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Item 2. Management’s Discussion and Analysis

2024-05-08 compared with 2023-11-08 · 119 added, 249 removed, 74 unchanged (83% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited Consolidated Financial Statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the U.S.

Securities and Exchange Commission (the “SEC”) on March 6, 2023 (the “Annual Report on Form 10-K”).

In addition to historical information, the following discussion contains forward-looking statements that involve risks, uncertainties, and assumptions.

Our actual results, performance, or experience could differ materially from what is indicated by any forward-looking statement due to various important factors, risks, and uncertainties, including, but not limited to, those set forth under the section titled “Part II, Item 1A.

Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q and our audited Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the U.S.

Securities and Exchange Commission (the “SEC”) on February 29, 2024 (the “Annual Report on Form 10-K”).

Certain columns and rows may not add due to the use of rounded numbers.

Percentages presented are calculated from the underlying unrounded numbers.

In addition to historical information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions.

Our actual results, performance, or experience may differ materially from those discussed below due to various important factors, risks, and uncertainties, including, but not limited to, those set forth under the sections titled “Part II, Item 1A.

Risk Factors” and “Note Regarding Forward-Looking Statements” included in this Quarterly Report on Form 10-Q or under the section titled “Part I, Item 1A.

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Unless the context otherwise requires, the terms “Quanterix,” the “Company,” “we,” “it,” “us, “and “our” in this Quarterly Report on Form 10-Q refer to Quanterix Corporation and its consolidated subsidiaries.

We are a life sciences company that has developed next generation, ultra-sensitive digital immunoassay platforms that advance precision health for life sciences research and diagnostics.

Our platforms are based on our proprietary digital “Simoa” detection technology.

Our Simoa bead-based and planar array platforms enable customers to reliably detect protein biomarkers in extremely low concentrations in blood, serum, and other fluids that, in many cases, are undetectable using conventional, analog immunoassay technologies, and also allow researchers to define and validate the function of novel protein biomarkers that are only present in very low concentrations.

These capabilities provide our customers with insight into the role of protein biomarkers in human health that has not been possible with other existing technologies and enable researchers to unlock unique insights into the continuum between health and disease.

We believe this greater insight will enable the development of novel therapies and diagnostics and facilitate a paradigm shift in healthcare from an emphasis on treatment to a focus on earlier detection, monitoring, prognosis and, ultimately, prevention.

Our instruments are designed to be used either with assays fully developed by us, including all antibodies and supplies required to run the tests, or with “homebrew” kits where we supply some of the components required for testing and the customer supplies the remaining required elements.

We are a life sciences company that has developed next-generation, ultra-sensitive digital immunoassay platforms that advance life sciences research and diagnostics.

Our platforms are based on our proprietary digital “Simoa” detection technology and enable customers to reliably detect protein biomarkers at ultra-low concentrations in blood, serum, and other fluids that, in many cases, are undetectable using conventional, analog immunoassay technologies.

The ability of our Simoa platforms to detect proteins in the femtomolar range is enabling the development of novel therapies and diagnostics and has the potential to facilitate a paradigm shift in healthcare from an emphasis on treatment to a focus on earlier detection, monitoring, prognosis, and, ultimately, prevention.

Our Simoa platforms have achieved significant scientific validation and commercial adoption, and our Simoa technology has been cited in more than 2,900 scientific publications in areas of high unmet medical need and research interest such as neurology, oncology, cardiology, infectious disease, and inflammation.

Our instruments are designed to be used either with assays fully developed by us, including all antibodies and supplies required to run the assays, or with “homebrew” assay kits where we supply some of the components required for testing and the customer supplies the remaining required elements.

Accordingly, our installed instruments generate a recurring revenue stream.

As the installed base of the Simoa instruments increases, we expect total consumables revenue to increase.

We commercially launched our first immunoassay platform, the Simoa HD-1, in 2014.

The HD-1 is based on our bead-based technology and assays run on the HD-1 are fully automated.

We initiated commercial launch of the SR-X instrument in 2017.

The SR-X utilizes the same Simoa bead-based technology and assay kits as the HD-1 in a compact benchtop form with a lower price point, more flexible assay preparation, and a wider range of applications.

In 2019, we launched the Simoa HD-X, an upgraded version of the Simoa HD-1, which replaces the HD-1.

The HD-X has been designed to deliver significant productivity and operational efficiency improvements, as well as greater user flexibility.

By September 30, 2023, approximately 81% of the HD instrument installed base was HD-X instruments.

As the installed base of our Simoa instruments increases, we expect total consumables revenue to increase.

We commercially launched our HD-X instrument in the second half of 2019.

The HD-X is an upgraded version of the Simoa HD-1 (our first Simoa instrument, launched in January 2014), collectively “HD Instruments”, that is designed to deliver significant productivity and operational efficiency improvements, as well as greater user flexibility.

The HD-X uses our bead-based technology and assays run on the HD-X are fully automated.

By March 31, 2024, approximately 83% of the HD Instrument installed base were HD-X instruments.

Further, we launched our SR-X instrument in 2017 as a compact desktop instrument with a lower price point, more flexible assay preparation, and a wider range of applications.

The SR-X utilizes the same Simoa bead-based technology and assay kits as the HD-X.

With our acquisition of Aushon BioSystems, Inc.

in 2018, we acquired a CLIA-certified laboratory, as well as their proprietary sensitive planar array detection technology.

Leveraging our proprietary sophisticated Simoa image analysis and data analysis algorithms, we further refined the planar array technology to develop the SP-X instrument to provide sensitivity similar to that found in our Simoa bead-based platform.

in 2018, we acquired a CLIA certified laboratory and proprietary sensitive planar array detection technology.

The Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) are federal regulatory standards that apply to all clinical laboratory testing performed on humans in the United States (with the exception of research testing that does not report patient specific results).

Leveraging our proprietary

sophisticated Simoa image analysis and data analysis algorithms, we further refined the planar array technology to develop the SP-X instrument to provide sensitivity similar to that found in our Simoa bead-based platform.

We commercially launched the SP-X instrument in 2019.

Our wholly-owned subsidiary UmanDiagnostics AB (“Uman”), a company located in Umeå, Sweden, supplies neurofilament light (“Nf-L”), antibodies, and enzyme-linked immunoassay (“ELISA”) kits, which are used by

researchers and biopharmaceutical and diagnostics companies world-wide in the detection of Nf-L to advance the development of therapeutics and diagnostics for neurodegenerative conditions.

We also provide contract research services for customers and Laboratory Developed Test (“LDT”) services through our CLIA-certified Accelerator Laboratory (the “Acceleratory Laboratory”).

The Accelerator Laboratory provides customers with access to Simoa technology, and supports multiple projects and services, including sample testing, homebrew assay development, custom assay development, and blood-based biomarker testing.

Our wholly-owned subsidiary UmanDiagnostics AB (“Uman”), a company located in Umeå, Sweden, supplies neurofilament light (“NfL”), antibodies, and enzyme-linked immunoassay (“ELISA”) kits, which are used by researchers and biopharmaceutical and diagnostics companies world-wide in the detection of NfL to advance the development of therapeutics and diagnostics for neurodegenerative conditions.

We also provide contract research services for customers and Laboratory Developed Test (“LDT”) services through our CLIA-certified Accelerator Laboratory (the “Accelerator Laboratory”).

The Accelerator Laboratory provides customers with access to our Simoa technology and our Lucent Diagnostics clinical testing services (launched in July 2023), and supports multiple projects and services, including sample testing, homebrew assay development, custom assay development, and blood-based biomarker testing.

To date, we have completed over 2,300 projects for more than 480 customers from all over the world using our Simoa platforms.

We sell our instruments, consumables, and services to the life science, pharmaceutical, and diagnostics industries through a direct sales force and support organizations in North America and Europe, and through distributors and sales agents in other select markets, including Australia, Brazil, China, Czech Republic, India, Hong Kong, Israel, Japan, New Zealand, Qatar, Saudi Arabia, Singapore, South Africa, South Korea, Taiwan, and the United Arab Emirates.

In addition, Uman sells Nf-L antibodies and Nf-L ELISA kits directly, and in conjunction with us and another distributor, worldwide.

We have an extensive base of customers in academic and governmental research institutions, as well as pharmaceutical, biotechnology, and contract research companies.

As of September 30, 2023, we had cash, cash equivalents, and marketable securities of $327.7 million.

Since our inception, we have incurred annual net losses.

Our net losses were $7.8 million and $19.9 million for the three and nine months ended September 30, 2023, respectively, and $35.1 million and $78.1 million for the three and nine months ended September 30, 2022, respectively.

As of September 30, 2023, we had an accumulated deficit of $422.1 million and stockholders’ equity of $353.4 million.

We expect to continue to incur significant expenses and operating losses at least through the next 24 months.

We expect our expenses will increase as we:

We have an extensive base of customers including pharmaceutical, biotechnology, contract research organizations, academic and governmental research institutions.

We sell our instruments, consumables, and services through a direct field sales force and support organizations in North America and Europe, and through our own sales force and distributors in additional countries, including Australia, Brazil, China, Czech Republic, India, Hong Kong, Israel, Japan, New Zealand, Qatar, Saudi Arabia, Singapore, South Africa, South Korea, Taiwan, and the United Arab Emirates.

In addition, we sell NfL antibodies and NfL ELISA kits directly, and through distributors, worldwide.

As of March 31, 2024, we had cash, cash equivalents, and marketable securities of $301.9 million.

Since our inception, we have incurred annual net losses, including net losses of $10.1 million and $6.1 million for the three months ended March 31, 2024 and 2023, respectively.

As of March 31, 2024, we had an accumulated deficit of $444.6 million and stockholders’ equity of $341.4 million.

We expect to incur significant expenses and operating losses at least through the next 24 months and we expect our expenses to increase substantially as we:

● expand our sales and marketing efforts to further commercialize our products;

● expand our research and development efforts to improve our existing products and develop and launch new products, particularly if any of our products are deemed by the U.S.

Food and Drug Administration (the “FDA”) to be medical devices or otherwise subject to additional regulation by the FDA;

● seek Premarket Approval (“PMA”) or 510(k) clearance from the FDA for our existing products or new products if or when we decide to market products for use in the prevention, diagnosis, or treatment of a disease or other condition;

● expand our research and development efforts to improve our existing products and develop and launch new products, particularly if any of our products become subject to additional or more burdensome regulation by the U.S.

Food and Drug Administration (the “FDA”);

● invest in Lucent Diagnostics, additional LDTs, and other diagnostics initiatives including entry into translational pharma and clinical diagnostic markets;

● seek Premarket Approval (“PMA”), de novo classification, or 510(k) clearance from the FDA for our existing products or new products if or when we decide to market products for use in the prevention, diagnosis, or treatment of a disease or other condition;

● hire additional personnel to support our growth and research and development;

● strategically acquire and integrate companies or technologies that may be complementary to our business;

● intend to invest in our diagnostics business in support of the launch of Lucent Diagnostics, LDTs and other diagnostics initiatives;

● enter into collaboration arrangements, or in-license other products and technologies;

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Recent Business Developments

In October 2023, we entered into a license agreement with Janssen Sciences Ireland UC, a Johnson & Johnson Company (“J&J”).

The agreement grants us worldwide, non-exclusive rights to J&J’s p-Tau 217 antibodies and assay designs for use in clinical research and diagnostic products, including in the production of Simoa p-Tau 217 research-use only assay kits for global distribution.

Under this license, we are required to pay royalties on net sales of the licensed products and service activities.

In July 2023, we launched Lucent Diagnostics, a new healthcare provider-facing portal to meet the future needs of patients at the same time a therapy for disease becomes more widely available.

In the second half of 2023, we have launched initial blood-based biomarker LDTs, LucentAD and LucentAD p-Tau 217, to assist in the evaluation of patients experiencing cognitive symptoms consistent with the early signs of Alzheimer’s disease.

These tests have not been cleared or approved by the FDA.

We do not expect material revenues from these tests until 2024 or later.

On September 21, 2022, we entered into a contract with the National Institutes of Health (the “NIH”) with a total award value of $1.7 million (the “NIH Grant”).

The NIH is an agency of the U.S.

Department of Health and Human Services and under the NIH Grant granted us funding in support of the development of certain point-of-care diagnostic technologies through collaborative efforts.

Grant funding is to be used solely for activities related to the point-of-care diagnostic device development project and the contract period runs through August 2025.

Receipt of the award value occurs throughout the term of the contract period and after we submit for reimbursement of activities related to the grant.

As of September 30, 2023, we had received $0.5 million of the award value.

During the three months ended September 30, 2023, grant revenue recognized and research and development expense incurred under the NIH Grant were not material.

During the nine months ended September 30, 2023, grant revenue recognized and research and development expense incurred under the NIH Grant were $0.5 million and $0.4 million, respectively.

On March 24, 2022, we entered into a contract with the Alzheimer’s Drug Discovery Foundation (the “ADDF”) with a total funding value of $2.3 million (the “ADDF Grant”).

The ADDF is a charitable venture philanthropy entity that granted us funding in support of certain activities for the development of an in vitro diagnostic test for early detection of Alzheimer's disease.

The ADDF Grant restricts our use of the granted funds solely for activities related to our Alzheimer’s diagnostic test development project and the contract period runs through June 2024.

Receipt of the contract funding was subject to achievement of predefined milestones and as of September 30, 2023, we had received the total funding value of $2.3 million.

During the three and nine months ended September 30, 2023, grant revenue recognized and research and development expenses incurred under the ADDF Grant were $0.3 million and $0.4 million, respectively.

On February 25, 2022, we entered into a Master Collaboration Agreement with Eli Lilly and Company (“Lilly”) establishing a framework for future projects focused on the development of Simoa immunoassays (the “Lilly Collaboration Agreement”).

We also entered into a statement of work under the Lilly Collaboration Agreement to perform assay research and development services within the field of Alzheimer’s disease.

In connection with the Lilly Collaboration Agreement, we received a non-refundable up-front payment of $5.0 million during the first quarter of 2022, which was recognized over a one-year period.

In addition, under the statement of work, we receive $1.5 million per calendar quarter, which began in the first quarter of 2022.

The statement of work automatically renews on a quarterly basis until Lilly provides a termination notice in accordance with the terms of the Lilly Collaboration Agreement.

As of September 30, 2023, the Lilly Collaboration Agreement and the statement of work were still in effect.

Concurrent with the execution of the Lilly Collaboration Agreement, we entered into a Technology License Agreement (the “Lilly License”) under which Lilly granted us a non-exclusive license to Lilly’s proprietary pTau217 antibody technology for use in research use only products and services and future in vitro diagnostics applications within the field of Alzheimer’s disease.

In consideration of the Lilly License, we paid an upfront fee, are required to make milestone payments based on the achievement of predetermined regulatory and commercial events, and will pay royalties on net sales of licensed products.

We recognized revenue from the Lilly Collaboration Agreement of $1.5 million and $4.5 million during the three and nine months ended September 30, 2023, respectively.

Restructuring and Strategic Re-Alignment

Following a strategic review and assessment of our operations and cost structure, on August 8, 2022, we announced a restructuring and strategic re-alignment plan (the “Restructuring Plan”).

As part of the Restructuring Plan, we began an assay redevelopment program with the ultimate objective of improving our ability to manufacture and deliver high-quality assays at scale.

The Restructuring Plan aligns our investments to best serve the needs of our customers, focuses our innovation efforts on key platforms, and provides a foundation for our entry into translational pharma and clinical markets, which we believe will be required to access new growth categories.

In accordance with the Restructuring Plan, we implemented a workforce reduction, which was substantially completed by the end of the third quarter of 2022.

The Restructuring Plan included the elimination of 119 positions and other cost-saving measures.

During the nine months ended September 30, 2022, we incurred approximately $3.4 million of expenses related to the Restructuring Plan.

These expenses were substantially for cash payments of severance and employee benefits, $3.1 million of which was paid as of September 30, 2022.

Total restructuring expenses incurred in 2022 under the Restructuring Plan were $3.8 million.

As a result of the Restructuring Plan, we performed an impairment assessment of our goodwill, long-lived assets, including operating lease right-of-use assets, and intangibles.

The assessments resulted in us recording an impairment charge of $16.9 million during the three and nine months ended September 30, 2022.

The impairment charge included (1) $8.2 million of goodwill (refer to Note 12 − Goodwill in the Notes to Consolidated Financial Statements), (2) $7.7 million associated with the right-of-use asset and property and equipment at leased facilities no longer being utilized, and (3) $1.0 million for software costs related to projects that were rationalized as part of the Restructuring Plan.

During the nine months ended September 30, 2023, there were no material changes to the Restructuring Plan or the related exit and disposal costs.

Overall, as a result of the Restructuring Plan, we expect to realize estimated annualized operating expense savings in 2023 of approximately $25.0 million.

Comparison of Results of Operations for Three Months Ended September 30, 2023 and 2022:

The following table sets forth select Consolidated Statements of Operations data, and such data as a percentage of total revenues (in thousands, except percentages):

Three Months Ended September 30,

Increase (Decrease)

Product revenue

Service revenue

Collaboration and license revenue

Grant revenue

Total revenues

Costs of goods sold and services:

Cost of product revenue

Cost of service and other revenue

Total costs of goods sold and services

Operating expenses:

Research and development

Selling, general, and administrative

Other lease costs

Impairment and restructuring

Total operating expenses

Loss from operations

Interest income, net

Other income (expense), net

Loss before income taxes

Income tax expense

Total revenues increased $4.7 million, or 18%, to $31.3 million for the three months ended September 30, 2023, compared to $26.6 million for the three months ended September 30, 2022.

Product revenue of $19.7 million for the three months ended September 30, 2023 consisted of instrument sales of $3.7 million and sales of consumables and other products of $16.0 million.

This represented an increase of $2.0 million, or 11%, compared to product revenue of $17.7 million for the three months ended September 30, 2022, which consisted of $7.8 million in instrument sales and $9.9 million in sales of consumables and other products.

The increase in product revenue was primarily due to a $6.1 million increase in sales of consumables and increased average selling prices.

This increase was partially offset by a $4.1 million decrease in instrument sales due to reduced demand, which is a trend we expect to continue for the remainder of 2023.

Service revenue was $10.9 million for the three months ended September 30, 2023, compared to $8.4 million for the three months ended September 30, 2022, an increase of $2.6 million, or 31%.

This increase was primarily due to a $3.3 million increase in Accelerator Laboratory revenue due to higher volumes of sample testing and assay development services, which was partially offset by a $1.2 million decrease in revenue recognized from the Lilly Collaboration Agreement.

Collaboration and license revenue was $0.2 million for the three months ended September 30, 2023, compared to $0.3 million for the three months ended September 30, 2022, a decrease of $0.1 million, or 21%.

Grant revenue was $0.5 million for the three months ended September 30, 2023, compared to $0.3 million for the three months ended September 30, 2022, an increase of $0.2 million, or 77%.

Cost of Goods Sold and Services

Cost of goods sold and services decreased $2.2 million, or 14%, to $13.6 million for the three months ended September 30, 2023, compared to $15.7 million for the three months ended September 30, 2022.

Cost of product revenue decreased $2.2 million, or 21%, to $8.3 million for the three months ended September 30, 2023, compared to $10.5 million for the three months ended September 30, 2022.

The decrease was primarily due to improvement in inventory management and manufacturing processes and lower instrument sales.

These decreases were partially offset by product revenue related increases, including compensation and benefit costs from increased headcount and an increase in royalty fees.

Cost of service revenue was consistent with the prior period at $5.2 million for each of the three months ended September 30, 2023 and September 30, 2022, primarily due to the increase in Accelerator Laboratory revenue at higher margins.

Research and Development

Research and development expense increased $0.6 million, or 9%, to $7.2 million for the three months ended September 30, 2023, compared to $6.6 million for the three months ended September 30, 2022.

The increase was primarily due to professional services fees to enable product development.

Selling, General, and Administrative

Selling, general and administrative expense increased $3.6 million, or 18%, to $23.6 million for the three months ended September 30, 2023, compared to $20.0 million for the three months ended September 30, 2022.

The increase was primarily due to (1) a $1.5 million increase in professional services and consulting fees related to our efforts to remediate the previously disclosed material weaknesses identified in 2022 and other services, (2) a $1.3 million increase in stock-based compensation expense, which was lower in the three months ended September 30, 2022 due to equity award forfeitures recorded from eliminating positions as part of the Restructuring Plan, and (3) a $0.6 million increase in shipping and handling costs for consumables and other products due to increased volume.

Included within selling, general, and administrative expense are $2.6 million and $1.6 million of shipping and handling costs for product sales for the three months ended September 30, 2023 and 2022, respectively.

Other Lease Costs

Other lease costs increased $0.1 million, or 24% to $0.8 million for the three months ended September 30, 2023, compared to $0.6 million for the three months ended September 30, 2022.

As part of the Restructuring Plan, we are not utilizing the leased office and laboratory facilities in Bedford, Massachusetts and are evaluating alternatives, including sub-leasing the facilities .

Other lease costs include amortization of the related operating lease right-of-use assets and other leased facility operating expenses from periods after the impairment and the determination that the facilities would not be utilized.

The increase is primarily due to the expenses incurred while not utilizing the space for the full third quarter of 2023, compared to the expenses incurred while not utilizing the space for one and a half months in the third quarter of 2022 after the Restructuring Plan was implemented.

Expenses incurred prior to the Restructuring Plan were recorded in selling, general, and administrative on the Consolidated Statements of Operations.

Impairment and Restructuring Expense

There were no impairment and restructuring costs for the three months ended September 30, 2023 compared to $20.3 million incurred in the three months ended September 30, 2022.

This decrease was due to the implementation of the Restructuring Plan in August 2022 which did not repeat in 2023.

The costs incurred included (1) $8.2 million of goodwill impairment charges, (2) $7.7 million of long-lived asset impairment charges associated with the Bedford, Massachusetts facilities that we are no longer utilizing, (3) $1.0 million of software costs related to projects that were rationalized as part of the Restructuring Plan, and (4) $3.4 million of restructuring expenses primarily for severance and one-time termination benefits in connection with the elimination of 119 positions across the Company.

Interest Income, Net

Interest income, net increased $2.5 million, or 144%, to $4.2 million for the three months ended September 30, 2023, as compared to $1.7 million for the three months ended September 30, 2022, primarily due to (1) higher interest rates earned on cash and cash equivalents, and (2) higher interest rates and accretion of discounts from the purchase of marketable securities.

Other Income (Expense), Net

Other income (expense), net was $2.0 million for the three months ended September 30, 2023, as compared to ($0.1) million for the three months ended September 30, 2022.

The $2.1 million increase was primarily due to the recognition of $2.4 million receivable under the Employee Retention Credit established by the Coronavirus Aid, Relief, and Economic Security Act in 2021.

Income Tax (Expense) Benefit, Net

Income tax (expense) benefit, net was consistent with the prior period with a $0.1 million increase, or 182%, to ($0.2) million for the three months ended September 30, 2023, as compared to ($0.1) million for the three months ended September 30, 2022.

Comparison of Results of Operations for the Nine Months Ended September 30, 2023 and 2022:

In March 2024, our Lucent AD p-Tau 217 blood test was granted Breakthrough Device designation by the FDA.

This designation is granted to products that have the potential to offer more effective diagnosis of life-threatening diseases with an unmet medical need.

Proposed indications for this blood test include use of the test results in patients presenting with cognitive impairment who are being evaluated for Alzheimer’s disease risk to aid in diagnostic evaluation.

The test is not intended as a stand-alone diagnostic test and test results will be interpreted in conjunction with other diagnostic tools to establish a final clinical diagnosis.

This test has not been otherwise cleared or approved by the FDA and Breakthrough Device designation does not guarantee that the FDA review and approval process will be shortened or that an application will be approved.

We do not expect material revenue from this test, or other Lucent Diagnostics tests, until late 2024 or later, if at all.

During the fourth quarter of 2023, we substantially completed our six-quarter assay redevelopment program.

The objective of this operational program was to improve our ability to manufacture and deliver high-quality assays at scale.

We have now launched five new Simoa Advantage PLUS assays, which have been developed using improved protocols, by leveraging manufacturing efficiencies and reagent improvements to provide more consistent results and improved lot-to-lot consistency, and through enabling production of larger lot sizes with extended shelf lives.

These assays began shipping to customers in the first quarter of 2024.

We expect to continue to apply these improved protocols and manufacturing efficiencies to other existing assays as well as assays that we may develop in the future.

Comparison of Results of Operations for Three Months Ended March 31, 2024 and 2023:

The following table sets forth select Consolidated Statements of Operations data, and such data as a percentage of total revenues (in thousands, except percentages):

Nine Months Ended September 30,

Three Months Ended March 31,

Increase (Decrease)

Product revenue

Service revenue

Service and other revenue

Collaboration and license revenue

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Other lease costs

Impairment and restructuring

Total operating expenses

Loss from operations

Interest income, net

Other income (expense), net

Interest income

Other income, net

Loss before income taxes

Income tax expense

Total revenues increased $11.1 million, or 14%, to $90.8 million for the nine months ended September 30, 2023, compared to $79.7 million for the nine months ended September 30, 2022.

Product revenue of $58.6 million for the nine months ended September 30, 2023 consisted of instrument sales of $12.4 million and sales of consumables and other products of $46.2 million.

This represented an increase of $5.5 million, or 10%, compared to product revenue of $53.1 million for the nine months ended September 30, 2022, which consisted of $19.6 million in instrument sales and $33.5 million in sales of consumables and other products.

The increase in product revenue was primarily due to a $12.7 million increase in sales of consumables and increased average selling prices.

These increases were partially offset by a $7.2 million decrease in instrument sales due to reduced demand, which is a trend we expect to continue for the remainder of 2023.

Included in consumables and other product revenue for the nine months ended September 30, 2023 is $0.8 million of one-time revenue, which includes the immaterial fair value adjustment recorded during the third quarter, from the receipt of ordinary shares from UltraDx Limited (“UltraDx”) that was accounted as variable consideration under the UltraDx Agreement (as a Level 3 financial asset with minimal market activity or other data available, the fair value of the ordinary shares was determined primarily using the third-party purchase price of similar instruments issued by UltraDx).

Service revenue was $30.1 million for the nine months ended September 30, 2023, compared to $25.7 million for the nine months ended September 30, 2022, an increase of $4.3 million, or 17%.

This increase was primarily due to a $6.7 million increase in Accelerator Laboratory revenue due to higher volumes of sample testing and assay development services and a $1.0 million increase in extended service-type warranties, which were partially offset by a $3.7 million decrease in revenue recognized from the Lilly Collaboration Agreement.

Collaboration and license revenue was $1.2 million for the nine months ended September 30, 2023, compared to $0.5 million for the nine months ended September 30, 2022, an increase of $0.8 million, or 158%.

The increase was primarily due to a $0.5 million one-time increase from the expiration of a previously paid for option to expand the scope of the Abbott License Agreement.

Grant revenue was $0.9 million for the nine months ended September 30, 2023, compared to $0.4 million for the nine months ended September 30, 2022, an increase of $0.5 million or 146%.

This increase was due to the receipt of a portion of the NIH Grant.

Total revenues increased $3.6 million, or 13%, to $32.1 million for the three months ended March 31, 2024, compared to $28.5 million for the three months ended March 31, 2023.

Product revenue of $19.7 million for the three months ended March 31, 2024 consisted of instrument sales of $2.6 million and sales of consumables and other products of $17.1 million.

This represented an increase of $0.4 million, or 2%, compared to product revenue of $19.3 million for the three months ended March 31, 2023.

The increase in product revenue was primarily due to a $3.1 million increase in sales of consumables from increases in both customer demand and selling prices.

This increase was partially offset by a $2.7 million decrease in instrument sales due to reduced demand in what we believe is a constrained capital funding environment.

Based on this, we expect softness in instrument sales to continue for the remainder of 2024.

Service revenue was $12.0 million for the three months ended March 31, 2024, compared to $8.6 million for the three months ended March 31, 2023, an increase of $3.4 million, or 39%.

This increase was primarily due to a $3.2 million increase in Accelerator Laboratory revenue driven by higher volumes of sample testing and assay development services.

We expect to see continued growth in Accelerator Laboratory services through 2024.

Cost of Goods Sold and Services

Cost of goods sold and services decreased $8.5 million, or 19%, to $37.0 million for the nine months ended September 30, 2023 compared to $45.5 million for the nine months ended September 30, 2022.

Cost of product revenue decreased $8.6 million, or 27%, to $22.6 million for the nine months ended September 30, 2023, compared to $31.2 million for the nine months ended September 30, 2022.

The decrease was primarily due to improvement in inventory management and manufacturing processes and lower instrument sales.

Cost of service revenue was consistent with the prior period with an increase of $0.1 million, or less than 1%, to $14.4 million for the nine months ended September 30, 2023, compared to $14.3 million for the nine months ended September 30, 2022, primarily due to the increase in Accelerator Laboratory revenue at higher margins.

Total cost of goods sold and services increased $0.9 million, or 8%, to $12.4 million for the three months ended March 31, 2024, compared to $11.5 million for the three months ended March 31, 2023.

Cost of product revenue increased $0.1 million, or 2%, to $7.1 million for the three months ended March 31, 2024, compared to $7.0 million for the three months ended March 31, 2023.

This increase was primarily due to consumables related revenue increases, including compensation and benefit costs from increased headcount, and was partially offset by decreased costs due to lower instrument revenue.

Cost of service and other revenue increased $0.8 million, or 18%, to $5.3 million for the three months ended March 31, 2024, compared to $4.5 million for the three months ended March 31, 2023.

This increase was primarily due to the increase in Accelerator Laboratory revenue, including compensation and benefit costs from increased headcount and increased volume of lab supplies used.

Research and Development

Research and development expense decreased $2.4 million, or 12%, to $17.9 million for the nine months ended September 30, 2023, compared to $20.3 million for the nine months ended September 30, 2022.

This decrease was primarily due to a decrease in compensation and benefit costs related to the reduction in headcount from the Restructuring Plan, which was partially offset by an increase in license fees and professional services to enable product development.

Research and development expense increased $2.0 million, or 41%, to $6.7 million for the three months ended March 31, 2024, compared to $4.7 million for the three months ended March 31, 2023.

This increase was primarily due to a $1.2 million increase in compensation and benefits costs related to increased headcount, and a $0.4 million increase in professional services and research lab supplies and equipment to enable product development.

We expect research and development expense to continue to increase throughout 2024 due to continued investments in product development and new offerings.

Selling, General and Administrative

Selling, general and administrative expense decreased $6.7 million, or 9%, to $66.1 million for the nine months ended September 30, 2023, compared to $72.7 million for the nine months ended September 30, 2022.

The decrease was primarily due to a decrease in compensation and benefit costs related to the reduction in headcount in from the Restructuring Plan and a full nine months of facilities costs from the leased office and laboratory facilities we are no longer utilizing being recorded in other lease costs instead of selling, general, and administrative expenses on the Consolidated Statements of Operations.

These decreases were partially offset by an increase in professional services and consulting fees related to our efforts to remediate the previously disclosed material weaknesses identified in 2022 and other services, and a increase in shipping and handling costs for consumables and other products due to higher volume.

Included within selling, general and administrative expense are $6.0 million and $5.3 million of shipping and handling costs for product sales for the nine months ended September 30, 2023 and 2022, respectively.

Selling, general and administrative expense increased $5.1 million, or 25%, to $26.0 million for the three months ended March 31, 2024, compared to $20.9 million for the three months ended March 31, 2023.

The primary reason for the increase is additional headcount to expand the size of our sales team.

More specifically, the increase was primarily due to (1) a $3.5 million increase in personnel related costs, primarily compensation and benefits related to increased headcount, (2) a $1.1 million increase in stock-based compensation expense due to increased headcount, and (3) a $0.6 million increase in travel related expenses.

Included within selling, general, and administrative expense are $2.1 million and $1.8 million of shipping and handling costs for product sales for the three months ended March 31, 2024 and 2023, respectively.

Other Lease Costs

Other lease costs increased $2.1 million, or 343%, to $2.7 million for the nine months ended September 30, 2023, compared to $0.6 million for the nine months ended September 30, 2022.

As part of the Restructuring Plan, we are not utilizing the leased office and laboratory facilities in Bedford, Massachusetts and are

evaluating alternatives, including sub-leasing the facilities .

Other lease costs include the amortization of the related operating lease right-of-use assets and other leased facility operating expenses from periods after the impairment and the determination that the facilities would not be utilized.

The increase is primarily due to the expenses incurred while not utilizing the space for the full nine months of 2023, compared to the expenses incurred while not utilizing the space for one and a half months in the third quarter of 2022 after the Restructuring Plan was implemented.

Expenses incurred prior to the Restructuring Plan were recorded in selling, general, and administrative on the Consolidated Statements of Operations.

Impairment and Restructuring Expense

There were no impairment and restructuring costs for the nine months ended September 30, 2023, compared to $20.3 million for the nine months ended September 30, 2022.

This decrease was due to the implementation of the Restructuring Plan in August 2022 which did not repeat in 2023.

Interest Income, Net

Interest income, net increased $9.2 million, or 397%, to $11.5 million for the nine months ended September 30, 2023, compared to $2.3 million for the nine months ended September 30, 2022.

Other lease costs increased $0.1 million, or 19% to $0.9 million for the three months ended March 31, 2024, compared to $0.8 million for the three months ended March 31, 2023.

Following our restructuring in 2022, we are not using two leased office and laboratory facilities and are evaluating alternatives, including sub-leasing the facilities .

Other lease costs include amortization of the related operating lease right-of-use assets and other leased facility operating expenses from periods after the restructuring and determination that the facilities would not be used.

Interest Income

Interest income increased $0.5 million, or 14%, to $3.9 million for the three months ended March 31, 2024, as compared to $3.4 million for the three months ended March 31, 2023.

This increase was primarily due to higher interest rates earned on cash, cash equivalents, and marketable securities, and the accretion of discounts from the purchase of marketable securities.

Other Income (Expense), Net

Other income (expense), net increased $2.6 million or 379%, to $1.9 million for the nine months ended September 30, 2023, as compared to ($0.7) million for the nine months ended September 30, 2022.

The increase was primarily due to recognizing $2.4 million receivable under the Employee Retention Credit established by the Coronavirus Aid, Relief, and Economic Security Act in 2021.

Income Tax Expense, Net

Income tax expense, net was ($0.6) million for the nine months ended September 30, 2023 , as compared to less than ($0.1) million for the nine months ended September 30, 2022.

Other Income, Net

Other income, net was $0.2 million for the three months ended March 31, 2024, as compared to less than $0.1 million for the three months ended March 31, 2023.

Income Tax Expense

Income tax expense was $0.3 million for the three months ended March 31, 2024, as compared to $0.1 million for the three months ended March 31, 2023.

The increase was primarily due to estimated foreign income taxes.

Liquidity and Capital Resources

Our principal sources of liquidity are cash, cash equivalents, marketable securities, and funds generated from sales of our products and services.

As of September 30, 2023, we had cash and cash equivalents of $201.3 million and marketable securities of $126.4 million.

As of March 31, 2024, we had cash and cash equivalents of $45.3 million and $256.6 million of available for sale marketable securities.

Historically we have also financed our operations through equity offerings and borrowings from credit facilities.

As discussed in Note 2 − Significant Accounting Policies and Note 5 − Marketable Securities in the Notes to Consolidated Financial Statements, during the third quarter of 2023 we invested available cash and cash equivalents in a portfolio of marketable securities.

These securities are currently classified as available-for-sale and recorded in current assets on the Consolidated Balance Sheets based on their highly liquid nature and because we may use them in our current operations.

Our marketable securities are required to be recorded at fair value each reporting period.

The fair value is determined utilizing quoted prices in active markets in cases that such information exists (i.e.

Level 1 fair value inputs), or third party pricing services and other market observable data (i.e.

Level 2 fair value inputs).

We believe our cash, cash equivalents, and marketable securities, along with funds generated from sales of our products and services, will be sufficient to meet our anticipated operating cash requirements for at least 12 months from the date of this Quarterly Report on Form 10-Q.

Our liquidity requirements have consisted, and we expect that they will continue to consist, of sales and marketing expenses, research and development expenses, working capital, and general corporate expenses.

Our future capital requirements will depend on many factors, including, but not limited to, our pace of growth, expansion and introduction of new products and services, including Lucent Diagnostics, and advancing access to our diagnostic tests, market acceptance of our products and services, regulatory requirements, regulatory approval of our products or services, and the effects of competition, technological developments, and broader market and economic trends.

We regularly assess potential acquisitions and pursue acquisitions of complementary businesses, services, and technologies.

To the extent our existing cash, cash equivalents, and marketable securities are insufficient to fund future activities or requirements to continue operating our business, we may need to raise additional capital.

If the conditions for raising capital are favorable, we may seek to finance future cash needs through public or private equity, debt offerings, or other financings.

If needed, we cannot guarantee that we will be able to obtain additional funds on acceptable terms, or at all.

If we raise additional funds by issuing equity or equity-linked securities, our stockholders may experience dilution.

Future debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt.

Any debt or equity financing that we raise may contain terms that are not favorable to us or our stockholders.

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 do not have or are not able to obtain sufficient funds, if needed, we may have to delay development or commercialization of our products and services.

We also may have to reduce marketing, customer support, or other resources devoted to our products, or cease operations.

The following table summarizes our cash flows (in thousands):

Nine Months Ended September 30,

Three Months Ended March 31,

Net cash used in operating activities

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We have historically experienced negative cash flows from operating activities as we have developed our technology, expanded our business, and built our infrastructure.

We expect negative cash flows from operating activities may continue in the future.

Net cash used in operating activities was $12.9 million during the nine months ended September 30, 2023.

The $31.3 million reduction in net cash used in operating activities from $44.2 million during the nine months ended September 30, 2022 was primarily driven by an overall reduction in our net loss, adjusted for non-cash items, consisting of revenue growth, a full nine months of reduced expenses resulting from the Restructuring Plan implemented in the third quarter of 2022, continued improvements in our inventory management and manufacturing processes leading to improved gross margin, and increased interest income from investing in marketable securities and rising interest rates.

We expect negative cash flows from operating activities will continue in the future.

Net cash used in operating activities was $20.2 million and $9.5 million for the three months ended March 31, 2024 and 2023, respectively.

The $10.7 million increase in net cash used in operating activities was primarily driven by an overall increase in our net loss, adjusted for non-cash items including stock-based compensation and the accretion of our marketable securities.

The increase was further driven by changes in working capital items, primarily (1) an increase in accounts receivable and deferred revenue from sales timing and revenue growth, (2) an increase in inventory as a result of completing the assay development program and manufacturing and stocking new assays, and (3) a decrease in accrued compensation.

Net Cash Used in Investing Activities

Our primary investing activities consist of purchases of marketable securities and capital expenditures for the purchase of equipment to support our expanding infrastructure and work force.

Our primary investing activities consist of purchases of marketable securities to increase the interest income we would otherwise earn in cash accounts.

Additionally, we use funds towards capital expenditures for the purchase of property and equipment to support our expanding infrastructure and work force.

We expect to continue to incur additional capital expenditures related to these efforts in future periods.

Cash used towards capital expenditures can be partially offset by proceeds from grants with third parties to purchase assets (refer to the section titled “Grant Revenue” in Note 3 − Revenue and Related Matters in the Notes to Consolidated Financial Statements for more information).

Net cash used in investing activities was $126.8 million during the nine months ended September 30, 2023, which consisted of the purchase of $125.2 million of marketable securities and $1.6 million of purchases of property and equipment.

Net cash used in investing activities was $9.6 million during the nine months ended September 30, 2022, which consisted of $10.1 million of purchases of property and equipment which were partially offset by $0.5 million in grant proceeds under the RADx Grant.

Net cash used in investing activities was $109.2 million during the three months ended March 31, 2024, which consisted of the purchase of $137.9 million of marketable securities and $0.5 million of purchases of property and equipment, offset by proceeds from the maturities of marketable securities of $29.2 million.

Net cash used in investing activities was not material during the three months ended March 31, 2023.

Net Cash Provided by Financing Activities

Our primary financing activities are proceeds from sales of our common stock.

Financing activities provided $2.5 million and $1.6 million of cash during the nine months ended September 30, 2023 and 2022, respectively.

Capital Resources

We have not achieved profitability on an annual basis since our inception, and we expect to continue to incur net losses in the future.

We also expect that our operating expenses will increase as we continue to increase our marketing efforts to drive adoption of our commercial products, as well as our investment in improving the quality of, and expanding, our products and services.

We believe cash generated from product and services sales, along with our current cash, cash equivalents, and marketable securities, will be sufficient to meet our anticipated operating cash requirements for at least 12 months from the date of this Quarterly Report on Form 10-Q.

In the future, we expect our operating and capital expenditures to increase as we increase headcount, expand our sales, marketing, and research and development activities, and grow our customer base.

Our estimates of the period of time through which our financial resources will be adequate to support our operations and the costs to expand our business are forward-looking statements and involve risks and uncertainties.

Actual results could vary materially and negatively as a result of a number of factors, including the factors discussed in the section titled “Part I, Item 1A.

Risk Factors” of our Annual Report on Form 10-K.

We have based our estimates on assumptions that may change or not materialize and we could utilize our available capital resources sooner than we currently expect.

Our future funding requirements will depend on many factors, including but not limited to:

● continued market acceptance of our products and services and the ability of our products to meet our customers’ expectations;

● the cost and timing of establishing additional sales, marketing, and distribution capabilities;

● the extent to which we achieve revenue improvement and related benefits from our Restructuring Plan;

● the extent to which we are able to successfully complete our assay improvement program to enhance product quality;

● the cost of our research and development activities;

● our ability to enter into collaborations in the future, and the success of any such collaborations;

● potential opportunities to strategically acquire and integrate companies or technologies that may be complementary to our business;

● the cost and timing of potential regulatory clearances or approvals that may be required in the future for our products;

● the effect of competing technological and market developments.

We cannot guarantee that we will be able to obtain additional funds on acceptable terms, or at all.

If we raise additional funds by issuing equity or equity-linked securities, our stockholders may experience dilution.

Future debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt.

Any debt or equity financing that we raise may contain terms that are not favorable to us or our stockholders.

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 do not have or are not able to obtain sufficient funds, we may have to delay development or commercialization of our products and services.

We also may have to reduce marketing, customer support or other resources devoted to our products, or cease operations.

If the conditions for raising capital are favorable, we may seek to finance future cash needs through public or private equity, debt offerings, or other financings.

Contractual Obligations and Commitments

As of September 30, 2023, there have been no material changes to our contractual obligations and commitments from those described in the section titled “Part II, Item 7.

Financing activities provided $0.6 million of cash during both the three months ended March 31, 2024 and 2023 , from sales of our common stock under our employee stock purchase plan and from the exercise of options under our equity incentive plan .

Future Cash Obligations

As of March 31, 2024, there have been no material changes to our contractual obligations and commitments from those described in the section titled “Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K.

In addition to these cash commitments disclosed in our Annual Report on Form 10-K, we may have other payables and liabilities that may be legally enforceable but are not considered contractual commitments.

In addition to the cash commitments disclosed in our Annual Report on Form 10-K, we may have other payables and liabilities that may be legally enforceable but are not considered contractual commitments.

Critical Accounting Policies and Estimates

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There have been no material changes to our critical accounting policies and estimates as previously disclosed in that report.

Related Party Transactions

Refer to Note 14 − Related Party Transactions in the Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for a full description of related party transactions.

Non-GAAP Financial Measures

To supplement our financial statements presented on a U.S.

GAAP basis, we present non-GAAP gross profit, non-GAAP gross margin, non-GAAP total operating expenses, and non-GAAP loss from operations, which are calculated by including shipping and handling costs for product sales within cost of goods sold instead of within selling, general, and administrative expenses.

Management uses these non-GAAP measures to evaluate our operating performance in a manner that allows for meaningful period-to-period comparison and analysis of trends in our business and our competitors.

Management believes that presentation of these non-GAAP measures provides useful information to investors in assessing our operating performance within our industry and in order to allow comparability to the presentation of other companies in our industry where shipping and handling costs are included in cost of goods sold for products.

Management also uses these non-GAAP measures as a factor in assessing our progress against the Restructuring Plan.

GAAP basis, we present non-GAAP gross profit, non-GAAP gross margin, non-GAAP total operating expenses, and non-GAAP loss from operations.

These non-GAAP measures are calculated by including shipping and handling costs for product sales within cost of product revenue instead of within selling, general and administrative expenses.

We use these non-GAAP measures to evaluate our operating performance in a manner that allows for meaningful period-to-period comparison and analysis of trends in our business and our competitors.

We believe that presentation of these non-GAAP measures provides useful information to investors in assessing our operating performance within our industry and to allow comparability to the presentation of other companies in our industry where shipping and handling costs are included in cost of goods sold for products.

The non-GAAP financial information presented here should be considered in conjunction with, and not as a substitute for, the financial information presented in accordance with U.S.

Set forth below is a reconciliation of non-GAAP gross profit, non-GAAP gross margin, non-GAAP total operating expenses, and non-GAAP loss from operations to their most directly comparable GAAP financial measures.

Reconciliation of U.S.

GAAP Financial Measures to Non-GAAP Financial Measures:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

GAAP gross profit

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Recent Accounting Pronouncements

Refer to Note 2 − Significant Accounting Policies in the Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for a full description of recent accounting pronouncements, including the expected dates of adoption and effects on our Consolidated Financial Statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of September 30, 2023, there have been no material changes to the market risk information from those described in the section titled “Part II, Item 7A.

As of March 31, 2024, there have been no material changes to the market risk information from those described in the section titled “Part II, Item 7A.

Quantitative and Qualitative Disclosures About Market Risk” included in our Annual Report on Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis