MaxCyte Stock – Investing in the Future of Cell Therapy

Sometimes our new subscribers will ask for “stock picks,” and we’re quick to explain that’s not how we operate. We manage our own portfolio of tech stocks based on our unique needs and risk profile. Our subscribers, many of whom are professional money managers, derive insights from our research since we document every investment decision we make. Our goal is to complement their investment decisions, not dictate them. In the end, we want to help all our subscribers become better investors.

One benefit of not pretending like we’re market oracles is that our subscribers will engage us with their own thoughts and strategies. One lad from the land down under recently asked us for leniency on our $1 billion market cap cutoff rule citing companies like CELLINK and Tobii as two names we would have done well to invest in sooner rather than later. Survivorship bias aside, if you make one exception, what’s to keep you from making more? That’s a rule we’ll be sticking to, but that doesn’t keep us from writing about smaller companies. Today, we’re going to look at a life sciences stock brought to our attention by one of our subscribers that recently passed the $1 billion market cap threshold.

About MaxCyte Stock

Founded in 1999, Maryland’s own MaxCyte (MXCT.L) became a publicly traded company back in 2016 when they began trading on the London Stock Exchange with a market cap of about $44 million. Today, they’re a $1 billion company with an impressive track record of revenue growth that’s sent their share price soaring +435% over the past year compared to a Nasdaq return of +47% over the same time frame.

MaxCyte’s business model is the sort we’re keen on – a life sciences instrument with high-margin consumables that’s being used by some of the world’s top pharmaceutical researchers.

MaxCyte’s Cell Engineering Technology

Regular readers will notice we’ve been talking an awful lot about cells lately. In a recent piece titled Why is Berkeley Lights Stock Falling?, we talked about “the single cell landscape” where companies like 10X Genomics (TXG) are heralding in a new era where researchers engage directly with cells. Eikon is using fluorescence microscopy for a real-time look inside of cells, while Asimov is building tools to program living cells. What MaxCyte has developed is a machine that lets researchers put things inside of cells using a technology called electroporation.

Using an electric field, the pores of a cell can be briefly opened at which time chemicals, drugs, DNA, and anything else you fancy can be inserted into the cell. All of the top 10 global pharma companies use MaxCyte’s machines – the STx and ATx – for drug discovery and development (research use only). It’s their third platform – the GTx – that’s being used to create cell therapies that MaxCyte hopes to get a piece of. (Says Nature.com, a cell therapy is a medicinal product containing cells, and is typically injected into a patient.)

Using this model, MaxCyte expects future revenues will come from “multiple 7-figure milestone payments” and “single digit % share of sales.” Some of the most notable gene-editing companies out there have signed up to use MaxCyte’s platform including a few we’re holding – Editas and CRISPR Therapeutics.

If investors assign a premium to software-as-a–service (SaaS) business models for predictability of revenues, then they should penalize companies with volatile revenue streams. MaxCyte would argue they offer “the best of both worlds,” and that may very well be the case, though they say milestone revenues are their highest growth revenue stream. It’s starting to become more common to see companies – AbCellera and Ginkgo being a few recent examples – that promise loads of cash down the road from royalties, but these are anything but certain. MaxCyte has potential milestone revenues nearing $1 billion based on deals they’ve made to date, a number that dwarfs the $36.9 million in revenues they managed during 2020.

MaxCyte Stock to Trade on Nasdaq

Another one of our subscribers recently remarked, “I don’t touch U.K. tech,” a comment we found interesting. He was referring to Blue Prism, a robotic process automation company that recently dropped like a rock with their CEO complaining that U.K. tech investors just don’t get it. It’s not hard to think of examples where investing in U.K. tech companies was a bad idea. Graphene producers and quantum dot producers come to mind as U.K. companies with great expectations that haven’t managed to accomplish much. We’re not sure why this American company went across the pond in the first place, but a few weeks ago they confidentially filed to be listed on the one American stock exchange that matters in the tech world – the Nasdaq. (The number of securities to be offered and the price for the proposed offering have yet to be determined.)

Last May, MaxCyte raised $34.5 million (25.1 million pounds) from “certain premier life science specialist NASDAQ crossover investors” which implies there’s some alpha to be generated when moving your listing from the U.K. to the U.S. And indeed there has been. Since that announcement, MaxCyte shares have soared +472%, which means they’ll probably drop like a rock if the new listing doesn’t happen. That’s a risk you need to consider if you’re thinking of climbing on board as an investor before the deal closes.

To Buy or Not to Buy

Every investor needs to look at the merits of a stock in the context of what they’re holding already. Broadly speaking, we’d place MaxCyte in a category called “life sciences instruments with consumables that are being used by lots of researchers in both academic and commercial settings.” We’re presently holding three companies that fit this description. They’re listed below along with our simple valuation ratio – market cap / annualized revenues.

Company	Market Cap	Revenue Data	Revs Billions	Ratio
Berkeley Lights	2.9	1Q-2021*4	0.074	39
Illumina	58	2Q-2021*4	4.36	13
10X Genomics	18.6	1Q-2021*4	0.448	41
MaxCyte	1.08	4Q-2020*4	0.030	36

Despite the fact that MaxCyte stock has soared +472% since they announced their intentions to list on the Nasdaq, shares could still be considered “fairly valued” when compared to other life sciences stocks that operate with similar business models. Still, we’re not looking for more exposure to “the single cell revolution.” 10X Genomics appears to be emerging as a leader in this space, so that’s where we’re placing our bets. That said, some of our readers may find this to be a compelling investment. Just be prepared for lots of volatility surrounding those uncertain future cash flows coming from milestone payments and royalties.

Conclusion

One thing we like about foreign traded stocks is the diversification they bring in the form of currency and country. When MaxCyte comes back to roost in ‘Murica, they’ll probably be able to command a bigger premium for their shares, something that may already be priced in. We’re going to add the stock to The Nanalyze Tech Stock Catalog as a “like” so we can keep an eye on them. Given that future successful cell therapies are expected to be the primary contributor for MaxCyte’s growth, we think the article’s title couldn’t be any more appropriate.

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