Q1 2021 T2 Biosystems Inc Earnings Call
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Good day and welcome to the T true biased and first quarter 2021 earnings Conference call Today's conference is being worked.
At this time I would like to turn the conference over to Philip Taylor Investor Relations. Please go ahead Sir.
Thank you operator, I would like to remind everyone that comments made by management today and answers to questions will include forward looking statements and those include statements related to <unk> biosystems future financial and operating results and plans for developing and marketing new products for.
And we're looking statements are based on estimates and assumptions as of today and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied by these statements, including the risks and uncertainties described and <unk> Biosystems annual report on form 10-K filed with the SEC on March <unk>.
<unk> 2021, and other filings the company makes with the SEC from time to time the company undertakes no obligation to publicly update or revise any forward looking statements, except as required by law with that I would like to turn the call over to President and CEO John <unk> John.
Thank you for joining our first quarter 2021 earnings conference call today, I will review the company's first quarter performance and provide updates on our progress across our three corporate priorities I will then turn the call over to John Sprague, who will review our financial results for the first quarter before I make some closing remarks, and we open the call.
And for questions and answers.
During the first quarter, the <unk> biosystems team generated revenue of $7 million and an increase of 173% compared to the prior year period.
<unk> revenue during the first quarter was $4 $7 million and increase of 345% compared to the prior year period.
In addition to contributions from our COVID-19 diagnostic test the T. Two Sars COVID-19 two panel.
Which ended the first quarter with annualized cash utilization of $214000 per COVID-19 driven instrument the annualized test utilization of our U S. Subsys test T. Two bacteria and T to Canada was robust year over year and and sequential quarters.
The annualized sepsis test utilization in the first quarter was $111000 per instrument up from 60.
In the prior year period.
Year over year increase of 85% and up from 84000 in the first quarter of 2020, a sequential quarterly increase of 32%.
We continue to advance our mission.
To fundamentally change the way medicine is practiced through transformative diagnostics that improve the lives of patients around the world.
While COVID-19 presented a new and challenging opportunity to demonstrate the capabilities of our technology and our commitment to our mission I want to reiterate that sepsis is our primary focus on.
<unk> sets discuss panels T. Two bacteria due to Canada, and future resistance offer potentially lifesaving benefits for patients and cost saving benefits for hospitals.
We believe that the clinical benefits of our <unk> products and the clear need to improve the standard of care for sepsis management will lead to greater adoption and increased utilization of our products.
We are committed to establishing our <unk> Dx instrument and sepsis test panels as the standard of care.
The current standard of care for patients at risk of sepsis relies on broad empiric protocols to administer antimicrobial therapy.
Despite the fact that such protocols are only optimal and approximately half of cases.
To further complicate matters. The current standard of care for the detection of sepsis, causing pathogens continues to rely on positive blood culture.
For the detection of sepsis, causing pathogens.
In order to target therapy for patients that are suspected of sepsis.
Blood cultures are diagnostic tests that are intended to identify the presence of a blood stream infection.
Due to their poor sensitivity blood cultures, often required multiple samples of blood from critically ill patients and take anywhere from one to five days to achieve the growth necessary for pathogen identification.
Additional testing such as traditional microbiology or post culture, and molecular diagnostic tests may be required for determination of species IV and susceptibility.
The results achieved from the standard of care, our book Disheartening and alarming.
Sepsis is the leading cause of death and U S hospitals, claiming the lives of nearly 270000 Americans each year.
And the leading cost of U S hospitalization.
In 2020, the U S Department of health and human services estimated that the cost of sepsis care for patients and hospitals and skilled nursing facilities with more than $62 billion.
In addition patients who survived sepsis may face hospital readmission due to the reoccurring sepsis.
Limb amputation due to complications of Subsys and.
And long term physical and psychological effects due to post sepsis syndrome.
As a substance survivor.
I understand the impact of our technology can help for patients hospitals, and the broader health care system.
Several years ago, following a life saving heart transplant.
Required several multi drug resistant bacterial infections, while in the hospital and I was diagnosed with sepsis.
He was treated with broad spectrum antibiotics and after suffering severe nerve damage and both legs spent nearly a month and a rehabilitation hospital, where I had to learn how to walk again.
I was discharged from the hospital and after spiking a temperature was immediately readmitted to finally received the appropriate targeted antibiotic treatment.
For Q2, Dx instrument been present and my hospital the pathogen that led to my Subsys diagnosis could have been identified and three to five hours.
On a recently published a book about my personal experience to help raise awareness about sepsis.
Which I am using to shed light on why we must change the standard of care for patients at risk of sepsis.
The book is titled Courage, powerful lessons and leadership strength and the will to succeed and.
And I am donating 100% of the sales to sepsis Alliance and donate life America, the nations, leading organizations for sepsis and organ donation.
Our aim at <unk> Biosystems is to change the standard of care by enabling targeted therapy faster that.
And that is within three to five hours of the first blood draw.
This is critical as each hour of delayed targeted treatment can increase patient mortality rates by up to 8%.
Our <unk> Dx instrument combined with our sepsis test the T. Two bacteria and T to Canada panels offer the first and only FDA cleared products able to detect sepsis, causing pathogens directly from whole blood and three to five hours without the need to wait days for a positive blood culture.
To further <unk> biosystems mission and create shareholder value, we've outlined three corporate priorities for 2021 that we believe position the company for long term success.
One accelerating our sales.
Two enhancing our operations and three advancing our pipeline.
And we'll start off by addressing our first priority accelerating our sales.
On our last call we identified three commercial priorities intended to accelerate our sales for.
First to transition instruments sold and the U S. During the second half of 2020 from COVID-19 testing to sepsis testing.
Second to increase Subsys test utilization and our legacy installed base.
And third to expand our T to Dx instrument installed base.
To accomplish these objectives and expand our commercial reach we have rebuilt our U S sales team.
We understand that driving adoption of <unk> Dx instrument and fully implementing the use of our test and integrating them into sepsis protocols within the U S hospitals requires a clinically focused sales team.
And late 2020, we created a geographic sales model with 10 regional account managers across the U S and we have filled all but one of those positions.
Our U S regional account managers or sales professionals with broad experience selling capital equipment into the hospital market across multiple stakeholders and understand the system wide sales process.
They have completed a training program designed to articulate the clinical and economic value proposition to the whole hospital clinicians laboratory and hospital administrators antimicrobial stewardship committees and sepsis committees.
And in combination with our field application specialists and medical affairs specialists, we now feel that we have the right structure and team in place to accelerate adoption and continue to increase the utilization of our <unk> products.
Our newly appointed Chief Medical Officer, Dr. A part of Alicia and the Medical Affairs Department are generating evidence to support the clinical and health economic value of our products, both internally and through collaborators with industry thought leaders.
We expect to see data published and presented at key medical conferences throughout 2021.
And which is important as we seek to build greater awareness of our products in the medical and scientific community.
Dr. <unk> is also leading the creation of our scientific Advisory Board and building our clinical affairs team as we prepare to initiate multiple clinical studies.
The expert review of medical devices, a peer reviewed medical Journal recently published a meta analysis exemplifying the clinical and economic benefits of our products.
We believe this data will be a powerful tool for our sales and marketing teams.
And this meta analysis includes data from 14 clinical studies evaluating the use of our subsidy products in the United States and internationally.
According to the meta analysis as compared to blood culture, the use of <unk> biosystems diagnostic products reduce the time to pathogen detection by 81 hours.
Reduce the time to species identification by 77 hours.
Accelerated the time to administration of targeted antimicrobial therapy by 42 hours.
Accelerated the time to escalation of patients from empiric therapy by southern hours.
Decreased the length of patient ICU stay by five days and decreased the length of patients hospital stay by for eight days again, that's comparing <unk> biosystems sepsis technology to traditional blood culture.
The authors conclude that in addition to significant clinical improvements and efficiencies. This could theoretically reduce hospital costs by as much as $25000 per patient tested.
This independent third party publication and further demonstrates the potential impact that the T. Two bacteria and T to Canada panels can have on improving clinical and health economic outcomes.
While U S. COVID-19 cases have decreased since the peak in January our Q2 Sars COVID-19 two panel continues to be a valuable tool for our U S Hospital customers.
We believe U S hospitals will continue their COVID-19 efforts during 2021.
Especially as new COVID-19 variants emerge like to be $1, six one and southern variant currently spreading and India.
We previously announced that the T. Two Sars COVID-19 two panel is capable of detecting the Brazil U K and South Africa variance based on sequence and and Silicon analysis and I'm pleased to confirm that the T. Two Sars COVID-19. Two panel is also capable of detecting the India B 1617 variant based on this.
<unk> analysis.
While the COVID-19 pandemic has limited access to hospitals, we anticipate increased access to hospital personnel as the year progresses and to a greater extent during the second half of the year.
We believe this provides greater opportunity to sell new T to Dx instruments for Subsys testing.
Add sepsis test panels to customers that are currently utilizing only the <unk> panel and to drive broader adoption of sepsis test panels and legacy <unk> accounts. This.
This is why we expect 70% of 2021, <unk> Dx instrument sales to occur and the second half of the year and to be used primarily for sepsis testing.
This has been our strategy since the onset of the pandemic and the reason why we have only been selling our instruments to prequalified U S Hospital Microbiology lab customers with a stated interest and evaluating the use of T. Two bacteria and T to Canada panels for integration into their sepsis treatment protocols.
As previously stated our commercial focus in 2021 remains on driving adoption and utilization of our Subsys products. We remain on track to close at least 30, <unk> Dx instrument contracts during 2021.
Our new U S sales force is actively calling on targeted customers, both virtually and in person.
And we are advancing toward our 2021 sales objectives I am pleased to report that during April we sold T. Two dx instruments to two of the leading U S hospitals, which will be used for routine sepsis testing.
Moving on to our second priority enhancing our operations.
In 2021, we will continue to prioritize enhancing operations across our business, including improvement in product gross margins and operating cost structure.
Over the last 12 months, we have significantly scaled our manufacturing capabilities and strengthened our supply chain relationships.
We believe this is important for the future success of the company as we advance our product pipeline and continue to enhance our operations while.
While the increased volume has had a favorable impact on overhead absorption. We are continuing to pursue a number of cost improvement initiatives aimed at improving product gross margins and increasing the company's overall efficiency.
Finally, I will now flow to address our third strategic priority advancing our pipeline.
We intend to extend our technology lead by broadening our capabilities for the detection of sepsis, causing pathogens from whole blood samples on.
Our ongoing focus has been on advancing the programs outlined in our product development contract awarded in 2019 by the Biomedical Advanced Research development authority for BARDA the.
The total value of the contract is up to $69 million paid upon the achievement of certain milestones and defined contract phases.
We completed the base phase of the contract during the third quarter of 2020, and we are currently working toward fulfilling the milestones under option one of the contract.
And as I previously stated our new product development programs have been running ahead of schedule and under budget, which provided an opportunity to revisit the terms of the part of the team including the schedule.
Today, we announced that we have modified the terms of our existing BARDA contract that will allow us to accelerate our project milestones and option one for.
For our comprehensive sepsis panel the next generation instrument and the bio threat panel.
We have recently hired a number of employees to accelerate these programs under the terms of the BARDA contract, including the schedule and funding.
The comprehensive Subsys panel is a direct from blood test panel designed to detect approximately 99% of all bloodstream infections caused by bacterial and Canada species and antibiotic resistant markers identified as threats by the CDC and a single test with a time to result of approximately.
Three hours.
We believe this comprehensive sepsis panel has the potential to totally disrupt the traditional blood culture workflow and become the new standard of care.
The next generation instrument is designed to be fully automated and random access like our current <unk> Dx instrument the.
And the instrument is being designed in parallel with the comprehensive sepsis panel to detect and increased number of pathogens and resistance genes from a single whole blood sample independent of blood culture.
The <unk> panel is a direct from blood panel designed to detect six bio threat pathogens from a single patient sample and run on the FDA cleared T. Two dx instrument.
Today, We also announced that BARDA has agreed to include milestones for the teacher resistance panel that will enable <unk> biosystems to commercialize this product and the United States market.
While we are currently selling the teacher resistance panel in Europe under CE, Mark we need to conduct additional verification and validation studies as outlined by the FDA through the pre submission process to initiate the clinical trial needed to pursue FDA five 10-K clearance.
To frame this opportunity more than two 8 million antibiotic resistant infections occur and the us each year and more than 35000 people die as a result.
Unfortunately, these patients are typically on empiric therapy or therapies that do not adequately treat the resistant infection in a timely manner as the current standard of care for identifying these resistant markers also relies on blood culture workflow. We believe the teacher resistance panel can be a game changer for many of these patients.
Providing results in hours instead of days, enabling clinicians to target therapy for patients with a resistant infections faster than ever before.
In 2017, Carb X, which is funded by both BARDA and the welcome Trust awarded T. <unk> Biosystems $2 million to support the development of the teacher resistance panel designed to detect 13 resistant genes from both Gram positive and Gram negative pathogens directly from a whole blood specimen.
Without the need for blood culture.
In 2019, the FDA granted breakthrough device designation for the T. Two resistance panel.
Dropping the purpose of the test panel to rapidly identify resistant infections.
We believe this test will enable more patients to get on the right targeted therapy faster potentially reducing mortality and hospitalization costs and we're excited to continue our partnership with BARDA on this critical project.
With that I'll now turn the call over to John Sprague to go over the details of our first quarter financial results.
Thank you John.
Total revenue for the first quarter of 2021 was $7 million and increase of 173% compared to the prior year period.
Product revenue was $4 7 million.
And that increase of 345 per cent compared to the prior year period, driven primarily by increased sepsis and COVID-19 test sales.
Research contribution revenue was $2 3 million.
The increase of 54 per cent compared to the prior year period, driven by increased BARDA contract activities.
Product costs for the first quarter of 2021 for $5 8 million.
And increase of $1 $1 million compared to the prior year period, driven by increased sales.
Research and development expenses were $4 7 billion and increase of $400000 driven by increased part of the contract activities.
Selling general and administrative expenses were $6 2 million, a decrease of $1 million driven by lower head count.
Net loss for the first quarter of 2021 was $10 $7 million seven per share.
Impaired to a net loss of $14 $9 million 22 per share for the prior year period.
Total cash was $43 9 million as of March 31, 2021, including marketable securities and restricted cash.
We filed a new form S. Three registration statement and established ATM facility and Mark will allow the company to sell common stock. The day, we have not sold any stock under the facility.
Reiterating guidance, we continue to expect total revenue for the full year 2021 of $24 million to $26 million.
<unk> product revenues of $16 million to $18 million and research contribution revenues of $8 million and.
And we expect to close at least 32 Dx instrument contracts.
And back to John's personal for closing remarks.
Entering 2021, we set three corporate priorities accelerating our sales improving our operations and advancing our pipeline.
We're very pleased with our progress during the first quarter, which included total revenue growth of 173% and product revenue growth of 345% compared to the prior year period.
Most importantly, our sepsis test sales continue to increase with 85% increase compared to the prior year period, and a 32% sequential increase compared to the prior quarter.
We have rebuilt a clinically focused U S sales team to drive greater adoption of our novel substitute products and we're strengthening our medical and clinical affairs teams to generate additional clinical and economic data and to support our customers.
We continue to enhance our internal operations, which have resulted in more favorable cost structure and we remain excited about our product pipeline, including the teacher resistance panel and our opportunity to lead the change and the standard of care for the management of patients suspected of sepsis.
We'll now open the comment on the call.
Call to questions operator.
Thank you Chuck.
And if you would like to ask a question for the second quick question follow.
Bottom line from Keybanc.
Thank you speakers from please make sure you and the function is turned off.
We have taken three Chuck Wilson and that.
And second.
One to ask for.
Quick question.
Recall that these moments to allow everyone an opportunity to signal.
And once again, ladies and gentlemen.
For one.
For the phone question.
And we take our first question from Mark Massaro of DTA.
Please go ahead.
This is Andy and on.
For Mike and thanks for taking my question.
Thank you for a quick one.
And quickly.
And Alan.
On the instruments.
And along with and can make conversion.
And from COVID-19.
For 2021.
Sure. So first of all we're super excited to have the new sales team in place.
And we were able to attract really talented people. If we look at those 10 sales territories.
There is a mix of installed base.
For sepsis, which we would call our legacy installed base new instruments that we sold in the second half of 2020, which are primarily used for COVID-19 testing. So not every territory looks the same some territories impact of those 10 and have very few instruments and their installed base, so depending on what that particular.
Other territory and looks like a sales rep may have a heavy emphasis on converting COVID-19 driven instrument sales to sepsis testing may have a mix of that plus sepsis testing or may have a very heavy load of selling new instruments, but as John said, when we look across the whole business for 2021, we feel confident.
And to 30 instruments that we plan to sell for this year, the 30 contracts and I will say that in April we already closed two major accounts one of them is Mayo clinic and the other is Baylor and Texas. So we feel really great about.
The quality of those to close that we already have in April.
Okay. Thanks your loans.
And just one follow up for me.
On the modification of the BARDA contract.
Thank you. Thank you may have some updates on the pipeline. Thank you for that.
Hi.
Great.
Thank you.
And well go next channel disconnect.
Sure. So the way the BARDA contract is structured as I mentioned on the call. There is a base phase, which we completed late last year and then there are six options.
Working and option one right now and we obviously have to earn our way into option, two and three and for and so on.
The best way, we can do that is to deliver on the milestones within the option that we're currently working and our team has done a terrific job. We delivered all of the milestones on the base phase, which led to option. One when we did that ahead of schedule under budget. We were in the same place with option. One so we had the opportunity to meet with BARDA and.
And revisit the schedule and the structure of the timing the funding to a very favorable position remember our goal is to get these products finished.
Get the regulatory approvals and get them into the market. So that we can save patients' lives and.
And we're ahead of schedule on that we were able to pull milestones from option too.
For the comprehensive sepsis panel, the nexgen instrument and the biotech panel into option. One so the hope would be that when we get to option two we're able to pull.
Milestones from option three into two and continue along that pace. So when we get to the goal line. We're faster on all of these projects. The most important thing that we were able to accomplish is to get T to resistance pulled into the overall BARDA program. It was listed as an additional service originally and we were able to bring.
Milestones for T to resistance into option, one which is going to allow us to accelerate that program and we're super excited about that we view it as a key product and our portfolio and the U S. As far as T. Two line just your last question our strategy.
Has always been to initially sell T. Two line as a <unk> or a lab developed test.
Through a partner that obviously got put on hold because of COVID-19, but that remains our strategy going forward and we're hopeful to make some progress and the back half of 2021.
Okay awesome, thanks for taking the question.
Thank you. Thank you.
Our next question comes from Anthony Yang of Canaccord Genuity go ahead.
Hi, guys. Thanks for taking my question I'm on for Max Masucci today.
So first on.
New.
Give us and inside view of the sales interaction that you on.
Hearing and seeing lately and <unk>.
Terms of the customer types, you're targeting are you seeing any strength areas of strength alright.
And.
Our customers on the specific size, whether thats, a larger integrated health care system or a smaller hospital lab.
So we're obviously targeting hospitals only that's the only place that we're selling our products because of course, we're focused on critically ill patients whether it's for COVID-19 testing or for sepsis testing, we're targeting a mix of integrated systems as well as Standalone hospitals I mentioned two that we just closed.
Baylor and and.
And Mayo and of course, those are systems as well. So it's a combination if we target all systems, sometimes they have a longer sales cycle and we want to just have a good balance there. We just hired and expanded the sales team for most of the first quarter. They were in very extensive training they have a lot of it.
Experienced selling diagnostic products selling capital equipment and many of them have sold into microbiology labs. So the training was very focused on the clinical value proposition and the economic value proposition and of course, the technical aspects of our products.
Great. Thanks, so much.
Thank you.
Thank you.
Ladies and gentlemen, if you would like to ask a question. Please signal by pressing star one and telephone keypad.
Our next question comes from Ben Hayner of other partners. Please go ahead.
Good afternoon, gentlemen, thanks for taking the questions first on.
And for me just mentioned on the improvements for the utilization on the <unk> instrument.
Kind of on figure that you see being able to build upon as time goes on.
As we go through 2021 and beyond here.
At least as existing like the existing accounts and though there'll be some impact on some of these.
COVID-19 accounts move over to sepsis testing and as well but.
And the existing accounts.
And do you expect that that will continue to build.
We expect to continue to increase the test utilization on our <unk> platform.
We target I would say as on average $200000 per instrument per year on an annualized utilization basis. If you remember than a year ago. When I joined it was at about 50000, and I think a year ago. This quarter. It was at 60000 and it grew throughout the year. We ended 2020 at 86000.
We came out of Q1 and 111000 and so we're obviously moving towards 200000, we had hoped to get there sooner and again, we set a target at end of 2020 to get to a 100000, we were little bit short of that but there were some COVID-19 headwinds and that's part of it is still a little bit unpredictable, but we still consider $200000.
Is the right threshold or baseline for a sepsis utilizing customer we have many that are doing well beyond that by the way.
Sure Okay.
And then on the gross margin improvement.
It was the best.
Put up and.
The past few years and the way in terms of gross margin and as that.
Largely due to a better mix of both types of panels on covered panels.
Is that a function of grant.
Our research revenue.
Coming out of the higher margin you know, what's the right way to think about that.
John strength would you like to take that.
Yes, so I think it's all of the all the above them, but.
And you'll think about it and pieces the product margins are improving.
Been able to.
Make bulk buys against our forecast and get better product.
Product materials pricing for components.
And we put in the operational efficiencies on the plant floor.
Which is driving.
Better throughput and.
Better yields.
And then then of course, the BARDA volume absolutely.
Drops right to the right the margin and helps but.
Bart the product trends will continue.
Improving and.
We will also benefit from improved sales volumes.
That's helpful and then just.
Thinking about kind of the clinical side of things.
Obviously, the meta analysis.
And had published.
That was published.
It seems awfully compelling and off here, if you're getting folks out of the ICU five days earlier and.
No, it's theoretically theoretical but $25000 per patient tested.
That would seem.
And I guess, that's awfully compelling.
Guess, what additional evidence do you think.
Hospitals need to see to get on board and.
Anything that you can discuss in terms of what Youre critical efforts might look like this year that you mentioned earlier on the prepared remarks.
And I would completely agree its very compelling data and of course that is up to $25000 per patient tested that's based on our cost average cost and an ICU ICU days, so that can fluctuate across the country, depending on where the patient is we're going to continue to develop both clinical and economic.
<unk> data to support the products and Thats, why we and higher Doctor, who shows Chief Medical Officer, and I would say the bar is being raised every single day and that area and we're excited about it.
Okay, great well, thanks for taking my questions guys.
Thank you.
Thank you.
Thank you. This concludes today's Q&A session. At this time I would like to turn the call over counter host for any additional or closing remarks.
Thank you very much for joining our first quarter earnings conference call. We look forward to updating you next quarter.
Thank you, ladies and gentlemen, and welcome.
Today's conference call and thank you for your participation you may now disconnect.
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Okay.