Q1 2021 Accelerate Diagnostics Inc Earnings Call

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Good day, and welcome to accelerate diagnostics first quarter 2021 earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad. After today's presentation, there will be an opportune.

On the T to ask questions. Please note. This event is being recorded I would now like to turn the conference over to Laura Pierson of accelerate diagnostics. Please go ahead.

Before we begin it is important to share that information presented during this call may contain forward looking statements within the meaning of section 27 eight of the Securities Act of 1933 and section 21 E of the Securities Exchange Act of $19 34.

And we're looking statements include projections statements about our future and those that are not historical facts on.

All forward looking statements that are made during this conference call are subject to risks uncertainties and other factors that could cause our actual results to differ materially.

And these are discussed in greater detail and our annual report on form 10-K for the year ended December 31st 2020, and other reports we filed with the SEC.

And it's my pleasure to now introduce the company's President and CEO Jack Phillips.

Thank you Laura good afternoon, everyone and welcome to our first quarter 2021 earnings call on today's call. We will review our first quarter financial results.

Discuss the impacts of the pandemic on the business and detailed progress made against 2021 areas of focus through March.

And the first quarter, we grew our global revenue generating installed base consumable revenues and funnel of prospective customers pandemic related effects and January and February impacted the magnitude of these gains and the quarter.

We are committed to establishing rapid susceptibility testing as the standard of care and we expect to progress of this commitment and 2021 through increasing adoption of our current integrated idea of ASP solution launching product extensions to open new market segments and position ourselves for market expansion through advanced.

Inc. Pheno 2.0 development and access to new geographies before providing additional details on our progress against these priorities and the quarter I would like to hand, it over to Steve to review, our first quarter financial results Steve.

Thank you Jack and good afternoon.

Net sales were $2 $5 million and the first quarter. This compares to $2 3 million for the same period and 2020 the.

The year over year sales increase was driven by 16% growth and consumable revenue, which was partially offset by lower capital instrument revenue in the current quarter.

Existing customer utilization was low in January and February due to the surge and pandemic driven hospitalizations.

Utilization and improved in March our highest consumable sales month in the company's history.

Cost of goods sold were $1 $6 million and the first quarter.

<unk> and gross margin of 36%.

This compares to cost of goods sold of $1 3 million or a gross margin of 45% during the same period and 2020.

The decline in gross margins resulted from ongoing pandemic related impacts to manufacturing costs and other factors.

Selling general and administrative expenses, excluding noncash stock based compensation expense for the quarter were $8 million.

Compared to $9 $9 million from the same period and the prior year.

This decrease was the result of ongoing benefits from cost cutting efforts and we put in place and 2020.

Noncash stock based compensation expense, and R&D was $6 million and $3 million and the first quarters of 2021 and 2020, respectively.

Research and development costs, excluding noncash stock based compensation expense for the quarter were $4 1 million compared to $4 $7 million for the same period and the prior year. This decrease was the result of improved internal efficiencies and lower external study related costs.

Noncash stock based compensation expense, and SG&A was $2 $7 million and $1 $1 million and the first quarters of 2021 and 2020, respectively.

Our net loss was $15 $4 million.

<unk> noncash stock based compensation expense, our GAAP net loss was $24 2 million from the first quarter, resulting in the net loss per share of <unk> 41 net.

Net cash use was $12 $3 million for the quarter, excluding cash flows from financing the.

The company ended the quarter with cash and investments of $66 $7 million.

During the quarter, we closed on the first of three equal tranches of insider financing.

Transaction that we announced in December contributing $10 $7 million.

The second tranche closed in April and the remaining tranche will close in June.

I will now hand, it back to Jack to review, our first quarter results and 2021 priorities and greater detail Jack.

Thanks, Steve our 2021 priorities are to increase adoption of our current integrated <unk> solution launch Pheno, Asti, and Pheno prep and advanced Pheno 2.0, and Chinese registration.

Our current integrated identification and susceptibility solution is delivering broad clinical and economic benefits to a growing base of enthusiastic customers.

However, our rate of penetration has been insufficient and slowed by the pandemic increasing this installed base will require improved hospital access and a shift and hospital priorities beyond COVID-19, 2021 began much the same way the 2020 add to a significant degree of hospitals focus.

The remained on COVID-19 patient testing and treatment physical access to and the intention of key hospitals stakeholders was constrained impacting our ability to progress perspective customers through the sales process accordingly.

New contracts were signed globally and the first quarter. Additionally.

Additionally, certain customers, who had already signed contracts delayed or discontinued progress on implementing the system.

Despite this headwind we brought 12 instruments clinically live and the quarter. These additions brought our U S revenue generating installed base to 274 with another 111 instruments pending go live.

In EMEA, our new geographical focused strategy delivered 10 clinically live instruments across five new customer sites.

Since March as vaccination rates increased and hospitalizations declined and most of the U S and parts of Europe, we have seen a steady increase and customer engagement with increased go live activity and notable increase and securing important customer meetings, both virtually and face to face.

<unk>, which is an important precursor to winning new business.

Anti microbial resistance is always evolving and we believe it's important to continue to enhance our integrated IV asti product offering the.

The first wave of these product enhancements, which aims to improve the performance and expand <unk> <unk> menu for bloodstream infections is rolling out now.

Through the end of the first quarter, we had successfully upgraded about 30% of our customer base and.

Additionally, we progressed a series of enhancements, including new drug menu updates to algorithms to address evolving resistance patterns methods to reduce site the site variability and reported ability and finally eco friendly packaging to improve the shipping and storage of our test kits.

Lastly, we continued to build our body of clinical evidence and refine our strategy for using this data to win new business. Our growing base of enthusiastic customers continues to publish important outcomes data one such customer is alleghany, who last month public.

<unk> findings from their first year of using fino per patient decision, making.

They studied the use case for fino that hasnt been a focus of the nearly 100 studies of accumulated to date, it's the ability to drive early discharge for less serious patients not only did length of stay decrease by statistically significant three days for this emergency department of cohort.

But they observed no change and readmission rate nor adverse health effects from these early discharges.

While customer driven publications like these continue we made considerable progress and our multi site registry study. This quarter. This study has enrolled nearly 1000 patients across multiple clinically live customers to about evaluate new clinical outcomes, including 30.

Day mortality rate and reductions and the rate of acute kidney injury or Hai.

The case for making rapid susceptibility testing standard of care continues to strengthen with each new customer and study conducted our second area of focus for 2021 is opening new market segments through the launch of Pheno test ASP configuration, and our Pheno prep system for <unk>.

All of the top identification these product extensions complement the current integrated <unk> offering by providing an avenue for customers to adopt rapid susceptibility testing on fino, regardless of existing workflow or prior investments and identification testing.

<unk> configuration is a new configuration of our existing <unk> consumable, which runs already on the current pheno platform.

And the ASP configure test kit exception identification test result from an existing system loans, the appropriate antibiotic panel and delivers rapid assay results and about seven hours days sooner than the typical lab workflows.

The <unk> prep as the new platform, which automates the front and steps to deliver rapid multi identification results multi is the leading method for obtaining and identification result, and the U S and EMEA and our preparation technology delivers a substantial improvement and time to result, and workflow benefits.

Italy, Pheno prep will launch to be used with existing multi systems in the future Pheno prep could be optimized for use with our own multi device through our exclusive collaboration agreement with the ascend diagnostics.

In addition to these product enhancements and extensions. This year. We are also working on several programs to expand our available market. These programs fall under two general areas targeted geographic expansion and importantly, our multi sample capable of next generation platform Pheno to point out.

With our near term strategy set and restructuring complete and EMEA. Our focus on geographic expansion is Asia Pacific in particular, China is a highly promising market with a significant sepsis challenge a large population and the government that is focused on health care investment we continue to progress on.

Clinical trial and regulatory activities to gain access in this important market.

The continuation of our market expansion strategy is the development and launch of our next generation rapid susceptibility system. The Pheno two <unk>.

This system incorporates a decade of susceptibility market and technology learnings into its design.

Based on continuing prototype testing and ongoing progress we are increasingly confident that the system will deliver fast and accurate results at a fraction of the size and cost of the current system.

This will allow us to launch Pheno, two <unk> in multiple configurations across different sized hospitals and across various high higher volume sample types in summary, our first quarter financial results were as expected and progress against key priorities put us on pace to achieve our goals.

For the year, we are cautiously optimistic that the market conditions will continue to improve globally through 2021, and health care spend will increase for non COVID-19 infectious disease diagnostics.

We believe that anti microbial resistance and sepsis will be among these high priority areas of avoidable healthcare costs that are poised to worsen post pandemic a.

A growing body of evidence increasing base of enthusiastic customers and improving execution against our strategy.

<unk> us to lead and making rapid susceptibility testing standard of care.

I would now be happy to answer questions from our analysts should others on the call have questions not addressed we would welcome you to send these questions or request a follow on meeting to investors at <unk> Dx Dot com.

Our first question comes from Andrew Brachman with William Blair. Please go ahead.

Hey, guys. Good afternoon, thanks for taking the question.

And Jack maybe a big picture on for you, you've now sort of been and the CEO chair for about 15 months. So I guess outside of the pandemic can you just sort of talk broadly sort of about your level of confidence and the business. The restructuring that you guys have gone through and just how it business and now versus when you initially came and just sort of debt level of cash.

Okay.

Hi, Andrew Great.

Great. Thanks for the question and I greatly appreciate it.

Certainly in the past year of lots changed with the pandemic and all but but really as we think about the business. We're extremely confident about where we're at Pryor.

Prior to the pandemic.

We've been very clear about our new strategy and direction for the company.

<unk> included many things from the standpoint of from a tactical standpoint, it was around improving the commercialization of our sales force and <unk>.

Utilizing data and return on investment portfolios to justify.

Clinical outcomes for our customers.

Also totally retooled our go live process and we've talked a lot about that that's paying great dividends for us.

As we've demonstrated over the past couple of quarters and the.

And then also more on a bigger picture strategic standpoint, we've been very clear about how we've shifted the direction to our core business more so with the.

Work that we're doing on Pheno Asti configuration on Pheno prep to.

Further drive rapid adoption of of multi identification and the market, where we believe that's a.

Real big opportunity.

For us and for our customers and then also continued to advance our portfolio for Pheno to point out so.

All in all and.

Again, our body of evidence continues to grow.

Tremendously we've had a significant number of new papers over the past quarter that have come out from the likes of Allegheny General.

Albany Medical center, our own registry of five unique.

Health institutions, all demonstrating the clinical value and outcomes of Pheno and the financial impact on institution. So.

Overall, there is just a lot of tremendously good work going on and accelerate we're making good progress yes, we've been hampered by.

And the past year of the pandemic, we're very optimistic.

And about what we're seeing now today with regard to new access to hospitals granted.

As we know many states and institutions are still and lockdown mode. Many of those and the northern part of the U S.

But the the institutions and cities and areas, where we are getting access.

On the story of Fino and.

And the solutions that we provide for rapid I'd and ASC are resonating quite well and we're optimistic about the future as we move forward with our strategy and the market continues to open up.

Perfect. Thanks for that I guess that sort of leads me into my next question here on.

Honestly.

Aside from the pandemic as you just mentioned you've done a lot of sort of rightsize, the business and get moving and all of that and direction. So I guess and we think about sort of the outlook from here and recognizing 2021 and still going to be a little bit hampered by the pandemic is it sort of reasonable to think that 2022 is the right year, where all of the sort of comes together and you start to see that inflection of.

The growth.

Yeah, Andrew So, yes, we've been very clear that and we all know that we're not we're not past the pandemic yet and access is still limited like I said.

But we are getting more access and as we get towards the middle part of the year and the back half of the year.

And we're quite optimistic on <unk>.

'twenty, one still very much. So I mean, we've got see good penetration and opportunities growing go lives are going well the.

The other items that are happening here this year as we're still looking at launching Pheno Asti configuration around mid year, and we're looking at launching Pheno per rep around the end of neck of the end of at the end of the year and.

And so we're working hard on launch preparation for those the sales force is already out positioning those products that are very important to certain segments of the market.

And then to get to your kind of your point, which is 2022.

Yeah, I mean, we are very.

<unk> very confident and.

The trajectory of the business and 22, but we're still extremely focused today on where we're at today and 21 and continuing to deliver results and 21.

Okay.

Andrew did you have any other questions at this time.

Not at this time. So this concludes today's call. Thank you for attending today's presentation you may now disconnect.

Okay.

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