Quanterix(QTRX) - 2022 Q4 - Annual Report

PART I Business Quanterix specializes in ultra-sensitive digital immunoassay platforms, providing instruments and services for life science and pharmaceutical markets, undergoing a 2022 restructuring to enhance quality and market focus - The company's proprietary Simoa technology enables the detection of protein biomarkers at extremely low concentrations, a significant advancement over conventional ELISA technology[20][21] - Simoa technology has been cited in over 2,000 scientific publications and the company serves a customer base of over 1,300[22][32] - In Q3 2022, Quanterix initiated a Restructuring Plan, which included eliminating 119 positions and starting an assay redevelopment program to improve manufacturing and delivery of high-quality assays at scale[23] - The company's installed instrument base grew to 876 instruments as of December 31, 2022, providing a recurring revenue stream from consumables[32] Our Products and Services Quanterix offers Simoa instruments and biomarker assays, with its CLIA-certified Accelerator Laboratory providing contract research and LDTs Quanterix Instrument Portfolio | Instrument | Technology | Key Features | | :--- | :--- | :--- | | HD-X | Bead-based | Fully automated, high productivity, upgraded version of HD-1 | | SR-X | Bead-based | Compact benchtop, lower price, flexible assay prep | | SP-X | Planar array | High multiplexing capabilities, ideal for oncology/immunology | - The Accelerator Laboratory has completed over 1,900 projects for more than 400 customers and launched LDTs for pTau-181 (Alzheimer's evaluation) and NfL (neurodegeneration evaluation)[27] - Through its subsidiary UmanDiagnostics, the company supplies premier Neurofilament light chain (NfL) antibodies and ELISA kits, critical for its neurology assays[28] Our Strategy The company's strategy drives Simoa technology adoption in life science and pharma, leveraging neurological biomarkers before expanding into diagnostics - Initial focus is on the life science research/pharma market due to reduced regulatory and reimbursement risk[35] - A core part of the strategy is to expand into the diagnostics market, leveraging Simoa's sensitivity to enable less-invasive blood-based tests[35] - The company is capitalizing on the increasing relevance of neurological biomarkers (NfL, pTau-181, pTau-217) in clinical trials for drugs like lecanemab and donanemab[35] Our Market Opportunities Quanterix targets a $75 billion market opportunity across life science research/pharma ($20 billion) and diagnostics ($55 billion) markets Total Addressable Market (TAM) | Market Segment | Estimated TAM | | :--- | :--- | | Life Science Research/Pharma | ~$20 billion | | Diagnostics | ~$55 billion | | Total | ~$75 billion | Intellectual Property The company's core strength is its extensive intellectual property, built around proprietary Simoa technology, with numerous owned and licensed patents - The core Simoa bead-based technology originated at Tufts University and is exclusively licensed to Quanterix[166][194] - As of March 1, 2023, the company owned 29 issued U.S. patents and had 17 pending U.S. patent applications, in addition to numerous international patents and applications[174] - The patent portfolio for the planar array technology was acquired with Aushon Biosystems in 2018 and includes at least ten issued U.S. patents[186] Government Regulation Most Quanterix products are Research Use Only, but its CLIA-certified lab offers LDTs subject to CLIA regulations, with potential for future FDA oversight - Most current products are labeled "For Research Use Only. Not for Diagnostic Procedures," which generally exempts them from FDA premarket review[197] - The company operates a CLIA-certified laboratory, which is subject to federal standards under the Clinical Laboratory Improvement Amendments of 1988 (CLIA)[218] - The FDA has granted Breakthrough Device designation for the Simoa pTau-181 blood test for Alzheimer's evaluation and the Simoa NfL plasma test for multiple sclerosis, potentially accelerating their review processes[86][99][214] Risk Factors The company faces significant risks including net losses, operational challenges from restructuring, reliance on single-source manufacturers, and internal control weaknesses - The company has a history of annual net losses, incurring a net loss of $96.7 million in 2022, and expects losses to continue[254] - There is a risk that the company may fail to achieve the intended cost savings and quality benefits from its 2022 Restructuring Plan and assay improvement program[251][272][273] - Quanterix relies on single contract manufacturers for its Simoa HD-X (STRATEC) and SR-X (Paramit) instruments, posing a significant supply chain risk[251][292] - Management identified material weaknesses in internal control over financial reporting as of December 31, 2022, which could result in material misstatements if not remediated[251][261] - A significant portion of revenue comes from a few large customers, and the loss of any of these could harm operating results[251][277] Properties Quanterix's headquarters are in a leased 91,600 sq ft facility in Billerica, MA; a newly leased 85,800 sq ft Bedford facility will be subleased - The company's principal facility is a 91,600 sq. ft. leased space in Billerica, MA, with a lease term extending from April 2019[398] - A newly leased 85,800 sq. ft. facility in Bedford, MA, will not be occupied as part of the 2022 Restructuring Plan; the company intends to sublease this space[398][401] Legal Proceedings As of December 31, 2022, Quanterix was not a party to any material legal proceedings, only non-material matters - As of December 31, 2022, the company was not party to any material legal proceedings[402] PART II Management's Discussion and Analysis of Financial Condition and Results of Operations In FY2022, total revenue decreased 5% to $105.5 million, net loss widened to $96.7 million due to lower gross margin and restructuring/impairment charges Results of Operations For FY2022, total revenue decreased 5% to $105.5 million, product revenue fell, service revenue grew, leading to a 68% increase in net loss to $96.7 million Comparison of Operations for Years Ended Dec 31, 2022 and 2021 | Financial Metric | 2022 (in thousands) | 2021 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $105,522 | $110,556 | (5)% | | Product Revenue | $69,808 | $81,062 | (14)% | | Service & Other Revenue | $34,495 | $23,629 | 46% | | Gross Profit | $46,806 | $61,728 | (24)% | | Gross Margin | 44% | 56% | (12) p.p. | | Total Operating Expenses | $148,510 | $120,314 | 23% | | Research & Development | $25,890 | $27,978 | (7)% | | Selling, General & Admin | $91,995 | $92,336 | (0)% | | Restructuring & Impairment | $29,347 | $0 | N/A | | Loss from Operations | ($101,704) | ($58,586) | (74)% | | Net Loss | ($96,700) | ($57,688) | (68)% | - The decrease in product revenue was primarily due to reducing production levels of consumables to ensure quality[485] - The increase in service and other revenue was primarily due to revenue recognized from the Lilly Collaboration Agreement[486][487] - The company incurred significant one-time expenses in 2022, including $3.8 million in restructuring costs, $8.2 million in goodwill impairment, and $17.4 million in other long-lived asset impairment[495] Liquidity and Capital Resources Quanterix ended 2022 with $338.7 million in cash, primarily from equity offerings, believing current reserves are sufficient for the next 12 months Key Liquidity Metrics (as of Dec 31, 2022) | Metric | Amount (in millions) | | :--- | :--- | | Cash and Cash Equivalents | $338.7 | | Accumulated Deficit | ($402.2) | | Net Cash Used in Operating Activities (FY 2022) | ($48.3) | - The company financed operations primarily through equity offerings, including raising approximately $270 million in net proceeds in February 2021[503][504] - Management believes that current cash and cash equivalents will be sufficient to meet anticipated operating cash requirements for at least the next 12 months[517] Quantitative and Qualitative Disclosures about Market Risk The company is exposed to credit, foreign currency, and interest rate risks, with foreign revenue at 38% and interest rate risk considered minimal - One customer accounted for 13% of total revenue for the year ended December 31, 2022[530] - Approximately 38% of total revenue in 2022 was generated from customers outside of North America, exposing the company to foreign currency exchange risk[531] - Interest rate risk is considered immaterial due to the short-term nature of the company's $338.7 million in cash and cash equivalents[533] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2022, 2021, and 2020, including balance sheets and statements of operations Consolidated Balance Sheet Highlights (as of Dec 31) | Account (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $338,740 | $396,465 | | Total current assets | $381,403 | $448,955 | | Total assets | $434,199 | $501,527 | | Liabilities & Equity | | | | Total current liabilities | $30,958 | $36,977 | | Total liabilities | $75,259 | $60,575 | | Total stockholders' equity | $358,940 | $440,952 | Consolidated Statement of Operations Highlights (Year ended Dec 31) | Account (in thousands) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total revenue | $105,522 | $110,556 | $86,377 | | Gross profit | $46,806 | $61,728 | $48,182 | | Total operating expenses | $148,510 | $120,314 | $79,766 | | Loss from operations | ($101,704) | ($58,586) | ($31,584) | | Net loss | ($96,700) | ($57,688) | ($31,530) | | Net loss per share | ($2.61) | ($1.60) | ($1.07) | Controls and Procedures Management concluded disclosure controls were ineffective as of Dec 31, 2022, due to material weaknesses in internal control, primarily from insufficient personnel - Management concluded that disclosure controls and procedures were not effective as of December 31, 2022[537] - Material weaknesses were identified in internal controls related to: (i) inventory accounting, (ii) salary and commissions expense, (iii) the financial statement close process, and (iv) property and equipment accounting[541][549] - The primary cause of the control deficiencies was an insufficient number of qualified personnel in key accounting and finance functions[541] - A remediation plan is underway, which includes hiring more personnel, engaging consultants for technical accounting and system assessment, and providing additional training[544] PART III Directors, Executive Compensation, Security Ownership, and Principal Accountant Fees Information for Items 10-14, covering directors, executive compensation, security ownership, and accountant fees, is incorporated by reference from the 2023 proxy statement - The detailed information for Part III of the 10-K is not included directly in this report but is incorporated by reference from the forthcoming 2023 proxy statement[561][562][563] PART IV Exhibits and Financial Statement Schedules This section lists all exhibits filed with the 10-K, including corporate governance documents, material contracts, and certifications - This section provides a comprehensive list of all exhibits filed with the 10-K, including key agreements like the Exclusive License Agreement with Tufts University and manufacturing agreements with STRATEC and Paramit[570][572][574]