You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and related notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our audited consolidated financial statements and related notes for the year endedDecember 31, 2021 , included in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission (the "SEC") onMarch 22, 2022 , as well as the information contained under Management's Discussion and Analysis of Financial Condition and Results of Operations and "Risk Factors" contained in the Annual Report on Form 10-K, and "Risk Factors Summary" and Part II, Item 1A "Risk Factors" of this Quarterly Report on Form 10-Q, and other information provided from time to time in our other filings with theSEC .
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements about us and our industry involve substantial risks, uncertainties, and assumptions, including those described in "Risk Factors Summary" and elsewhere in this report. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as "anticipate," "believe," "contemplate," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "should," "target," "will" or "would" or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:
? our expected future growth and the success of our business model;
? the potential payments we may receive pursuant to our Strategic Platform
Licenses (“SPLs”);
the size and growth potential of the markets for our products, and our ability
? to serve those markets, increase our market share and achieve and maintain
industry leadership;
? the rate and degree of market acceptance of our products within the cell
engineering market;
? the expected future growth of our manufacturing capabilities and sales, support
and marketing capabilities;
? our ability to expand our customer base and enter into additional SPLs;
? our ability to accurately forecast and manufacture appropriate quantities of
our products to meet commercial demand;
our expectations regarding development of the cell therapy market, including
? projected growth in adoption of non-viral delivery approaches and gene editing
manipulation technologies;
our ability to maintain our FDA
? Files in other countries and expand Master and Technical Files into additional
countries;
our research and development for any future products, including our intention
? to introduce new instruments and processing assemblies and move into new
applications;
the development, regulatory approval, and commercialization of competing
? products and our ability to compete with the companies that develop and sell
such products;
? our ability to retain and hire senior management and key personnel;
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? regulatory developments in
? our expectations regarding the period during which we qualify as an emerging
growth company under the JOBS Act;
? our ability to develop and maintain our corporate infrastructure, including our
internal controls;
? our financial performance and capital requirements;
our expectations regarding our ability to obtain and maintain intellectual
? property protection for our products, as well as our ability to operate our
business without infringing the intellectual property rights of others; and
? our use of available capital resources.
You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled "Risk Factors Summary" in this report and under the caption "Risk Factors" and elsewhere in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this report. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements. In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. And while we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements. The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report to reflect events or circumstances after the date of this Quarterly Report or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments. You should read this Quarterly Report and the documents that we file with theSEC with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
In this Quarterly Report on Form 10-Q, unless the context requires otherwise,
all references to “we,” “our,” “us,” “MaxCyte” and the “Company” refer to
Overview
We are a leading commercial cell engineering company focused on providing
enabling platform technologies to advance innovative cell-based research as well
as next-generation cell therapeutic discovery, development and
commercialization. Over the past twenty years, we have developed and
commercialized our proprietary Flow Electroporation platform, which facilitates
complex engineering through the delivery of molecules into a wide variety of
cells. Electroporation is a method
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of transfection, or the process of deliberately introducing molecules into
cells, that involves applying an electric field to temporarily increase the
permeability of the cell membrane. This precisely controlled increase in
permeability allows the intracellular delivery of molecules, such as genetic
material and proteins, that would not normally be able to cross the cell
membrane as easily.
Our ExPERT platform, which is based on our Flow Electroporation technology, has been designed to address this rapidly expanding cell therapy market and can be utilized across the continuum of the high-growth cell therapy sector, from discovery and development through commercialization of next-generation, cell-based medicines. The ExPERT family of products includes three instruments, which we call the ATx, STx and GTx, respectively, as well as a portfolio of proprietary related disposables and consumables. We have also introduced the ExPERT VLx instrument for very large-scale cell engineering, which was made available for sale beginning inDecember 2021 . Our disposables and consumables include processing assemblies, or PAs, designed for use with our instruments, as well as accessories supporting PAs such as electroporation buffer solution and software protocols. We have garnered meaningful expertise in cell engineering via our internal research and development efforts as well as our customer-focused commercial approach, which includes a growing application scientist team. The platform is also supported by a robust intellectual property portfolio with more than 145 grantedU.S. and foreign patents and more than 90 pending patent applications worldwide. From leading commercial cell therapy drug developers and top biopharmaceutical companies to top academic and government research institutions, including theU.S. National Institutes of Health , orNIH , our customers have extensively validated our technology. We believe the features and performance of our platform have led to sustained customer engagement. Our existing customer base ranges from large biopharmaceutical companies, including all of the top 10, and 20 of the top 25, pharmaceutical companies based on 2021 global revenue, to hundreds of biotechnology companies and academic centers focused on translational research. Since our inception, we have incurred significant operating losses. Our ability to generate revenue sufficient to achieve profitability will depend on the successful further development and commercialization of our products. We generated revenue of$31.8 million and incurred a net loss of$18.7 million for the nine months endedSeptember 30, 2022 . As ofSeptember 30, 2022 , we had an accumulated deficit of$133.0 million . We expect to continue to incur net losses as we focus on growing commercial sales of our products in boththe United States and international markets, including growing our sales and field application scientist teams, scaling our manufacturing operations, and research and development efforts to develop new products and further enhance our existing products. Further, we expect to incur additional costs associated with operating as a public company inthe United States .
Impact of COVID-19 and Geopolitical Issues on Our Business
We continue to closely monitor the impact of the novel coronavirus ("COVID-19")
pandemic on our business and the geographic regions where we operate. The impact
of this pandemic has been and will likely continue to be extensive in many
aspects of society, which has resulted in and will likely continue to result in
significant disruptions to the global economy, as well as businesses and capital
markets around the world.
Impacts to our business as a result of COVID-19 have included disruptions to our
manufacturing operations and supply chain caused by facility closures,
reductions in operating hours, staggered shifts and other social distancing
efforts, decreased productivity and unavailability of materials or components,
limitations on our employees' and customers' ability to travel, and delays in
product installations, demonstrations, trainings or shipments to and from
affected countries and within the United States . Disruptions in our customers'
operations have impacted and may continue to impact our business. In light of
the uncertain and rapidly evolving situation relating to the spread of COVID-19,
we have taken precautionary measures intended to minimize the risk of the virus
to our employees, our customers and the communities in which we operate,
including temporarily closing our offices to visitors and limiting the number of
employees in our offices to those that are deemed essential for manufacturing
and research purposes, as well as virtualizing, postponing or canceling
customer, employee and industry events.
We cannot predict the overall future impact that the COVID-19 pandemic may have
on our business and cannot guarantee that it will not be materially negative.
Although we continue to monitor the situation and may adjust our current
policies as more information and public health guidance become available, the
ongoing effects of the COVID-19 pandemic and/or
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the precautionary measures that we or our customers have implemented or may
adopt may create operational and other challenges, any of which could harm our
business and results of operations.
We continue to monitor the impact of geopolitical tensions, in particular the conflict betweenRussia andUkraine , the potential for supply chain disruptions, and energy markets. In light of these risks, we have taken measures to increase our inventory levels to mitigate possible future supply disruptions. While we cannot predict the impact of these risks, we continue to monitor possible impacts on our operations and take precautionary measures to mitigate possible negative effects that we deem appropriate.
Recent Developments
We have continued to enter into SPL agreements with our cell therapy customers. These agreements are discussed in more detail in "Results of Operations" below and provide us with revenue from instrument sales and leases and disposables sales as well as downstream economics on our partners' programs (both pre- and post-commercial). In the first three months of 2022, we signed an SPL agreement with Intima Bioscience. InJuly 2022 , we signed an SPL agreement with LG Chem, our first SPL with a South Korean company. InSeptember 2022 , we signed an SPL agreement with Vertex Pharmaceuticals ("Vertex") for the development of a therapeutic candidate that was previously the subject of our current SPL agreement with CRISPR Therapeutics ("CRISPR"). We continue to grow our SPL pipeline and, while the specific timing of any agreement is uncertain, we expect to sign additional SPL agreements in the future.
Results of Operations
Comparison of the Three Months Ended
The following table sets forth our results of operations for the periods
presented:
Three Months Ended
September 30,
2022 2021
(in thousands)
Total revenue $ 10,643 $ 10,139
Cost of goods sold 1,369 944
Gross profit 9,274 9,195
Operating expense
Research and development 5,325 2,747
Sales and marketing 4,507 3,212
General and administrative 6,444 5,347
Depreciation and amortization 710 333
Total operating expense 16,986 11,638
Operating loss (7,712) (2,443)
Other income (expense)
Interest and other expense (116) (289)
Interest and other income 1,394 52
Total other income (expense) 1,278 (238)
Net loss $ (6,434) $ (2,680)
Revenue
We generate revenue principally from the sale of instruments and single-use
processing PAs and buffer, and from the lease of instruments to our customers.
In addition, our SPLs include clinical progress milestones and sales-based
payments to us which may also provide material revenues.
In order to evaluate how our sales are trending across key markets, as well as
the contribution of program economics from our SPLs, we separately analyze
revenue derived from our cell therapy customers and drug discovery customers, as
well
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as the performance-based milestone revenues we recognize under our SPLs. Cell
therapy revenues include primarily revenue from instruments sold, annual license
fees for instruments under lease, and sales of our proprietary disposables. Drug
discovery revenue includes primarily revenue from instruments sold, sales of our
proprietary disposables and, occasionally, instruments leased. Program-related
revenues include clinical progress milestone and sales-based revenues derived
from SPL agreements. Milestone revenues are recognized when a customer achieves
the associated milestone event. To date, all Program-related revenue has
consisted entirely of pre-commercial milestone revenue.
The following table provides details regarding the sources of our revenue for
the periods presented:
Three Months Ended
September 30, Change
2022 2021 Amount %
(in thousands, except percentages)
Cell therapy $ 7,898 $ 6,226 $ 1,672 27%
Drug discovery 1,991 1,909 82 4%
Program-related 754 2,004 (1,250) (62%)
Total revenue $ 10,643 $ 10,139 $ 504 5%
Total revenue for the three months ended September 30, 2022 was $10.6 million ,
an increase of $0.5 million , or 5%, compared to revenue of $10.1 million during
the three months ended September 30, 2021 .
Our overall increase in revenue was primarily driven by revenue growth in the
cell therapy market, primarily from growing instrument sales and licenses and
disposables sales, partially offset by a decrease in program-related revenue. In
the cell therapy market, revenue from disposable sales increased by $1.3
million , while instrument sales and licenses increased by $0.4 million . Cell
therapy revenue growth resulted primarily from new and existing customers and
the continued progression of our cell therapy partners' therapeutic development
programs. The $1.3 million decrease in program-related revenues resulted from
expected variability of milestone revenues from period to period given the small
number of individual triggering events which currently generate this portion of
revenue. We expect program-related revenue to experience variability for some
time, although we anticipate that this variability may moderate as the volume of
SPLs and associated milestones grows.
We expect total revenue to increase over time as our customers' programs advance
and our markets grow, resulting in additional instrument sales and leases and
disposable sales and as the percentage of our installed base that are under cell
therapy license agreements increases. We expect revenue from disposable and
instrument sales and instrument licenses to cell therapy customers to continue
to grow as those customers advance their preclinical pipeline programs into
clinical development and move their existing drug development programs into
later-stage clinical trials and, potentially, into commercialization. In
addition, we expect new customers to continue to emerge and contribute to these
revenues, based on the underlying growth in the cell therapy pipeline among
companies in this market, the extent to which capital is available to support
such companies, and in particular the switch by some cell therapy companies away
from viral to non-viral approaches. We expect, however, that our revenue will
fluctuate from period to period due to the timing of securing product sales and
licenses, the inherently uncertain nature of the timing of our partners'
achievements of clinical progress and our dependence on the program decisions of
our partners.
Cost of Goods Sold and Gross Profit
Cost of goods sold primarily consists of costs for instrument and processing
assembly components, contract manufacturer costs, salaries, overhead and other
direct costs related to sales recognized as revenue in the period. Cost of goods
sold associated with instrument lease revenue consists of leased equipment
depreciation. Gross profit is calculated as revenue less cost of goods sold.
Gross profit margin is gross profit expressed as a percentage of revenue.
Our gross profit in future periods will depend on a variety of factors,
including sales mix among instruments, disposables and milestones, the specific
mix among types of instruments or disposables, the proportion of revenues
associated with instrument leases as opposed to sales, changes in the costs to
produce our various products, the launch of new products or
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changes in existing products, our cost structure for manufacturing including
changes in production volumes, and the pricing of our products which may be
impacted by market conditions.
During the three months endedSeptember 30, 2022 , gross margin was 87%, compared to 91% in the same period of 2021. The decrease in gross margin was principally due to changes in the overall mix of product revenues (program-related revenues, processing assemblies, instrument sales and leases). Excluding program-related revenues, gross margin was 86%, compared to 88% in the same period of 2021. Our margins depend on the revenue mix from instruments, PAs and milestones under SPLs. We price our instruments at a premium given what we believe to be the broad benefits of our platform, and the limited availability of alternative, clinically validated non-viral delivery approaches. Instrument pricing also depends upon the customer's specific market. However, the market for non-viral delivery is highly competitive, and introduction of a GMP-grade platform by a competitor that delivers similar performance across a similar diversity of cell types could negatively impact our business and lead to increased price pressure that negatively impacts our gross margins. Three Months Ended September 30, Change 2022 2021 Amount % (in thousands, except percentages) Cost of goods sold $ 1,369 $ 944$ 425 45% Gross profit $ 9,274 $ 9,195$ 79 1% Gross margin 87% 91%
Cost of goods sold increased by$0.4 million , or 45%, for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . The increase was primarily driven by higher sales of instruments and disposables. Gross profit increased slightly for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . The increase was primarily driven by increased revenue from instrument and disposable sales and licensed instruments, partially offset by decreased program-related revenue. We expect that our cost of goods sold will generally increase or decrease as our instrument and disposables revenue increases or decreases. We expect our gross margin to benefit from realization of program-related revenue from our SPL agreements, to the extent that such revenue grows to be a significant proportion of overall revenues, as there is no cost of goods sold associated with such revenue. However, realization and timing of these potential milestone revenues is uncertain. Operating Expenses Research and Development Three Months Ended September 30, Change 2022 2021 Amount % (in thousands, except percentages) Research and development $ 5,325 $
2,747
Research and development expenses consist primarily of costs incurred for our research activities related to advancing our technology and development of applications for our technology, including research into specific applications and associated data development, process development, product development (e.g., development of instruments and disposables, including hardware and software engineering) and design and other costs not directly charged to inventory or cost of goods sold. These expenses principally include employee-related costs, such as salaries, benefits, incentive compensation, stock-based compensation, and travel, as well as consultant services, facilities, and laboratory supplies and materials. These expenses are exclusive of depreciation and amortization. We expense research and development costs as incurred in the period in which the underlying activity is undertaken. Research and development expenses increased by$2.6 million , or 94%, for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . The increase was primarily driven by a$1.0 million increase in 24 Table of Contents
compensation expenses as a result of increases in headcount, a
increase in lab expense and product development costs, a
in stock-based compensation, and a
We believe that our continued investment in research and development is
essential to our long-term competitive position. We expect to continue to incur
substantial research and development expenses as we invest in research and
development to support our customers, develop new uses for our existing
technology and develop improved and/or new offerings for our customers and
partners. As a result, we expect that our research and development expenses,
will continue to increase in absolute dollars in future periods and vary from
period to period as a percentage of revenue.
Sales and Marketing
Three Months Ended September 30, Change
2022 2021 Amount %
(in thousands, except percentages)
Sales and marketing $ 4,507 $
3,212
Our sales and marketing expenses consist primarily of salaries, commissions and other variable compensation, benefits, stock-based compensation and travel costs for employees within our commercial sales and marketing functions, as well as third-party costs associated with our marketing activities. These expenses are exclusive of depreciation and amortization. Sales and marketing expenses increased by$1.3 million , or 40%, for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . The increase was primarily driven by a$0.7 million increase in compensation expenses as a result of increases in headcount, a$0.5 million increase in marketing and travel expense, and a$0.2 million increase in stock-based compensation. We expect our sales and marketing expenses to increase in future periods as we expand our commercial sales, marketing and business development teams, product offerings, expand our collaboration efforts, increase our presence globally, and increase marketing activities to drive awareness and adoption of our products. General and Administrative Three Months Ended September 30, Change 2022 2021 Amount % (in thousands, except percentages) General and administrative $ 6,444 $
5,347
General and administrative expenses primarily consist of salaries, benefits, stock-based compensation and travel costs for employees in our executive, accounting and finance, legal, corporate development, human resources, information systems and office administration functions as well as professional services fees, such as consulting, audit, tax and legal fees, general corporate costs, facilities and allocated overhead expenses and costs associated with being a Nasdaq and AIM listed public company such as director fees,U.K. NOMAD and broker fees, investor relations consultants and insurance costs. These expenses are exclusive of depreciation and amortization. General and administrative expense increased by$1.1 million , or 21%, for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . The increase was primarily driven by a$0.5 million increase in compensation expense associated with headcount and salary increases, a$0.3 million increase in stock-based compensation and a$0.2 million increase in occupancy expenses. We expect that our general and administrative expenses will continue to increase in absolute dollars in future periods, primarily due to increased headcount to support anticipated growth in the business and due to incremental costs associated with operating as a public company listed on aU.S. exchange, including insurance (particularly directors and officers insurance), costs to comply with the rules and regulations applicable to companies listed on aU.S. securities exchange and costs related to compliance and reporting obligations pursuant to the rules and regulations of theSEC and stock exchange listing standards, investor relations and professional services. We expect these expenses to vary from period to period as a percentage of revenue. 25
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Depreciation and Amortization
Depreciation expense consists of the depreciation of property and equipment used
actively in the business, primarily by research and development activities.
Amortization expense includes the amortization of intangible assets over their
respective useful lives.
Three Months Ended September 30, Change
2022 2021 Amount %
(in thousands, except percentages)
Depreciation and amortization $ 710 $
333
Depreciation and amortization expense increased by$0.4 million , or 113%, for the three months endedSeptember 30, 2022 , compared to the three months endedSeptember 30, 2021 . The increase was primarily driven by increases in leasehold improvements and investments in laboratory equipment.
Interest and Other Income (Expense)
Three Months Ended September 30, Change
2022 2021 Amount %
(in thousands, except percentages)
Interest and other expense $ 116 $ 289 $ (173) (60%)
Interest and other income 1,394 52 1,343 NM
Interest and other expense decreased by$0.2 million , for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . We did not incur interest expense for the three months endedSeptember 30, 2022 as we currently have no indebtedness. The other expense incurred during the three months endedSeptember 30, 2022 was related to a write-off of leasehold improvements due to early termination of prior facility subleases. Interest and other expense for the three months endedSeptember 30, 2021 consisted of MidCap warrant valuation adjustments. Interest and other income represents interest on our cash balances and short-term investments, which increased by$1.3 million for the three months endedSeptember 30, 2022 . The increase was primarily driven by the significantly higher weighted average balance of short-term investments resulting from the IPO proceeds received inAugust 2021 and recent interest rate increases.
Comparison of the Nine Months Ended
The following table sets forth our results of operations for the periods
presented:
Nine Months Ended
September 30,
2022 2021
(in thousands)
Total revenue $ 31,838 $ 23,742
Cost of goods sold 3,552 2,422
Gross profit 28,286 21,321
Operating expense
Research and development 13,786 12,027
Sales and marketing 13,276 8,914
General and administrative 20,180 12,646
Depreciation and amortization 1,654 968
Total operating expense 48,896 34,554
Operating loss (20,610) (13,233)
Other income (expense)
Interest and other expense (116) (1,044)
Interest and other income 1,965 70
Total other income (expense) 1,849 (974)
Net loss $ (18,761) $ (14,208)
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Revenue
The following table provides details regarding the sources of our revenue for
the periods presented:
Nine Months Ended
September 30, Change
2022 2021 Amount %
(in thousands, except percentages)
Cell therapy $ 23,002 $ 15,721 $ 7,281 46%
Drug discovery 6,074 5,510 564 10%
Program-related 2,762 2,512 250 10%
Total revenue $ 31,838 $ 23,742 $ 8,096 34%
Total revenue for the nine months ended September 30, 2022 was $31.8 million , an
increase of $8.1 million , or 34%, compared to revenue of $23.7 million during
the nine months ended September 30, 2021 .
Our overall increase in revenue for the nine months ended September 30, 2022 was
driven by revenue growth in the cell therapy market, primarily from growing
instrument sales and licenses and disposable sales, and increases in disposables
sales to drug discovery customers. In the cell therapy market, revenue from
instrument sales and licenses of instruments increased by $3.5 million , which
was primarily due to continued high levels of capital invested or held in
companies operating in our target markets, while disposables sales increased by
$3.6 million as a result of the continued progression of our cell therapy
partners' clinical development programs. In the drug discovery market, the $0.6
million revenue increase was primarily driven by sales of disposables. The $0.3
million increase in program-related revenues resulted from expected variability
from period to period in the level of program-related revenue given the small
number of individual triggering events which currently generate this portion of
revenue. We expect program-related revenue to experience variability for some
time, although we anticipate that this variability may moderate as the volume of
SPLs and associated milestones grows.
Cost of Goods Sold and Gross Profit
Nine Months Ended September 30 ,
Change
2022 2021 Amount %
(in thousands, except percentages)
Cost of goods sold $ 3,552 $ 2,422 $ 1,130 47%
Gross profit $ 28,286 $ 21,321 $ 6,965 33%
Gross margin 89% 90%
Cost of goods sold increased by $1.1 million , or 47%, for the nine months ended
September 30, 2022 compared to the nine months ended September 30, 2021 . The
increase was primarily driven by higher sales of instruments and disposables.
Gross profit increased by
increase was primarily driven by increased revenue from instrument and
disposables sales and licensed instruments.
During the nine months endedSeptember 30, 2022 , gross margin was 89%, compared to 90% in the same period of 2021. Excluding program-related revenues, gross margin was 88%, compared to 89% in the same period of 2021. The decrease in gross margin was principally due to changes in the overall mix of product revenues (processing assemblies, instrument sales and leases and program related revenues). 27 Table of Contents Operating Expenses Research and Development Nine Months Ended September 30, Change 2022 2021 Amount % (in thousands, except percentages) Research and development$ 13,786 $
12,027
Research and development expenses increased by$1.8 million , or 15%, for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . The increase was primarily driven by a$2.2 million increase in compensation expenses associated with headcount increases, a$1.4 million increase in stock-based compensation, a$1.1 million increase in lab supplies expenses and product development costs, a$0.4 million increase in travel expenses, a$0.4 million increase in occupancy expense, and a$0.2 million increase in professional service costs, partially offset by a$4.4 million decrease in CARMA expenses as a result of the wind-down of our CARMA operations in 2021. Sales and Marketing Nine Months Ended September 30, Change 2022 2021 Amount % (in thousands, except percentages) Sales and marketing $ 13,276 $
8,914
Sales and marketing expenses increased by$4.4 million , or 49%, for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . The increase was primarily driven by a$2.1 million increase in compensation expenses as a result of increases in headcount and commissions on sales, a$1.6 million increase in marketing and travel expenses, and a$0.7 million increase in stock-based compensation. General and Administrative Nine Months Ended September 30, Change 2022 2021 Amount % (in thousands, except percentages) General and administrative$ 20,180 $
12,646
General and administrative expense increased by$7.5 million , or 60%, for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . The increase was primarily driven by a$2.5 million increase in compensation expense associated with headcount and salary increases, a$2.3 million increase in expense associated with the costs of our common stock being listed on theNasdaq stock exchange including insurance and related legal expenses, a$1.1 million increase in stock-based compensation and a$1.3 million increase in occupancy and general expenses. Depreciation and Amortization Nine Months Ended September 30, Change 2022 2021 Amount % (in thousands, except percentages) Depreciation and amortization $ 1,654 $
968
Depreciation and amortization expense increased by$0.7 million , or 71%, for the nine months endedSeptember 30, 2022 , compared to the nine months endedSeptember 30, 2021 . The increase was primarily driven by increases in leasehold improvements and investments in laboratory equipment and instruments. 28
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Interest and Other Income (Expense)
Nine Months Ended September 30, Change
2022 2021 Amount %
(in thousands, except percentages)
Interest and other expense $ 116 $ 1,044 $ (928) (89%)
Interest and other income 1,965 70 1,895 NM
Interest and other expense decreased by$0.9 million , or 89%, for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . The decrease was primarily driven by the repayment of the MidCap loan inMarch 2021 and the settlement of a warrant inAugust 2021 , which resulted in us no longer incurring interest expense on indebtedness or warrant fair value adjustments. The increase of$1.9 million in interest and other income was primarily driven by significantly higher average balance of short-term investments resulting from the IPO proceeds received inAugust 2021 and increases in interest rates during 2022.
Liquidity and Capital Resources
Since our inception, we have experienced losses and negative cash flows from operations. For the nine months endedSeptember 30, 2022 , we incurred a net loss of$18.8 million . As ofSeptember 30, 2022 , we had an accumulated deficit of$133.1 million . To date, we have funded our operations primarily with proceeds from sales of common stock, including our IPO in 2021, as well as borrowings under loan agreements and from revenues associated with sales and licenses of our products to customers. As ofSeptember 30, 2022 , we had cash and cash equivalents and short-term investments of$232.9 million . We expect to incur increased near-term operating losses as we continue to invest in expanding our business through growing our sales and marketing efforts, continued research and development, product development and expanding our product offerings. Based on our current business plan, we believe our existing cash and cash equivalents and short-term investments will enable us to fund our operating expenses and capital expenditure requirements for the foreseeable future. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. Our future funding requirements will depend on many factors, including:
? transaction and capital expenditures necessitated by strategic activities;
? market acceptance of our products;
? the cost and timing of establishing additional sales, marketing and
distribution capabilities;
the cost of our research and development activities and successful development
? of data supporting use of our products for new applications, and timely launch
of new features and products;
? sales to existing and new customers and the progress of our SPL partners in
developing their pipelines of product candidates;
? our ability to enter into additional SPLs and licenses for clinical use of our
platform in the future;
? changes in the amount of capital available to existing and emerging customers
in our target markets;
? the effect of competing technological and market developments; and
? the level of our selling, general and administrative expenses.
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If we are unable to execute on our business plan and adequately fund operations,
or if our business plans require a level of spending in excess of cash
resources, we will have to seek additional equity or debt financing. If
additional financings are required from outside sources, we may not be able to
raise such capital on terms acceptable to us or at all. To the extent that we
raise additional capital through the sale of equity or debt securities, the
ownership interest of our stockholders will be diluted, and the terms of these
securities may include liquidation or other preferences that adversely affect
the rights of our common stockholders. Debt financing, if available, may involve
agreements that include covenants restricting our ability to take specific
actions, such as incurring additional debt, selling or licensing our assets,
making product acquisitions, making capital expenditures or declaring dividends.
If we raise additional funds through collaboration and licensing arrangements
with third parties, it may be necessary to relinquish some rights to our
technologies or our products, or grant licenses on terms that are not favorable
to us. If we are unable to raise additional capital when desired, we may have to
delay development or commercialization of future products. We also may have to
reduce marketing, customer support or other resources devoted to our existing
products.
Cash Flows
The following table summarizes our uses and sources of cash for the periods
presented:
Nine Months Ended
September 30,
(in thousands) 2022 2021
Net cash provided by (used in):
Operating activities $ (8,697) $ (9,719)
Investing activities 2,272 (183,575)
Financing activities 1,663 233,513
Net (decrease) increase in cash and cash equivalents
Operating Activities Net cash used in operating activities for the nine months endedSeptember 30, 2022 was$8.7 million , and consisted primarily of our net loss of$18.8 million , offset in part by net non-cash expenses of$9.4 million , including stock-based compensation of$8.6 million , depreciation and amortization expenses of$1.8 million and amortization of discounts on investments of$1.2 million . We also had net cash inflows of$0.6 million due to changes in our operating assets and liabilities. Net changes in our operating assets and liabilities consisted primarily of an increase in the net effect of our right-of-use assets and lease liabilities of$5.1 million and an increase in accounts payable and accrued expenses of$1.2 million , partially offset by a$2.9 million increase in inventory, a$0.9 million increase in other assets, a$0.8 million increase in TIA receivable, a$0.6 million increase in accounts receivable, and a$0.6 million decrease in deferred revenue. Net cash used in operating activities for the nine months endedSeptember 30, 2021 was$9.7 million , and consisted primarily of our net loss of$14.2 million , offset in part by net non-cash expenses of$7.2 million , including stock-based compensation of$5.5 million , warrant liability fair value adjustments of$0.6 million , and depreciation and amortization expenses of$1.0 million . We also had net cash outflows of$2.7 million due to changes in our operating assets and liabilities. Net changes in our operating assets and liabilities consisted primarily of an increase in deferred revenue (consisting primarily of unrecognized instrument license revenue) of$1.5 million and a decrease in the net effect of our right-of-use assets and lease liabilities of$0.2 million , partially offset by a$2.5 million increase in prepaid expenses (other current assets), a$0.4 million decrease in accounts payable and accrued expenses, a$0.8 million increase in accounts receivable, a$0.3 million increase in inventory and a$0.3 million increase in other non-current assets.
Investing Activities
Net cash provided by investing activities during the nine months endedSeptember 30, 2022 was$2.3 million , which was primarily attributable to maturities of short-term marketable securities of$232.1 million , partially offset by purchases of short-term marketable securities of$213.5 million , capitalized lease-related construction expenses of$13.4 million , purchases of equipment of$1.9 million and capitalized construction-in-process of$1.0 million . Purchases and sales of 30 Table of Contents short-term marketable securities are made as part of ordinary course investing activities in compliance with our investment policy which has as its primary objective preservation of principal. Net cash used in investing activities during the nine months endedSeptember 30, 2021 was$183.6 million , which was primarily attributable to net purchases of short-term marketable securities of$180.9 million , as well as purchases of property and equipment of$0.9 million , capitalized new product development costs of$1.5 million and capitalized lease-related expenses of$0.3 million . Purchases of short-term marketable securities are made as part of ordinary course investing activities in compliance with our investment policy for which preservation of principal is its primary objective.
Financing Activities
Net cash provided by financing activities during the nine months ended
30, 2022
options.
Net cash provided by financing activities during the nine months endedSeptember 30, 2021 was$233.5 million , which was primarily attributable to net proceeds of$236.1 million , including$51.8 million from the issuance of common stock in the first quarter and$184.3 million from our Nasdaq IPO in the third quarter of 2021, and proceeds of$2.4 million from the exercise of stock options, partially offset by the repayment of the MidCap loan of$4.9 million .
Contractual Obligations and Commitments
Our contractual obligations and commitments as ofSeptember 30, 2022 consisted exclusively of operating lease obligations. InMay 2021 , we entered into an operating lease for new office, lab and warehouse/manufacturing space. The lease for the new facility consists of three phases, with Phase 1 having commenced inDecember 2021 and Phase 2 having commenced in the first quarter of 2022, and the lease term expires onAugust 31, 2035 . We designed and constructed the leasehold improvements with the approval of the landlord. The landlord will reimburse us for costs of property improvements up to amounts specified in the lease. The total incremental non-cancellable lease payments under the lease agreement are$29.6 million through the lease term. We expect to be able to fund our obligations under the new lease, both in the short term and in the long term, from cash on hand and operating cash flows.
In
lease arrangements, which occurred in
In
do not have any finance lease obligations.
InJune 2022 , we exercised our option to early terminate our remaining subleased office, laboratory, manufacturing and other spaces, which became effective in July andAugust 2022 . These subleases previously had expiration dates inOctober 2023 .
Purchase orders or contracts for the purchase of supplies and other goods and
services are based on our current procurement or development needs and are
generally fulfilled by our vendors within short time horizons.
Critical Accounting Policies and Significant Judgments and Estimates
We have prepared our condensed consolidated financial statements in accordance withU.S. GAAP. Our preparation of these condensed consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.
Actual results could therefore differ materially from these estimates under
different assumptions or conditions.
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There have been no material changes to our critical accounting policies and estimates from those disclosed in our consolidated financial statements and the related notes and other financial information included in the Annual Report on Form 10-K filed withSEC onMarch 22, 2022 .
JOBS Act Accounting Election
We are an "emerging growth company," or EGC, under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Section 107 of the JOBS Act provides that an EGC can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of the delayed adoption of new and revised accounting standards and, therefore, we will be subject to the same requirements to adopt new or revised accounting standards as private entities. We also intend to rely on other exemptions provided by the JOBS Act, including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. We will remain an EGC until the earliest of (i)December 31, 2026 , (ii) the last day of the fiscal year in which we have total annual gross revenues of$1.235 billion or more, (iii) the date on which we have issued more than$1 billion in non-convertible debt during the previous rolling three-year period, or (iv) the date on which we are deemed to be a "large accelerated filer" underSEC rules.
Recent Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
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