Engineering & Capital Goods News

MAXCYTE, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)


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 ended December 31, 2021, included in
our Annual Report on Form 10-K filed with the Securities and Exchange Commission
(the "SEC") on March 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 the SEC.

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 Master File and Master Files and Technical

? 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 the United States and foreign countries;

? 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 ended
December 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 the
SEC 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
MaxCyte, Inc.

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 in December 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 granted U.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 the
U.S. National Institutes of Health, or NIH, 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 ended September 30, 2022. As of September 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 both the 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 in the 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 between Russia and Ukraine, 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. In July 2022, we signed an SPL agreement with LG Chem,
our first SPL with a South Korean company. In September 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 September 30, 2022 and 2021


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 ended September 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 ended
September 30, 2022 compared to the three months ended September 30, 2021. The
increase was primarily driven by higher sales of instruments and disposables.

Gross profit increased slightly for the three months ended September 30, 2022
compared to the three months ended September 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 $2,578 94%



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 ended September 30, 2022 compared to the three months ended
September 30, 2021. The increase was primarily driven by a $1.0 million increase
in

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compensation expenses as a result of increases in headcount, a $0.6 million
increase in lab expense and product development costs, a $0.5 million increase
in stock-based compensation, and a $0.3 million increase in occupancy expense.


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 $ 1,295 40%

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 ended September 30, 2022 compared to the three months ended
September 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 $ 1,097 21%



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 ended September 30, 2022 compared to the three months ended
September 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 a U.S. exchange,
including insurance (particularly directors and officers insurance), costs to
comply with the rules and regulations applicable to companies listed on a U.S.
securities exchange and costs related to compliance and reporting obligations
pursuant to the rules and regulations of the SEC 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.

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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 $ 377 113%



Depreciation and amortization expense increased by $0.4 million, or 113%, for
the three months ended September 30, 2022, compared to the three months ended
September 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 ended
September 30, 2022 compared to the three months ended September 30, 2021. We did
not incur interest expense for the three months ended September 30, 2022 as we
currently have no indebtedness. The other expense incurred during the three
months ended September 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 ended September 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
ended September 30, 2022. The increase was primarily driven by the significantly
higher weighted average balance of short-term investments resulting from the IPO
proceeds received in August 2021 and recent interest rate increases.

Comparison of the Nine Months Ended September 30, 2022 and 2021


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 $7.0 million, or 33%, for the nine months ended
September 30, 2022 compared to the nine months ended September 30, 2021. The
increase was primarily driven by increased revenue from instrument and
disposables sales and licensed instruments.


During the nine months ended September 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).

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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 $ 1,759 15%



Research and development expenses increased by $1.8 million, or 15%, for the
nine months ended September 30, 2022 compared to the nine months ended September
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 $ 4,363 49%



Sales and marketing expenses increased by $4.4 million, or 49%, for the nine
months ended September 30, 2022 compared to the nine months ended September 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 $ 7,534 60%



General and administrative expense increased by $7.5 million, or 60%, for the
nine months ended September 30, 2022 compared to the nine months ended September
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 the Nasdaq 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 $ 687 71%



Depreciation and amortization expense increased by $0.7 million, or 71%, for the
nine months ended September 30, 2022, compared to the nine months ended
September 30, 2021. The increase was primarily driven by increases in leasehold
improvements and investments in laboratory equipment and instruments.

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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 ended September 30, 2022 compared to the nine months ended September 30,
2021. The decrease was primarily driven by the repayment of the MidCap loan in
March 2021 and the settlement of a warrant in August 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 in August 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 ended September 30, 2022, we incurred a net loss
of $18.8 million. As of September 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 of September 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 $ (4,762) $ 40,218



Operating Activities

Net cash used in operating activities for the nine months ended September 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 ended September 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 ended September
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

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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 ended September 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 September
30, 2022
was $1.7 million, which was attributable to the exercise of stock
options.


Net cash provided by financing activities during the nine months ended September
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 of September 30, 2022 consisted
exclusively of operating lease obligations. In May 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 in
December 2021 and Phase 2 having commenced in the first quarter of 2022, and the
lease term expires on August 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 June 2021, we exercised our option to early terminate one of our office space
lease arrangements, which occurred in June 2022.

In August 2021, we terminated a finance lease and as of September 30, 2022, we
do not have any finance lease obligations.


In June 2022, we exercised our option to early terminate our remaining subleased
office, laboratory, manufacturing and other spaces, which became effective in
July and August 2022. These subleases previously had expiration dates in October
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
with U.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 with SEC on March 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" under SEC 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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