Q2 2020 Accelerate Diagnostics Inc Earnings Call
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Good day and welcome to the accelerate diagnostics Twentytwenty second quarter earnings Conference call.
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I would now by concerned to conference over to Laura Pearson. Please go ahead.
Before we begin it is important to share the information presented during this call may contain forward looking statements within the meaning of section 27 eight at the Securities Act of 1933 and section 21 E. Other Securities Exchange Act of 1934.
Forward looking statements include projections statements about our future and those that are not historical facts. All forward looking statements that are made during this conference call are subject to risks uncertainties and other factors that could cause <unk> actual results to differ materially.
These are discussed in greater detail in our annual report on form 10-K for the year ended December 31st 2019, and other reports we filed with the FCC.
It is my pleasure to now introduce the company's president and CEO Jack Phillips.
Thank you Laura good afternoon, everyone and welcome to our second quarter 2020 earnings call on today's call. We will review our second quarter results discuss the impacts of the pandemic on the business along with the progress we've made in mitigating financial impact.
And finally describe or new product strategy.
Before I discuss the second quarter I wanted to convey that our global accelerate teams are safe and remaining productive while cases surge across the U.S., including in Arizona, where most of our employees live and work the actions we've taken to ensure safety and continuity continue to enable the service of our customers and advanced.
One of our business priorities I.
I would like to express a heartfelt. Thank you to our entire team for their hard work during this difficult time.
In the second quarter, we recorded revenue of $2.1 million contributing to 22% growth year to date utilization within our existing base of life Pheno instruments continue to prove durable during the second quarter. After a dip in April and May we sell kit ordering patterns Reba.
Around to normal run rates in June.
While it is difficult to predict whether recent surges and covert 19 cases will impact our annuity in the upcoming quarters. We're encouraged by the resiliency of our current book of business against the backdrop of an overall diagnostic industry that is down significantly year to date.
Limited hospital access and competing pandemic related priorities continue to impact new contracts and go lives and few additions were made in these areas during the quarter. However, after months of nearly no sales calls and limited go live activity, we have seen material increases in these activities in June.
In July.
Despite these external disruptions, our internal R&D and business development teams have made considerable progress over the past several months and we're thrilled that their hard work has led to our announcement today that we are adding several new products to our portfolio as part of a new product strategy.
Before providing additional details on these exciting new launches in further insights into our operational results for the quarter I would like to handed over to Steve to review, our second quarter financial results Steve.
Thank you Jack and good afternoon, everyone.
Net sales were $2.1 million in the second quarter and $4.4 million year to date. This compares to $1.8 million and $3.6 million from the same periods in 2019.
This represents 22% year to date growth.
Really all year to date revenue and year over year growth was the result of higher consumable sales driven by an increase in the number of lied customers.
Cost of goods sold were $1.2 million in the second quarter and $2.5 billion year to date, resulting in gross margins of 45% in both periods.
This compares to cost of goods sold of $907000 and $1.8 million or gross margins of 50% at 49% respectively from the same periods in 2019.
The decline in gross margins year over year resulted from under absorbed manufacturing capacity.
This was somewhat offset by lower fixed cost per unit derived from higher production volumes.
Selling general and administrative expenses were $11.3 million for the second quarter at $24.3 million year to date.
Compared to $12.8 million at $25.6 million from the same periods in 2019.
This decrease is the result of reductions in sales and marketing related discretionary spend on expenses such as travel.
Research and development costs were $5.3 million for the second quarter.
And $11.2 million year to date compared to $6.1 million and $13.1 million from the same periods in 2019.
This reduction was the result of increased efficiencies and lower external studies spent.
Our net loss was $19.2 million for the second quarter at $40.5 billion here today.
Resulting in net losses per share of 35 cents and 74 cents respectively.
Net losses for the second quarter and year to date included the impact of noncash stock based compensation expense in the amount of $3.4 million and $7.6 million respectively.
Net cash used was $8.1 million for the quarter. The company ended the quarter with cash and investments of $88.7 million.
In the first quarter, we began implementing a plan to conserve cash to weather the financial effects of the pandemic without impacting key innovation and commercial priorities.
In the second quarter. This plan had a considerable positive impact on our cash burn rate.
Through a combination of natural spend reductions in areas like working capital and targeted cost reduction initiatives. We believe we have set of course to end the year Favourably as compare to our original net cash burn expectations of $49 million.
I will now hand, it back to Jack to further review, our first quarter results in greater detail Jack.
Thanks, Steve I will begin by reviewing US commercial results followed by updates on our international business and lastly, we'll review our new product strategy, including an update on our cobot 19, Surajit testing opportunity.
Turning first to our US commercial results, we had one new contract for six instruments added during the quarter. This slowness was the result of hospital access being halted in March which persisted through may as lab shifted resources to Onboarding cobot testing.
In June as hospitals reopened we saw a meaningful increase in sales call activity across most U.S sales territories, our funnel of prospective customers remained sizeable however, our conversations with many hospital decision makers indicate that delays and progressing contracts are likely to persist through the.
Year.
We anticipate that our new product strategy, including the impending approval and launch of our Covitz Rollins you platform will improve this dynamic and we will discuss this further in detail later in the call.
We brought four instruments like during the quarter and one new customer site and ended the quarter with 201 revenue generating instruments in March nearly all of our go lives were put on hold this dynamic improved in June and now approximately 40% of these customers are again active and progressing.
Over the past several weeks in light of the ongoing pandemic related impacts faced by healthcare institutions. We saw a confirmation from all pending sites of their intent to proceed with the implementation process. During the course of these conversations we came to the conclusion that there are 24 instruments across.
Five customer sites that will not be proceeding with go lives in the foreseeable future, including one multi site each end consisting of 13 instruments.
These delays are all due to pandemic related disruptions to either budget staffing or both and there is no timelines as to when the implementations will resume.
Therefore, we have elected to remove these sites from our contracted backlog figures.
Accordingly, we have 213 instruments in the process of being implemented at customer sites and not yet generating revenue all of which have now reaffirmed their commitment to resume implementations in the near term.
While it remains unclear whether recent closures will again slower go live progress early Q3 activity has picked up and we anticipate a number of instruments at the final stages of the process are likely to go live in the third quarter, one such hospital is Rochester General Hospital, which.
Recently went live after improving conditions in the greater New York area permitted and efficient implementation. This site is an anchor to five hospitals and a good example of our regional Influencer strategy in action.
Pheno has demonstrated clear length of stay reductions, which translates into improved IC you bed utilization with this in mine. We recently launched a campaign to educate healthcare professionals on how fee knows rapid Ida ASP delivers proven length of stay outcomes, resulting in these bennett.
Fits this campaign highlights one of our longest running customers, which estimates that it saves over 800, IC you bed days annually through its implementation of Pheno managing I see you bed shortages is an increasingly important issue during the pandemic as more and more states reach hospital.
Capacity limits.
Lastly, we have discussed on previous calls we still expect our ongoing reimbursement initiatives along with the decision to include rapid ASV in CLL side guidelines to conclude within the year moving now to our international business.
Our EMEA team is returning to a state of normalcy after being the first two experienced pandemic related disruptions. However, our access to hospitals remain limited through the second quarter, resulting in no additional contract signings and two instrument go lives in the period.
It remains unclear how recent openings for the continent will improve the commercial trajectory in EMEA. Therefore, we continue to expect minimal contributions from the EMEA business in the near term.
On to China, as we discussed in the past China is a promising market with a significant sepsis challenge a large population and a government that is focused on healthcare investment.
We have now installed 10, pheno instruments and trained staff at the Beijing government test facility to initiate type testing the first phase of our clinical trial.
Following type testing, we can proceed to our life testing phase of the clinical trial, which is anticipated to begin in early 2021.
Now, let's turn to our enhanced product strategy, which includes new product launches. This year. In addition to continued emphasis on our Pheno 2.0 program.
This new strategy represents an expansion of the innovation goals, we set forth at the beginning of 2020 and is expected to increase adoption through an expanded product offerings.
First I want to provide some context as to why I believe this significant change in product strategy will improve the pace of adoption.
Then we will walk through five prongs of this new strategy.
The universal need for rapid ideas T to help patients with serious infections and to optimize antibiotic utilization is irrefutable the market opportunity is sizable and interest remains high.
As more customers have evaluated and implemented our system they have been providing us with ongoing feedback on their complex and heterogeneous needs for optimized rapid assay solution.
Flexibility as essential and Bay one choices.
The Pheno I'd menu covers the majority of prevalent organisms of concern with both Gram positive and Gram negative bloodstream infections.
However, given existing customer solutions for delivering an identification result, our integrated solution can be duplicative. For example, if a customer made an expensive investment in multi to deliver expansive identification results cheaply. They are eager to retain these benefits while improving clinical outcomes.
Through rapid A.S.T., we have found the interest in the clinical benefits of Pheno ASP to be universal and by giving customers in ASP only option, which integrates with current I'd workflows, we will improve our rate of adoption.
So today, we are announcing a new suite of products for solutions one for every customer accounting for every work flow preference in prior investment.
First we will continue to provide are fully integrated rapid I'd ask t. test on the Pheno system. Our current customers enjoy work flow advantages from the integrated solution and are seeing significant benefits in the second quarter. We saw three customer studies published in peer.
Viewed journals demonstrating these benefits for example in one of the studies Peninsula Regional Medical Center showed that it has cut both the duration of broad spectrum therapy and hospital length of stay by two days for patients tested on the Pheno system.
These are real results lifesaving answers that customers are experiencing today.
We will continue to market this kit to those customers, who seek a complete rapid I'd ask t. solution.
Second we will be launching Pheno, Asap and ASCII only version of the kit, which excess electronically or manually and identification result from an existing system loads the appropriate antibiotic panel and delivers a rapid assay result.
This lower cost and lower priced test kit enables customers with existing I'd platforms to experience the benefits of Pheno systems rapid assay results.
Third we are launching a new workflow automation instrument called Pheno prep, which automates the front end steps required for certain I'd workflows.
Pheno Prep was initially born out of our respiratory development program and we believe we'll have many applications across multiple sample types. The first application to be launch in the first quarter of 2021 preparers positive blood culture samples for rapid multi identification.
The Pheno prep is a razor razorblade instrument that merges 25 manual work flow steps from positive blood cultures into one walk away automated device to eliminate a 24 hour incubation step prior to multi results.
This automation reduces the inherent opportunity for errors and freeze lab staff to perform highest value activities.
This device when coupled with Pheno ASP will deliver a comprehensive IDFC solution for customers within existing multi system.
You know prep Leverages, a customer's prior investment in Maldi, enabling a broader rapid I'd workflow from positive blood culture, and Pheno ASP as the benefits of rapid assay results.
Fourth we have also entered into an exclusive product supply and collaboration agreement with ascend diagnostics to commercialize a bench top multi platform.
This will allow us to create an entirely new all accelerate work flow by bringing together pheno prep multi tall and pheno ASP for those customers, who prefer multi for I'd, but have not purchased a solution yet.
We believe these solutions will ensure maximum adoption of our current solution for the positive blood culture market, serving as our anchor in this $4 billion marketplace.
From here, we will expand our offerings utility across additional sample types in a broad menu.
The fifth prong of this product strategy is Pheno 2.0, this lower costs and higher Throughputs system will considerably expand our market through the addition of higher volume lower acuity samples like isolates in urine. This program is advancing according to plan and we continue to see promising early results across a number.
We'll sample types.
In an effort to focus on the development and launch of this new product strategy, we have decided to pause our respiratory development program. Recent research suggests that pulmonologists. During the pandemic are collecting few scope respiratory samples due to the risk of asked for rating virus to other patients and physicians accordingly.
Early in the current environment. It would have been very difficult to power, our clinical trial and obtained early commercial adoption.
Lastly, an update on our collaboration to commercialize the MMS fast fully automated Kennedy luminescence, immunoassay analyzer, and Sars koby to test for the detection of IBG Eni GM.
We have submitted final responses to the FDA questions on our emergency use authorization for this device and co bid related assays.
Our review has been complex and lengthy while all of the current approved Surajit test our four new covert test on existing instruments, we have had to obtain UI approvals for both coven test and the most fast instrument, we expect to hear from the FDA in a very near future on their decision.
We continue to be excited about this collaboration agreement and are eager to play a direct role in fighting. This pandemic. We're also evaluating additional opportunities like this one to rapidly extend our portfolio of synergistic products.
In closing the pandemic has exasperated the problem statement that our mission calls us to solve.
To deliver lifesaving answers for patients with serious infections recent studies highlight not only the secondary infections are on the rise in cobot patients, but over prescription of antibiotics are likely to lead to an enduring new wave of anti microbial resistance and subsequent infection risk for all patients.
The current business disruption is profound.
But we are pleased with our progress to reduce spend to help us whether the disruption why simultaneously accelerating our pipeline of new products, our internal R&D and business development engines are humming and are providing new ways for our sales teams to engage perspective customers.
Six months into the job I remain as bullish on our opportunity as ever and my mission for our future is crystallizing.
As the industry leader in rapid A.S.T., we played critical role in fighting serious infections for patients around the globe grounded in an extraordinary sense of responsibility to our customers into our patients. We are driven to change the way infectious disease is treated and as demonstrate.
Good by 130 customers study and counting that's exactly what we're doing today.
The deployment of our transformative prong strategy enables us to more efficiently deliver rapid asked T to all market segments, representing a major step forward in our mission to redefine the standard of care in microbiology.
I would now be happy to answer any questions from our analysts should others on the call have questions not addressed we would welcome you to send these questions or request for a follow up meeting to investors acts Dx dotcom. Thank you.
We will now begin the question and answer session.
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At this time, we will pause momentarily to assemble our roster.
First question comes from Stephen Mop up 5% or.
Please go ahead.
Alright, thanks, operator, and thanks for taking the question guys.
Can you give us a sense for the consumables pull through per instrument it sounds like it since becoming coming back but.
Yes, I just want to get it kind of a sense of what you're kind of go forward consumable pull through assumptions are.
Yes, sure Hi, Stephen Thanks for the question Jack Phillips here and I'll, let Steve follow up on this as well but.
No. We're very pleased with the consumable pull through in the us that we're seeing.
Today today, I mean in the us our consumable revenue year on year growth is over 60%.
Compared to last year of the revenue per instrument is holding.
Quite strong and so our existing base, our existing base of Pheno customers. While we saw a dip in like April and May a bit of a depth.
You know in June was actually one of the best month. So I think it was the best month, we had on record.
Relative to volume, we also confirmed through actually checking in with each one of those customers that this was not any kind of stocking effect that actually the volumes for those customers were actually on par with the ordering patterns that we saw so.
The one thing we're very very thankful for again as our existing customer base hold strong.
We continue to.
Services customers and they continue to order you know at at the same levels that we've been speaking at which is an annualized revenue of roughly about $45000 per pheno.
Steve did you have anything day of you covered all Jack I think that's good.
Okay, Great and I know last quarter, you guys had.
Had a reallocation strategy in EMEA photo kind of kind of redeploy instruments.
So it had low consumable pull through to high pull through sites.
Can you comment on that.
Yes, we certainly the emphasis in EMEA was to focus on increasing the minimal annuity in that geography, a lot of that is rooted in.
Telling the clinical story and doing some of the fundamental things if you're doing in the us and we've seen that work to some effect in places like Italy, and Spain, where resistance rates are quite high.
We did have a handful of returns and re distributions in Q1 in a few more in Q2.
Okay, great. Thanks, and then.
On the 24 instruments that you guys pulled out of the backlog will will these eventually go back into the backlog of staffing and budgets to return to normal or should we take a demos gone.
Yes, I mean again, thanks for the question. So the answer is.
Yes, I mean these accounts that we have that we mentioned theres about five customers about.
20, plus instruments and again, we in discussing with these customers for various reasons.
You know again, they have definitively said, they're not moving forward for now but in all cases.
In our discussions they were all open minded to revisiting implementation processes and eventual go live with Pheno.
These are strictly these were strictly related to challenges with Covidien. These specific institutions and those challenges run the gamut from multiple furloughs to laboratories just being.
Very very much over worked and not having any free time to implement anything up to executive leadership, saying, Hey, let's focus only on Cove, it and nothing else at this time.
Okay.
Okay Thats helpful color and if you can just indulge me with the one last question on the.
On the.
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I'll check system.
I think you had mentioned last time that you guys were pursuing a five 10-K is up.
As an FDA, allowing you just to pursue anyway or do stuff to get a five 10-K.
Yes.
No. We're we're pursuing an EU way and that's that's all we that's all we need to pursue currently right now and I would say that's proceeding nicely. We had like a final question over the past couple of days from the FDA. We've responded provided the data was very simple.
Very simple study that we had to do Weve submitted that study over the past 24 hours in the FDA has acknowledged that so we're very confident in.
Hey approval.