. Thank you. And I'm aware that you're not giving any guidance towards 2024 revenues, but Are there any other macro factors that we should consider when looking forward to that?

Speaker 2

I don't think anything different than our peer group, just in terms of the macroeconomic environment. I think for us as we look to 2024 generally thematically as Johnny alluded to, it's about really continuing to see solid top line growth while at At the same time, we're really going to be holding our expenditures in 2024 at a level that's consistent with what you'll see at the second half. So I think we feel like In terms of our multi year strategy to really forward invest in 2021 2022 to solidify our commercial team and portfolio And then in the subsequent years 2020 2024 continue that revenue growth while really holding our expenses and investing in gross margin. That really has been our plan, and it's certainly of magnified importance in this environment. And so we think That strategy will continue into 2024.

Speaker 2

So as you noted, while we're not guiding specifically, again, still thematically, it's continued top line growth with real eye towards expenditures equivalent in 2024 to second half to reiterate. Johnny, anything to add to that?

Speaker 3

No, I think that's exactly right. It's the three focuses, continuing to grow revenue at a meaningful rate, it's improving gross margin ratably through the year and then it's continued to hold OpEx at an appropriate rate given the forward investment. And that's to your point, not guiding for 2024 yet, but It's how we look to the future. Those are critical areas of focus for us.

Speaker 7

Got it. Thank you for your time.

Operator

Thank you. Our next question or comment comes from the line of Rachel Vatinsdahl from JPMorgan. Ms. Vatinsdahl, your line is now open.

Speaker 8

Hello. This is Martha on for Rachel from JPMorgan. Thank you for taking the question and congrats on the quarter. Just wanted to dig into your assumptions for 4Q. Maybe you can provide a little bit more color on the bolt on replacement assumptions.

Speaker 8

And just to clarify, In light of the macro, are you assuming some sort of 4Q budget flush for 4Q? Thank you.

Speaker 2

So, yes, so right now, I think I heard your question. It's about 4Q guidance on that and Budget Plus. And while we explicitly don't guide on the 4th quarter, Like our typical seasonality, we do expect a top line step up in Q4 relative to Q3. Yes, in terms of budget flush, it's a really good question. I think for us, it's not obviously, it's not a binary event where there's either a flush or not.

Speaker 2

I think for us we're being fairly muted in our expectations of a meaningful freeing up of CapEx money amongst our customers I'm thinking this is going to be sort of more of a typical step up, similar dynamic in 2022 because I think the environment is similar. Johnny, you want to add anything?

Speaker 3

No, I think that's how we think of it. And the only thing I would add is, as we reiterated guidance, you do map on Q4 and you get right into our guidance, which is where we

Speaker 8

Thank you. And then in terms of pricing this year, can you discuss how much You're able to raise pricing. What are your expectations for 2024? And then are you seeing any pricing pressure from your competitors this year?

Speaker 2

I'd say like this fiscal year 2023, it will be a similar scale of price increase in 20 24. Taking into account, obviously, the economy and interest rates and what we think is a fair price increase, but I think it will be within standard range, Nothing that's sort of an outlier. Johnny, you want to add anything to that?

Speaker 3

No. I mean, I think With a high inflation environment, we're seeing we expect to be able to get price increases that are what we've seen in prior years and appropriate. We're not seeing Meaningful pressure on price, I think that's part of your question is we're not seeing that in the field. That's not a major item we're continuing with.

Speaker 8

Thank you.

Operator

Thank you. Our next question or comment comes from the line of Kyle Mixon from Canaccord Genuity. Mr. Mixon, your line is now open.

Speaker 7

Yes. Hey guys, thanks for taking the questions. Congrats on the quarter. Brian, can you Kind of talk about like maybe update us on your push into the genomics market, because like as we think I mean, I remember like asking like a year ago or so like when you talk about RNA for the first time. How has that gone so far?

Speaker 7

And are you going to really like kind of pull back and really lean more into, I guess, proteomics still? I mean, just how are you Thinking about this whole multi omic strategy as we look ahead in 2024?

Speaker 2

Yes. I think longer term, Kyle, it's still of absolute importance to have a multi omic Solution, I think for us as we talked earlier, I think we look at we really look at RNA as an absolute complementary analyte. And Just as an example that we alluded to in the opening comments, the recent publication in Gen Biotechnology and a lot of the discoveries that were able to be realized With 100plex multi omic, I mean 100plex spatial proteomic Study on the PCF and the immense value that was done out of that, it really does highlight How much discovery you can get out of spatial proteomics and we're seeing I think a growing realization of that. So As we look at RNA, it's absolutely a complementary approach where it's used to either look at Translational transcriptual translational concordance or not, but probably more importantly, leveraging it to look at analytes where protein That might not be the most ideal methodology. Still at a high level Kyle, looking at it as a highly complementary approach, still committed to it.

Speaker 2

But as noted earlier, we're going to give a little bit more color on the RNA strategy in the coming months.

Speaker 7

Okay. Maybe just to clarify what I was asking was pretty noisy in that market today. Does it make sense to sort of pull back a bit, I guess, and just kind of focus on your bread and butter?

Speaker 2

The way I would characterize it is our number one priority is to continue to be great at our workflow, To deliver on the continued workflow improvement, workflow simplification, throughput, flexing, etcetera, and then layering in RNA as complementary versus having RNA be the number one top priority. It's amongst the priorities getting towards a multiomics solution.

Speaker 7

Okay. That's super helpful. I'm going to go into so much detail there, but that was great. Maybe I think you guys mentioned you're making efforts To achieve meaningful margin improvements for reagents. So that would be that's something that we've been looking forward to for a while now, I feel like, Can you just kind of dive deeper into that and tell us what exactly you meant by that statement and what can we expect in the next Couple of quarters over year or so that could really meaningfully improve margins as well as just consumables pull through and kind of underlying margins for that business as well?

Speaker 2

Yes. So the two parts that obviously are compounding and more than additive. Part 1 is enabling that higher throughput with the 2.0 releases, with the continued rollout of additional PhenoCo panels, With the maturation and addition of additional software partners, so that time to answer becomes faster and easier. That's sort of part 1. And I think we sort of talked through all of the components of that.

Speaker 2

In fact, I just did. The second part is in terms of improving reagent gross margins, some of these some of this includes Rather than relying on external third parties and a chain of custody of third party suppliers amongst all the reagent components and Antibody conjugations and fulfillment is beginning to take more control of that ourselves. And so That time from bill to customer shelf is shortened and so is the amount of investments that we have to make both internally and externally to do that. So the overall cost of goods for an individual antibody or panel drops down, while we simplify and streamline That supply chain, that chain of custody and take on more of that manufacturing internally rather than relying on third parties, Which is why we have an ISO 1345 facility and why we have that capability.

Speaker 7

Awesome. If I could squeeze another one and fry up. Maybe you could just talk about either qualitatively or quantitatively what percentage or what portion of the PhenoCycler kind of installed base is using The standard legacy microscopes rather than the fusion today, I'm just curious to hear that given the transition over the past couple of years.

Speaker 2

It's a good question. It's a little bit over 40% that are Still on 3rd party. So if you look at the 330 Silfenocyclists that are out there, About 190 of them, I'm rounding up a little bit, about 190 of them have a fusion attached to it. So that's about the proportion and we see as we go through next year, almost every Cyclone that's solved is going with the Fusion. So that's sort of part 1.

Speaker 2

And then part 2, we'll continue to upgrade Those existing PhenoCycla 3rd party scopes throughout next year. So hopefully that gives you your answer.

Speaker 7

Yes. That was perfect. Thanks for the time guys.

Operator

Thank you. Our next question or comment comes from the line of Timothy Chiang from Capital One. Mr. Chiang, your line is open.

Speaker 9

Thanks. Brian, just being at SITC last week, obviously, you guys had a pretty big presence there. You had a pretty well attended reception as well. How do you sort of leverage a big rollout of the Fusion 2.0 Post the SITC conference, I mean, did you guys get a lot of positive responses? Could you talk a little bit about that?

Speaker 2

Yes. I mean, there is huge Positive response, not only at the booth, but also at some of the events that you might have been to, response to the poster publications. I think simply the number one thing Tim that you get out of it is a high number of qualified leads amongst An audience that really is the most targeted customer base for our current platforms in the field of oncology and immuno oncology. The number one thing that you get out of it is high quality wheat. Obviously, the second benefit you get out of it given that not only the massive Increase in the size of that conference, but just our large presence, we get a lot more visibility.

Speaker 2

And with the rollout of both the 2.0 on the PhenoCycle of Fusion and the HT 2.0, that visibility is across multiple market segments because there's researchers at SITC There are not only discovery researchers that have interest in the phenocyclic fusion, but absolutely translational and Clinical companion diagnostic leaders in our market that have an absolute interest in the emerging clinical opportunities. So getting that visibility across that entire market continuum, I'd say is the 2nd biggest value.

Speaker 9

And maybe just a follow-up question for Johnny. Obviously, your gross margins Right, 60% this quarter. And you mentioned some supply chain efficiencies that you're starting to benefit from. I mean, Where can you get your gross margins down the road, Johnny?

Speaker 3

So I think it's as I mentioned, it's sort of comprised Several efforts that will evolve gross margin over time, our first and sort of quickest Improvements in margin are on the cost, supply chain, as Brian mentioned, the chain of custody of some of our reagents, those things We can make moves there and have started making moves as you see this margin already improving that will drive margin as I've sort of said in the past Couple of 100 basis points a year is sort of how we see margin moving. But as more and more long term margin becomes Our revenue becomes more heavily weighted towards reagents. Again, I think that margin continues to move Continues to move north for the next several years, right? I mean, right now in the near term, it's cost initiatives as well as a margin as a revenue shift, but that becomes even more important as we fully leverage the 1200 instruments we have in the field As that annuity or that pull through increases per box, that drives that margin improvement as well It's something clearly north of the 60 that we're talking about now.

Speaker 9

Okay, got it. Thanks.

Operator

Thank you. Our next question or comment comes from the line of Mason Carico from Stephens. Mr. Carico, your line is now open.

Speaker 10

Hey, guys. Thanks for the question. Sorry, these have already been asked. I'll ask 2 upfront, if that's all right. First, how are you thinking about the growth outlook for the services business going forward?

Speaker 10

Growth there has Obviously been really strong this year. Is there anything that we should be taking into consideration when we're thinking about how to model that Segment of your business next year or do you expect demand and momentum that we've been seeing to really keep continuing?

Speaker 2

Yes. On the services front, obviously, we report that out, but don't guide at that level of granularity. But I think I'd say qualitatively, there's 2 growth drivers to that service revenue. Obviously, the growing installed base and warranty revenue. But some of the real material drivers, I think as you're alluding to are the our current companion diagnostic partnerships and the continued Expansion of our Advanced Biopharma Solutions Service Business.

Speaker 2

So we expect continued incremental growth across The services next year, the other thing I would say is, as I noted to you in the commentary, we are increasingly working with Our CRO partners through our qualified service provider network to really begin to leverage them as a Partner in amplifier in the translational and clinical research segments, given that we have a really solidified workflow at this point with the 2.0 and the reagents and some of the software improvements. So while we expect continued incremental growth in the services across the board from both of those contributors, Warranty and Lab Services, we are also increasingly focused on taking those opportunities with our biopharma partners And turning those more into product revenue with our CRO partners, while we have more shots ongoing, more clinical trials giving us Higher and higher probability of more CDX opportunities that we will have in house in 2024 and beyond. And those CDX opportunities, I would say, Mason, really are upsides to the model. So took some liberties with your question on how it fits in strategically, but that's how we think about

Speaker 10

No, that's helpful. And if I could take one more here. How is adoption of the FINA code panels trended? And how are you thinking about the timeline until when some of your higher utilization CRO customers Should begin rolling those into regular use.

Speaker 2

That's a really good question. And that the latter part of your question is really Our explicit strategy and it's kind of embedded in our desire to build this qualified service provider network because we want to have that in Because what you what we've talked about with our PhenoCo panels, whether the signature panels on the HT or the discovery panels on the PhenoCycler, Those have sort of a rolling cycle release that were really second half weighted and into 2024. So Having that CRO network locked in ready to grab those signature panels, having the systems upgrades on both of the 2Os to leverage those panels to drive higher utilization, All of that does point to as you're alluding to, 2024 really as the realized year when we feel like those reagents are going to begin to contribute to the top line and

Operator

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. McKelligan for any closing remarks.

Speaker 2

Yes. Just very simply, I think to reiterate what both Johnny and I have First and foremost, thank everybody for your time, your questions, your intention. And obviously, as we look forward to really reiterate our priorities, There are threefold. Number 1 is to continue to invest in our portfolio and that workflow, continue to upgrade The systems provide content and software solutions so that time to answer is both easier and faster. And that will help drive A growth in that reagent revenue portfolio, while at the same time, point number 2, we invest in our own operational excellence To get better margins out of those very reagents themselves and maintain our overall cost basis while we continue to grow the top line really securing our Half the cash flow positivity.

Speaker 2

And number 3, we really are seeing Growing level of excitement in our later stage translational clinical partnerships and are growing increasingly confident in this real clinical opportunity. And so We'll look at that in the forthcoming years as real upside to our existing financial model that I think that will really prove to the market That this clinical TAM is something real in the near term. Those are really the sort of the three legs of our growth strategy. And with that, I thank everybody for your time and we look forward to seeing you all soon.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.

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Key Takeaways

  • The company delivered record Q3 revenue of $25.2 million (up 34% YoY) with gross profit of $15.3 million (+40% YoY) and a 60.6% gross margin, while reducing operating expenses to advance toward cash flow positivity by 2025.
  • The cumulative installed base expanded to 1,132 instruments, driving strong instrument, reagent, and service revenues and lifting annualized reagent pull-through into the mid-$30,000 range per instrument.
  • Under its Spatial Biology 2.0 initiative, the company rolled out the PhenoCycler Fusion 2.0 field upgrade (doubling throughput) and the PhenoImager HT 2.0 (5× faster workflows with real-time image analysis), alongside expanded reagent panels and software partnerships.
  • Clinical adoption accelerated through its Advanced Biopharma Solutions CLIA lab and a growing network of 18 qualified CRO partners, leveraging streamlined HT2.0 workflows to support late-stage translational and companion diagnostic projects.
  • Peer-reviewed publications surpassed 1,070 (+55% YoY), highlighted by a spatial proteome study of head and neck cancer that mapped 100+ protein markers and identified distinct immune and metabolic tumor signatures.
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Earnings Conference Call
Akoya Biosciences Q3 2023
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