U.S. markets close in 5 hours 45 minutes
  • S&P 500

    3,608.57
    +30.98 (+0.87%)
     
  • Dow 30

    29,958.80
    +367.53 (+1.24%)
     
  • Nasdaq

    11,906.16
    +25.52 (+0.21%)
     
  • Russell 2000

    1,840.92
    +22.62 (+1.24%)
     
  • Crude Oil

    44.70
    +1.64 (+3.81%)
     
  • Gold

    1,801.40
    -36.40 (-1.98%)
     
  • Silver

    23.23
    -0.41 (-1.73%)
     
  • EUR/USD

    1.1862
    +0.0017 (+0.14%)
     
  • 10-Yr Bond

    0.8680
    +0.0110 (+1.28%)
     
  • GBP/USD

    1.3321
    -0.0001 (-0.01%)
     
  • USD/JPY

    104.6930
    +0.2050 (+0.20%)
     
  • BTC-USD

    19,309.94
    +857.98 (+4.65%)
     
  • CMC Crypto 200

    380.91
    +11.16 (+3.02%)
     
  • FTSE 100

    6,421.46
    +87.62 (+1.38%)
     
  • Nikkei 225

    26,165.59
    +638.22 (+2.50%)
     

Edited Transcript of QTRX.OQ earnings conference call or presentation 5-Nov-20 9:30pm GMT

·46 min read

Q3 2020 Quanterix Corp Earnings Call LEXINGTON Nov 6, 2020 (Thomson StreetEvents) -- Edited Transcript of Quanterix Corp earnings conference call or presentation Thursday, November 5, 2020 at 9:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Amol Chaubal Quanterix Corporation - CFO * E. Kevin Hrusovsky Quanterix Corporation - Chairman, President & CEO ================================================================================ Conference Call Participants ================================================================================ * Chris Lin Cowen and Company, LLC, Research Division - VP of Health Care - Life Science and Diagnostic Tools * Scott Alexander Mafale SVB Leerink LLC, Research Division - Associate ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Quanterix Corporation Q3 2020 Earnings Call. (Operator Instructions) As a reminder, this conference call may be recorded. I would now like to turn the conference over to your speaker today, Mr. Amol Chaubal, CFO, Quanterix. Please go ahead, sir. -------------------------------------------------------------------------------- Amol Chaubal, Quanterix Corporation - CFO [2] -------------------------------------------------------------------------------- Thanks, Annie. Good afternoon, everyone, and thanks for joining us today. With me on today's call is Kevin Hrusovsky, our Chairman and CEO. Before we begin, I would like to remind you about a few things. We had few problems with Business Wire today, and hence, the earnings release can be found on our website, also on StreetInsider. Today's call will be recorded and will be available on the Investor Resources section of our website. Today's call will contain forward-looking statements that are based on management's beliefs and assumptions and on information available as of the date of this call. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The risks and the uncertainties that we face are described in our most recent filings with the Securities and Exchange Commission. During today's conference call, we will discuss some financial measures that are not presented in accordance with U.S. generally accepted accounting principles or non-GAAP financial measures. In the Q3 earnings release and in the appendix of our presentation, which are available on our website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to comparative GAAP measures. We believe that these non-GAAP financial measures provide investors with relevant period-to-period comparisons of our operations. These financial measures are not recognized under GAAP and should not be considered in isolation or as a substitute for a measure of financial performance prepared in accordance with GAAP. With that, I would turn the call over to Kevin. -------------------------------------------------------------------------------- E. Kevin Hrusovsky, Quanterix Corporation - Chairman, President & CEO [3] -------------------------------------------------------------------------------- Thank you very much, Amol. I will start off with a -- on Slide 3 of the deck that's on our website. I'm going to review the strategic and financial progress the company has made. Starting first with some of the key advances in Q3 and then ultimately describing the vision and strategy, which continues to evolve very comprehensively. Let me start with Slide 4, where we're showing publications. As you know, about 3, 4 years ago, we really started on a key focus of showing the world about how noninvasive early detection could lead to a real game change in health care. And we now are up to a nearly 1,000 third-party care review publications, and there's been over 368 biomarkers run. And on the right-hand side, you can see that Alzheimer's already has surpassed where we were last year in publications. And there are some pretty key things that have gone on here. Simoa pTau-181 has been shown to be highly specific for Alzheimer's in allowing cohorts to be enriched and to eliminate frontotemporal dementia as well. Serum Nf-L levels have been able to reveal 16 years before dementia in familial patients, Alzheimer cascades, which that is a real early detection opportunity. And also serum Nf-L has continued its evolution in MS disease progression and even it's found its way into COVID, and some of the publications showing that if you lost taste and smell and neuro function, we -- these scientists have been able to measure it with our Nf-L. And there's obviously a lot of excitement going on right now around aducanumab from Biogen as being another key market mover in this whole landscape of neuro products. The next slide basically illustrates our continued revenue ascent. And as you know, we pivoted towards really putting a lot of focus on our Accelerator to support overall customer activities given some of the issues that we know are out there with customer labs during this pandemic. And you can see that we've already surpassed significantly our full year revenue from last year with the third quarter results, and we've now run 128 Phase I/II/III drug trials inside of the Accelerator. Also, you can see our instrument placements continue to evolve, mostly, again, focused on neurology, but we're beginning to see expansion in oncology. And certainly, at some point, we'll start to see some in infectious disease as well because of their pivot into COVID and trying to support the world aggressive battle against COVID. And on a total revenue basis, you can see that we have surpassed last year's revenue as an entirety. But there's some onetime very large wins that are incorporated into our third quarter revenue, which we'll detail out. But even without that, we grew 22% in Q3 versus last year's Q3. So without significant tailwinds, pretty -- COVID tailwinds, we're pretty excited that we're offsetting most of the COVID headwinds with this performance. Some of the big wins in this past quarter given the advances and our focus on neuro and the CAC pivot. CAC stands for COVID Accelerator China pivot. And you can see that the Alzheimer drug trials momentum has really kicked up, and we have a lot of customers that are running trials. And we launched this pTau-181, also a 4-plex that is being utilized in many Alzheimer trials. Those have further advanced our position in this important evolving landscape. We also had the approval in Q3 of Novartis drug, KESIMPTA, MS drug approval. It was a secondary surrogate endpoint. And the normalcy study showing what Nf-L levels do between ages 7 to 70 has been completed in Switzerland, will be key to anything we do moving forward around getting the FDA to sanction Nf-L as a disease progression marker, hopefully, for a single-site IVD will be our pursuit primarily in 2021. In the COVID arena, we won $18.2 million in Q3. We'd won the initial grant of a couple of million for feasibility at the end of Q2. And then we were rewarded to scale this antigen test up, which is showing incredible utility and blood, dry blood spots as well, which is the area that we think can eliminate a lot of the PPE and potentially even enable home care sampling. So we're really excited that the NIH has seen the potential in this test and has invested aggressively in scaling this up, which we also see the benefit of scaling up can also help us with a lot of the trials that we're running in our research side of our business, both in neuro and in COVID. Also, we've secured and already have begun major IRB, investigator review board studies with 1 of the largest payers in the United States for COVID, running 5 different IRBs at the current moment inside of our Accelerator lab. In addition, the accelerators we've shown has grown, and we've built our China position recently naming a new General Manager of our Asia Pacific business. The HD-X performance continues to evolve and improve, which is a key to our strategy, and we continue to get trade-in revenue as well as new system sales. you may have seen a major announcement around Abbott where we have a nonexclusive license with them now, which pretty significant advance given that Abbott is one of the premier big 3, plus we were able to do it in a nonexclusive way with major upfront payment. I think it's a $10 million upfront payment for this license that longer term, they will try to deploy and bring out instrument platforms to have Simoa inside. And we also were very successful raising capital this quarter, $100 million, once again, one of the largest up rounds that we've had, plus we've continued to advance post that rounds with many of these major announcements. When you look inside of our revenue, when you remove some of the onetime effects, you can see here that we had very strong lab -- Accelerator lab growth, which is what we had pointed out earlier. And this was for 2 reasons. One is COVID and they're using our labs; two is, we had a lot of HD-X transitions where there was validation work going on in our customers. And they were utilizing our Accelerator lab, which we don't pull out the consumables, but a large portion of that revenue would be consumables utilized in the laboratory for the Accelerator support of our customers' trials. And we did get back to instrument growth and consumable growth in Q3, which we find to be a real productive advance. You can also see that a full year basis, we've continued to evolve. We certainly are over a lot of the Q2 challenge. But on a full year basis, you can see our mix is now about 40% consumables, 40% services and about 25% instruments. When you look at the actual geography customer disease demographics, you can see that our growth was actually strongest in Europe, but North America was close second in Q3. And this is actually the 12-month trailing revenue. And you can see that about 60% of our revenue is coming via pharma/biotech and it continues to grow rapidly with all these trials, particularly in the neuro sector and also beginning in oncology. And you can see that from a disease specificity standpoint, we're still mostly neurology. But oncology, it's coming up very rapidly, particularly with a lot of the trial work going on in the Accelerator. Now moving strategically, we've talked a lot about moving the life sciences in the medical landscape into a digital opportunity for measuring ELISA. Digital ELISA is a lot of what we've done. And this chart depicts, Slide 9, how we've increased the sensitivity by a thousandfold. And we've recently announced 4 months ago, another 100x, and we've got a prototype that we're rolling out. That's really probably 1 year, 1.5 years away from being fully deployed, but this is a big advance, allowing us to reach down underneath of what the traditional levels of sensitivity were to see new proteins of relevance, and then to reduce the invasiveness of the testing and the samples with the sensitivity to increase the TAM. And this is, we think, going to lead to a fairly significant revolution in proteomics with this deployment. We are moving, as you can see from the left -- the right-hand side of the slide from high invasiveness, liquid biopsies, cerebral spinal fluid taps, spinal taps as well as even radiation from imaging down to really noninvasive early detection. And the protein once again, we believe, captures many of the environmental triggers, and there's a lot more proteins than there are genes and we think they're much more phenotypic which makes them highly relevant. And so we're really advancing the field of proteomics with the sensitivity and creating a lot of translation, not only in these drug trials, but ultimately, we believe for the clinic. This slide is a slide we've used for really 5 years to depict on the x-axis when you can detect the disease. And you can see the cancer and neurology or all the way over to the right, and they're typically very much the latest-stage lethal diseases to be detected. And you can see how many publications, we now have using biomarkers to get at an earlier detection. And depicted it on the bottom, you can see Simoa moves the concentration detection levels to levels that you can see these diseases much earlier. Then on the y-axis, the invasiveness once again by creating the sensitivity of Simoa, we can reach and then see answers in blood and saliva and urine that you couldn't see without really invasive procedures. And that combination is really what we believe is allowing us to shift cancer neurology, even COVID and infectious disease further to the left an earlier in lower invasive testing, which we think in the end, creates significant TAMs and opportunities to disrupt the way medicine is practiced. The initial deployment of these -- the sensitivity and its capability is to help drug companies recruit better cohorts of patients that are more specific to the disease and the drug that they're actually trying to get approval and to get cohorts when the disease is earlier stage when it's easier for a drug to be effective. And that also allows lower dosing, which allows lower toxicity. The combination of higher efficacy, lower toxicity leads to a 300% improvement and the areas that these biomarkers are deployed. And on the right, you can see the number of CRO instruments now being -- that have been placed, 55 of them running these Phase I/II/III trials. Over 1,000 have been run across these CROs. And you can see that we mentioned earlier, 128 have been running our own facilities. This is just a slide that shows how rapidly the adoption has occurred for the Simoa technology. We really had no revenue about 5 years ago, and we have really accelerated rapidly with the adoption of these drug companies for this purpose. And we did mention earlier Novartis' new drug with a secondary surrogate endpoint that was presented at ECTRIMS using our Nf-L, neurofilament light assay. Roche also had an approval, utilized our technology as a secondary surrogate endpoint in MS as well. So these are good test cases, further validating the utility of this technology. Just for Nf-L, you can see that when you have a brain trauma or neurodegeneration, what happens is the proteins Nf-L, they actually break down from the neurons and the axons on the neurons dying, and those neurofilament light then goes into the CSF. And you can see on the right-hand side that it actually crosses the blood-brain barrier, but at a much lower concentration. And so we can see Nf-L levels at 2 to 4 picograms per ml versus them being almost 100x -- 50 to 100x more concentrated in CSF. So this enables the correlation. There is many publications now showing that correlation which has allowed them a much less invasive way to look at brain health. And we're now actually looking at dry finger pricks -- dry blood spots from finger pricks, which is even a less invasive sample. And so these are pathways for measuring the Nf-L. And you can see on the left-hand side of this chart, the traditional way of doing it is spinal tap, which is $10,000 per procedure, very painful, very invasive. You can see that there's a lot of biomarkers that they would have liked to measured via the spinal tap, but most people won't accept that for a drug trial. And so we've been able to move many of these markers into serum and plasma as evidenced on the right-hand side with checkmark. And most of these now, except for the ones in black, have already been shown in publications by these various researchers around the world as well as the pharma companies on the right have use cases seeing these biomarkers in blood. And almost 100% of the publications utilizing particularly Nf-L are all done with the Simoa technology. And also Uman now, we acquired them a year ago, it's their antibody pair that has also utilized 100% of those publications are showcasing both us in the antibody as well as in the instrument. Now this is a game-changing slide. But through times this -- in the last 18 months, we've been publicized as having technologies that have been able to see Alzheimer's very early in the cascade. On the bottom left, there's a publication where Nf-L showcased 16 years before symptoms on familial patients that had genotype that they knew when they were going to get dementia based on their genes and then they ran trials, and this Nf-L was able to reveal it. There were several technologies deploying pTau-217 that we're able to show as early as 20 years, you can see there's a lot of publicity this year around the pTau series. In the middle, we had some publications come out, game-changing one on pTau-181, which we've now launched. That actually shows a correlation in blood between the images of amyloid as well as the images of a tauopathy. So images of tau of the brain -- images of the brain for amyloid have been correlated to pTau-181 in Alzheimer's patients in blood. And that's what is shown on the bottom is the correlation between the CSF of 181 pTau and blood. And on the right-hand side, the advances that you've been hearing and reading about from Biogen is clearly advancing the drug, and they have increasing the dosing of aducanumab, reduces the level of the pTau-181 and the cerebral spinal fluid. And the reason for the arrow going over to the left is that correlation from the cerebral spine of fluid into blood, which we think longer term, creates a lot of promise around a blood test that could be used as a screen to help move patients into drugs that get approved for Alzheimer's. And so it's not just using these technologies to get drugs approved, but then it's going to be an opportunity to monitor their progress with the drug as well as someday maybe even being health screens. The Nf-L, the number of trials continues to expand, particularly for MS, multiple sclerosis. But it is being utilized, as we mentioned already in Alzheimer's as well as TBI, traumatic brain injury in MS as well as ALS and frontotemporal dementia and Parkinson's. Now we've also pivoted, as we mentioned, into COVID. And it really kind of started with the recognition of this cytokine technology. We had to measure cytokines and see cytokine storm earlier. Many of the researchers in the hot zones used our technology to reveal that into predicted to help stratify patients that were going to go serious versus be able to be stable. We then got a lot of interest from an outside payer group to build a serology assay, which we've done. But the number one area that we're really focused right now is on an antigen test, which we've mentioned that the NIH discovered us and helped us and are helping us now fund this and further scale it. And then in the fourth category on the right, interestingly, Nf-L as well is going to potentially play a role for long-term disease impairment that COVID could be creating for many -- that haven't really had symptoms other than maybe loss of taste and smell. So there's a lot of interest in all 4 of these categories of our biomarkers. And so someday, we think there could be a comprehensive look at the disease, looking at these different biomarkers for each patient. And ultimately, we see a lot of research opportunities because there's a lot of questions that haven't been answered on this virus. What level of antibodies when the vaccines come out are sufficient to prevent infection? How durable will those antibodies be? What's the role of the innate immune system? How fatigue will innate immune system be as a result of COVID? So many of the payer groups are very concerned about the long-term implications. And we think our research is going to reveal some pretty important tools for that research. This is just a slide showing how challenging it is today to measure the -- whether someone has the virus, particularly before symptoms. You can see that it's estimated in some publications that the false negative rate, meaning that you're told that you don't have the virus. If you don't have symptoms, can be as high as 80% to 90% of the time when you actually have it, you're told that you don't because of sampling error of the virus onto the nasopharyngeal. And so seeing it in blood could represent an opportunity, and that's a lot of the focus that we've brought to this. And we're also looking to try to expand the window of being able to see the virus. And there's new interest as well as checking therapies and seeing if the antigen level from our measurement come down as the therapy is applied in blood, which is potentially an endpoint opportunity for drug trials and therapy trials in the future. So we're excited about that opportunity as well. Working with the FDA around moving to less invasive samples though is a challenge, and it represents a lot of effort. And we've got great relationships with the NIH as well as the FDA now, and we are very happy that we're trying to advance the ability to see this effectively in less invasive samples. And someday, home care, we think, will be a great place to be testing and pulling out samples. But we may not actually do the test there, but we'll do the sampling it from home and then get the answers from centralized labs. So this payer group advance is pretty important for us because they're really looking for outcomes, and early detection can change the way they deploy health care, and it also can be a way to improve outcomes by getting to diseases earlier in length in life. And so across all of the different categories, starting with COVID, we are really excited about running these IRBs for the payer groups because it can represent a whole new way for the value chain to capitalize and leverage the opportunity that our biomarkers with low invasiveness early detection, potentially home care could represent. And so where there's known biomarkers in therapy in places like MS, diabetes, COVID, we think that can be deployed now within these health care groups. If there's a known biomarker but not a known therapy, there's a lot of members we think can get into drug trials to help get early detection of members with these disease cascades to help these drug trials. And then finally, (inaudible) where we are going to monitor with a payer group their membership and the biomarkers over a long period of time. And as diseases come into that payer group, the membership group, we can look back and see what biomarkers could have revealed that. That could really be a great way for biomarker research to occur. There was a lot of news this past week with respect to Exact Sciences buying Thrive. And it's a chance to evolve, I think, Exact Sciences from a primarily genetic position to also looking at proteins. And we do think, as we mentioned earlier, proteins are very important. And there are some specificity challenges with certain parts of CancerSEEK that added sensitivity can enhance. And we've been just looking at the proteins that they have in their algorithms and some of the level of detection that they have. And we believe that there could be opportunities to utilize technologies like Simoa to further advance more sensitivity in these critical proteins that you can see here and then for breast cancer, the ones in red on the right-hand side are some of the most important proteins for these algorithms. And by having a lot more sensitivity, we think it could further power the improvement of these kinds of technologies. And so we really are excited about Exact Sciences move into the protein and many of the liquid biopsy companies are also looking to augment like Freenome, their protein positions with their DNA positions. I wanted to just -- this was a visionary slide that tried to illustrate for our investor group just how TAM get increased the addressable market using sensitivity. The greater the sensitivity, the earlier you see disease. That in itself, we already have pointed out, creates the ability to use this technology for a very exciting way to see disease earlier. The less invasiveness going from cerebrospinal fluid to blood then to, let's say, a dry blood spot or even saliva, that increases the TAM. The ability to multiplex takes away sensitivity. So the more multiplexing you can do, the more disease specificity you can create. So the more sensitivity you have, the more you can create utility for these biomarkers. You also can dilute samples to eliminate matrix effects to allow the false positive and false negative rates to improve dramatically. So the ability to dilute can create a lot better specificity in the technology. And then finally, the ability to quantitate versus just say that a biomarker is there instead of being qualitative, being quantitative. And we think that in the area of research, particularly for serology, how much of those antibodies is actually there versus -- for an individual patient versus the amount of virus and being able to quantitate those, we think, adds a lot of it on advantage. This slide just illustrates that there's been a lot of movement in the genomics landscape over the last 25 years for very good reasons. The genomic revolution started with sequencing -- next-generation sequencing has led to a lot of really productive companies with many value-added assays on the right-hand side. We just wanted to showcase that in the protein world, Quanterix straddles the end of this pipeline for proteins, and we're doing a lot of drug trials, as we've pointed out, primarily in brain and in COVID areas up -- currently. And as you see those different proteins do find their ways to IVD products, like the Siemens, the Roches, the Abbotts, protein products in the LDT labs as well as health screens. And we've set up, we think, a lot of good nonexclusive relationships with many of these companies on the right-hand side to further advance the technology and create greater opportunities for it to advance. And we think that moving to the right, like what we see happen with Thrive and Freenome with the protein is a real important opportunity for this entire landscape. So we're very excited about a lot of the interest to further fuel proteomics even with upstream technologies and allow more to advance downstream. So when you look at our TAM, we see it as a $1 billion TAM primarily focused at COVID, $200 million and neuro, $350 million. This is on the research side of our business. And as we've been saying longer term, we want to continue a 30% to 40% CAGR in that -- growth in that landscape. We are deploying to the -- right now the COVID and neuro trying to find pathways for things like the Alzheimer's and MS and the neuro and even in COVID, given the NIH's support of us for the antigen, we're looking at possible ways to help the world and the nation for the COVID opportunity. And there's about 1,200 proteins we showed early on that have evolved in about 200 proteins on the right-hand side. Longer term, we think that this protein revolution really hits, there could be as much as $90 billion based on some consulting research that we're having done right now, ultimately, maybe as many as 1,000 proteins could find their way if you could expand them into diagnostics. So in summary, going back to the telephone, going to the iPhone, we've seen a lot of advances in the computer systems on the top. And certainly, we've watched the genomic revolution, just bring a lot of value to investors, but more importantly, is transforming the way patients can look at cancer and look at many of the elements they have today, and there's been a lot of advances occurring. And we think that the proteomics wave and that fan has a real opportunity over the next 10 years, and we're really excited to be having an opportunity to advance that. So what I'd like to do now is turn it back over to Amol to talk through more specifically our finances. Amol? -------------------------------------------------------------------------------- Amol Chaubal, Quanterix Corporation - CFO [4] -------------------------------------------------------------------------------- Thanks, Kevin. I'm going to provide you some additional financial details about our Q3 2020 performance. I'll be referring to Slide 49. As Kevin noted, our GAAP revenue in Q3 of 2020 was $31.4 million, and included $11.2 million revenue in connection with our nonexclusive license agreement with Abbott, and $1.9 million revenue from our RADx Phase I award. Excluding these nonrecurring items, our non-GAAP Q3 2020 revenue was $18.3 million, a 22% increase versus prior year Q3. Instrument revenues increased 8% and consumables revenue increased 9% despite challenges in accessing customer sites for installations and customers-facing interruptions in their operations due to COVID-19. As previously discussed, we had proactively expanded our Accelerator services capacity to support our customers, sustain their research and clinical trials. This drove 56% increase in service revenue, which finished at $6.6 million. The RADx Phase II contract that we entered into -- at the end of Q3 did not affect our Q3 results. Year-to-date, total revenues are $60.2 million, excluding the Q3 nonrecurring items previously discussed, non-GAAP year-to-date total revenues of $47.1 million, a 15% increase. As previously stated, we are not providing the revenue guidance. We do expect to see RADx Phase II contract revenue of about $6 million per quarter and associated cost of about $5 million per quarter over Q4 2020 and first half of 2021, which we will continue to exclude from our non-GAAP financials. Across Q3, we have seen demand progressively recover in U.S. and Europe. However, a second wave of coronavirus may force renewed lockdowns, resulting in challenges such as limitations in accessing customer sites to complete installations and drop in consumables utilization due to interruptions in certain customer laboratories. On a non-GAAP basis, Q3 gross margin was 51.5% versus the prior year Q3 gross margin of 51.8%. Q3 2020 gross margin includes a 190 basis points negative impact from our successful HD-1 trade-in program. Our non-GAAP gross margin excludes the impact of the nonrecurring Abbott license agreement and RADx Phase I award as well as noncash acquisition-related purchase accounting adjustments relating to the 2019 acquisition of Uman, thus providing investors with a relevant period-to-period comparison of our operations. We believe we have significant opportunity for gross margin expansion in future as we evolve the mix towards high-margin consumables and Accelerator services businesses, scale our overall business and reduce product costs. On a GAAP basis, our Q3 gross margin was 67.2% and was favorably impacted by the Abbott license agreement and RADx grant versus prior year Q3 gross margin of 47.1%. Our GAAP operating expenses totaled $18.8 million in Q3 2020 and non-GAAP operating expenses, which primarily exclude nonrecurring expenses associated with our RADx grant revenue, totaled $17.5 million. During Q3 2020, we raised $91.4 million in net proceeds through our public offering, and use of cash was restricted to $7 million through proactive working capital measures. The balance sheet is in good shape as of September 30 with approximately $173 million in unrestricted cash. Overall, we are very pleased with our Q3 2020 performance and progress made on our strategic priorities. We remain focused on continuing our recovery to strong growth trajectory in the remainder of the year despite the continued challenges brought on by the coronavirus pandemic. With that, I will now turn it back to Kevin. -------------------------------------------------------------------------------- E. Kevin Hrusovsky, Quanterix Corporation - Chairman, President & CEO [5] -------------------------------------------------------------------------------- Thank you, Amol. And I would like to close them all on Slide 50 to just illustrate that, as we've been saying from the beginning, we have an incredible employee group as well as a large ecosystem of thought leaders and many investors that have actually supported us in creating demand by working with many of the pharmas that they have stock positions with to help create opportunities to get drugs approved in the pipelines of many of our customers. This slide just illustrates it on the left-hand side, as we said, we are mostly a research business today. I'd say 95-plus percent of our revenues really are coming from this research side where there's no real regulatory or reimbursement risk, and we feel like it's a solid place to create value for investors with a great backstop. But there is absolutely, we've been calling it an aspirational opportunity to start to migrate into diagnostics. And COVID has enabled us a showcase opportunity to help the world with our incredibly inspired employee base but also further demonstrate what this technology can do and help us advance into many of the different disease sectors that we know our technology can disrupt. So this slide just shows that we have a very formidable market opportunity, as we've outlined, and we think we're rivaling and creating a new category with our sensitivity in proteomics. And we have been penetrating this market and that we can see being $1 billion today of TAM, but evolving very productively into a very large TAM numbers, as you can see on this slide. We also are better linking the DNA and RNA to the protein trying to get a better map of where the protein links up with the DNA and RNA, particularly looking at these protein modifications that the disease triggers and environmental factors are created. 19 of the top 20 pharma have now deployed our technology. There's been thousands of drug trials run, Phase I, II and III. Almost 1,000 peer-reviewed pubs are really validating this technology. And so when we look at the penetration opportunity, we think it's a significant razor blade opportunity. We have a lot of consumables. We've invested significantly in our products, and we'll continue to advancing our sensitivity another 100x and continue to evolve with off-the-shelf kits that allow our customers to get to a very large menu of proteins for measuring. We have an incredible Board of Directors that have been through this over the years. They're very instructional and very brought in and very much skin in the game, very much excited about this opportunity. And there's a real track record amongst the Board and the management for commercializing disruptive technology. So with that, we'd like to open it up for -- I know it's a busy day today, a lot of earnings releases given the election this week. We're going to open it up and see if there's any questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) We have our first question from the line of Puneet from SVB Leerink. -------------------------------------------------------------------------------- Scott Alexander Mafale, SVB Leerink LLC, Research Division - Associate [2] -------------------------------------------------------------------------------- This is Scott Mafale on for Puneet. So Kevin I'm... -------------------------------------------------------------------------------- E. Kevin Hrusovsky, Quanterix Corporation - Chairman, President & CEO [3] -------------------------------------------------------------------------------- Scott, you're breaking up. -------------------------------------------------------------------------------- Scott Alexander Mafale, SVB Leerink LLC, Research Division - Associate [4] -------------------------------------------------------------------------------- There we go. Probably I was on mute. I'm sure you saw the -- Kevin, I'm sure you saw the initial positive stance from the FDA on aducanumab from the recently released briefing documents. I was wondering if you can comment on maybe how this might impact the pace of new trial starts from neurology more broadly. And if you believe it will encourage the use of neurology assays such as Nf-L and pTau in these trials? -------------------------------------------------------------------------------- E. Kevin Hrusovsky, Quanterix Corporation - Chairman, President & CEO [5] -------------------------------------------------------------------------------- Yes. Great, great question, Scott. And obviously, this has been a very challenged landscape for the past 10 years, trying to get an Alzheimer drug across the goal line. And when we entered 4 years ago, we brought the hope of objective markers versus the subjective markers, looking at such things as how long does someone with Alzheimer's -- how long does it take them to traverse a maze out a hospital being somewhat of a subjective measure. So more of a concrete objective market of a biomarker in blood. So we had a vision around that possibility. And then the FDA created guidance about 3 years ago under Scott Gottlieb to actually have biomarker guidance to recruit patients precognitive impairment. And if you could show and validate that the biomarker was clinically relevant to the disease cascade, you can utilize that to actually help support your data. And I'm intrigued by this particular advance that it does look like pTau-181 in cerebral spinal fluid has played a nice correlative effect of increasing the dose, reduces the level of pTau-181 in the cerebral spinal fluid, as we commented on an earlier slide. And I think that the fact that there is some level of biomarker usage occurring even if it's in CSF, creates an opportunity because of all the correlative work that's been done in the last 4 years in blood for this to become a less invasive opportunity. So I think that we are looking at many pharma companies in general, looking at the amyloid thesis that was almost being shut down has not really been a relevant thesis. I think that some of the enthusiasm that's going on with Biogen right now has created a little bit of a resurgence to some level of support for the amyloid thesis. I think there's still a lot of questions. I think there's -- tauopathy is another area of opportunity. But in general, we're seeing a more vibrant pharmaceutical base based on this news. And obviously, this is creating downstream of opportunities for trials. And so we do think that this is a great moment. We don't know how sustainable it is. It will be interesting to see how this progresses. Biogen is one of our top customers as is many of the companies in the neuro landscape. And many of the investors that own us, like I said, they own pharma companies that have neural pipelines and have been making those introductions, and that actually helped our growth. So I do think that this is a good moment for this opportunity, but we don't know how sustainable it is. And I think even downstream, if a drug ever does get approved in Alzheimer's, which there hasn't been one yet, it can be evolved like MS, where there's today, 16 different approved drugs. And then the question is, is the drug that you've selected for multiple sclerosis, is it working for you as an individual. And so Nf-L,is a great neuro marker to determine neurodegeneration. If it improves, if the level of Nf-L comes down, that means the drug has got efficacy in the MS community. The same would be true in the Alzheimer's community. We believe that there's evidence that neurodegeneration would slow down if the drug could be effective in the area of Alzheimer's. And so downstream, how do you get people into the drug more efficiently than imaging and/or cerebral spinal flow taps? Hey, a blood draw could be a good first level screen. Secondarily, it could be a way to monitor disease progression and drug efficacy. So I do think that for companies like ours, it does help create a lot of new interest and excitement for the possibilities. -------------------------------------------------------------------------------- Scott Alexander Mafale, SVB Leerink LLC, Research Division - Associate [6] -------------------------------------------------------------------------------- That's very helpful. And I want to move my second question on the RADx program. It was really great to see you guys move on the Phase II of development there. I was just wondering if you could describe what the next couple of steps are in the process. If there's any time line you could provide here And just to kind of remind us where you expect the product to fit in the current testing paradigm for COVID-19. -------------------------------------------------------------------------------- E. Kevin Hrusovsky, Quanterix Corporation - Chairman, President & CEO [7] -------------------------------------------------------------------------------- Sure. Yes. First of all, I would say that we feel very honored to have been discovered by the NIH, and our relationship there has continued to evolve to the most senior levels. And they've been incredibly productive, as had the FDA where we haven't really had a lot of interactions with either of these 2 agencies until COVID really started to reveal the possibilities of our exquisite sensitivity playing a role to help. And so how we evolve at this point has been interesting. It started out with the feasibility study. Our data looked very promising. And as a result of that, they invested and are investing and scaling up our ability to make the kits for this antigen assay that ultimately could be deployed, we believe, in blood. We're initially trying to prove it out in nasopharyngeal. We got really good trials underway that are showcasing this technology sensitivity and capability for some of the traditional sample matrices, but we ultimately think that the blood and maybe someday in saliva, and I think the NIH is interested saying, can you also pull where you can run multiple samples because their interest is to scale up significantly. And I think one area of promise or at least of concern, and we hope that we can play a role, is in the asymptomatic. When children started going back to college, that's when the testing really started to move from those who had symptoms when it's easier to detect when you have the symptoms of virus to those that don't have symptoms. And unfortunately, it's much harder to see this virus when you don't have symptoms either presymptomatically, meaning that someday you will have symptoms, you're just getting it early, or some of those that get the virus never do end up having symptoms. And so being able to improve false negative rates and improving even longer term after the virus has gone away, the false positive rate of some of today's testing is a key area of opportunity because you don't want people thinking that they don't have the virus when potentially they do. And if testing is creating some of that precision challenge, you want to get in there and correct that. So we actually think that the time line here is one of very aggressive nature from the NIH hoping to scale, but we're trying to stay very conservative and take all the right steps and make sure we don't get ahead of our skis on this to make sure we're taking all the right steps with the agencies to ensure we've got something that is really robust and is going to really be able to help. And so again, we're working with the FDA as well as NIH on that scale up, and we will be launching research assays from the antigen and the serology over the next couple of months that can be utilized by researchers to really begin to get a better understanding. And I actually think these drug trials and therapy trials, whether it be convalescent antibodies or whether it be remdesivir or different antivirals, being able to see whether the virus, the antigen comes down in blood will be a key opportunity, we think, to help create some endpoints that might be better than just how long is someone in the hospital. Is this drug improving the amount of time they're in the hospital? So there's a lot of those types of opportunities and the ability to quantitate as well as maybe to stratify who's got a more serious illness are all opportunities that we're trying to reach into, but it's too early for us to make any kind of conjecture around how this will translate. But it's an interesting development, and I can assure you, our team of people in our company is incredibly inspired working around the clock to try to advance this as fast as possible, to try to help not just America, but around the world, we've got interest in these technologies. -------------------------------------------------------------------------------- Scott Alexander Mafale, SVB Leerink LLC, Research Division - Associate [8] -------------------------------------------------------------------------------- If I could just slip one more in. On HD-X, the instrument upgrade cycle there. I know that's a big part of the story coming into the year. Can you just kind of bring us up to speed there? Should we expect the reacceleration of placements as academic customers kind of return to labs and things being the normalized? And do you still expect to convert about 50% of your HD-1 customers? -------------------------------------------------------------------------------- E. Kevin Hrusovsky, Quanterix Corporation - Chairman, President & CEO [9] -------------------------------------------------------------------------------- Absolutely. Amol, you might want to follow this one up with just a description of the mix of trade-ins versus new purchases. But to start off this answer, Scott, this HD-X is something that we're putting a lot of emphasis on. It's fully automated. So you put in blood or saliva or whatever the sample matrix is and you get out the answers. So it's a fully automated. And we have a lot of our customer base saying, you know what, your automation and getting the same answer every time and the throughput that you can get on the HD-X of about 1,000 samples per day, fully utilized, I think it's probably better for planning purposes to look at 500 to 750 samples per day. That capability of having it fully automated and creating that throughput for a lower cost antigen-type test that's got a lot of sensitivity and precision, we actually think that this could create more demand for the HD-Xs as we move forward, either in research or if we further evolve into diagnostics. We would try to utilize partners, third-party, I'll call them more like LDT labs that have infrastructure. We're going to try to evolve our HD-X deployment for at least the COVID landscape to either research customers or customers that have experience using this platform to give it just a higher level of performance in utility. But I think in general, that's going to lead to new sales, either in RUO. And the neurology trials is just another area where we think there will be increased interest in buying HD-Xs. So overall, this is just another area where we think there will be increased interest in buying HD-Xs. So overall, I think that the numbers that we cited going into the year are not going to be way off relative to trying to get to half of our installed base being HD-Xs -- of the HD series by year-end. Amol, anything you can add here? -------------------------------------------------------------------------------- Amol Chaubal, Quanterix Corporation - CFO [10] -------------------------------------------------------------------------------- No, no, I think you summarized it really well. And we will get exceedingly close to half of our installed base with HD-X. -------------------------------------------------------------------------------- E. Kevin Hrusovsky, Quanterix Corporation - Chairman, President & CEO [11] -------------------------------------------------------------------------------- And I was going to also comment around trade-ins to Amol. That was a question that we were getting. I wondered if you could give a sense of the margin implications because I know it's a good thing in the long term, but it would be good to just discuss that. -------------------------------------------------------------------------------- Amol Chaubal, Quanterix Corporation - CFO [12] -------------------------------------------------------------------------------- Yes, sure. And Scott, I mean, as we've discussed sort of before, right, like we -- when we do trade-ins, we basically offering an instrument at a discounted price, still above our cost structure. And it's a great thing for the business because it's going to drive a lot more utilization in a much more reliable platform and going to expand our consumables revenue going forward, right? So what happens because of the dynamics is, the gross margin when we do this trade-in gets sort of temporarily suppressed, which creates a drag on our gross margin. But it's a great problem to have because it creates a longer-term better customer satisfaction and an expanded consumables utilization going forward. We continue to see a lot of interest from our customers on HD-X trade-in. And because the way sort of grant processes and federal budget cycles work, we expect some of that trade-in volume to continue into Q4 as well as initial half of 2021. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- We do have another question from the line of Chris from Cowen. -------------------------------------------------------------------------------- Chris Lin, Cowen and Company, LLC, Research Division - VP of Health Care - Life Science and Diagnostic Tools [14] -------------------------------------------------------------------------------- This is Chris on for Doug today. I apologize if you addressed this during your prepared remarks, we're -- I think we're juggling about 8 earnings calls this afternoon. But first, maybe just to follow up on the prior question. I think you were previously targeting 75 HD-X and SPR-X -- SP-X and SR-X systems this year. Is that still the plan? And are there any bottlenecks in terms of being able to get an instrument shipped and installed in the current environment? -------------------------------------------------------------------------------- E. Kevin Hrusovsky, Quanterix Corporation - Chairman, President & CEO [15] -------------------------------------------------------------------------------- Yes. I would say, in general, Q2 was obviously a major headwind, and we still have a lot of risk around what happens with this virus moving forward. Does it affect and shut down any labs, and we're starting to see the potential of that -- some closures in our European operation, in which those can affect our ability to install. But I do think that the overall numbers that we cited going into the year for HD-X still feel pretty productive given some of the new opportunities that we're focused on. And Amol, did you have other thoughts on this question? -------------------------------------------------------------------------------- Amol Chaubal, Quanterix Corporation - CFO [16] -------------------------------------------------------------------------------- Yes. No, I think, Chris, you picked it up correctly, right? Because in our Q1 earnings call, we had stated 75 HD-Xs and 75 SR-X plus SP-Xs. At that point, we had reduced it from 90 before and also reduced the 50% to roughly 40% mix. And we are still in line of sight with those numbers that we have shown during our Q1 earnings call. And as I said, we'll get really close to 50% of our installed base in HD-X by year-end, provided we don't get disrupted by the second wave and associated lockdowns. So things continue to stay where they are today. We have a good line of sight to get to those numbers we shared during our Q1 earnings call. -------------------------------------------------------------------------------- Chris Lin, Cowen and Company, LLC, Research Division - VP of Health Care - Life Science and Diagnostic Tools [17] -------------------------------------------------------------------------------- Okay. Great. Maybe just moving on to Abbott. What time lines have you committed to regarding development and commercialization of the product? And how much of that is in Abbott's hands versus yours? I'll just leave it there and ask my follow-up after. -------------------------------------------------------------------------------- E. Kevin Hrusovsky, Quanterix Corporation - Chairman, President & CEO [18] -------------------------------------------------------------------------------- Yes. I would say that we've not communicated any details. It's a very minor level of communication around this relationship, except to some of the financial terms. I would say that they are incredibly motivated by what Simoa can do. And I would expect that this is going to lead to them deploying this technology into some new form factors sometime over the next several years. So it's a longer term opportunity. But for us, it was a big validation to be able to achieve this on a nonexclusive basis in a market that really has 3 premier, large IVD -- distributed IVD players. And to give an opportunity for our technology to evolve inside of other channels to market. It's a $22 billion landscape across these large 3 or 4 diagnostic IVD houses. So to establish this foothold is important. And again, we have a very strong relationship with the Abbott team. We've been working on this for a couple of years, and it's -- they have a new CEO and a lot of excitement right now around this opportunity, which I think could bode well for us in the long term. -------------------------------------------------------------------------------- Operator [19] -------------------------------------------------------------------------------- There are no further questions from the line. I'm turning the call back to Mr. Chaubal. Sir? -------------------------------------------------------------------------------- Amol Chaubal, Quanterix Corporation - CFO [20] -------------------------------------------------------------------------------- I pass it back to Kevin to close our call. -------------------------------------------------------------------------------- E. Kevin Hrusovsky, Quanterix Corporation - Chairman, President & CEO [21] -------------------------------------------------------------------------------- Sure. Yes, thanks so much for everything that you guys have done with us, the investor group. We look forward to further evolving our discussions, our performance and our story. We're very committed to driving growth in this landscape, and feel very honored to have a chance to be working with all of you. And stay safe out there, and we'll talk soon. Thank you very much. -------------------------------------------------------------------------------- Operator [22] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes today's conference call. You may now disconnect.