Q2 2021 Accelerate Diagnostics Inc Earnings Call

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, a of the Securities Act of 1933 and section 21 E of the security of distinct <unk>.

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 our actual results to differ materially. These are the best Inc.

They are detailed in our annual report on form 10-K for the year ended December 31st 2020, and other reports we file with the SEC.

It is my pleasure to now introduce the company's president and CEO Jack Phillips.

Thank you Laura good afternoon, and welcome to our second quarter of 2021 earnings call on today's call. We will review, our second quarter financial results and detailed progress made against 2021 priorities through June.

We are committed to establishing rapid susceptibility testing as the standard of care in 2021, we are advancing this commitment through increasing our integrated <unk> solution customer base launching the new products to open unaddressed market segments and setting the stage for market expansion through the development.

Of our next generation platform free note to point out.

In the second quarter, we made meaningful progress on the east goals first improving pandemic conditions contributed to increases in our funnel of prospective customers new customer contracts and revenue generating installed base in.

In addition, we launched the new ESG focused test kit for use on our Pheno system and advanced the development of our Pheno to point out system.

Before providing additional details on our progress against these priorities in the quarter I would like to hand, it over to Steve to review, our second quarter financial results Steve.

Thank you Jack and good afternoon, everyone.

Net sales were $2.8 million in the second quarter and $5.3 million year to date.

This compared to $2.1 million and $4.5 million for the same periods in 2020.

Consumable revenue in the quarter grew by 10% sequentially over the first quarter. Additionally, consumable revenues grew by 24% during the first 6 months of 2020 as compared to the same period in the prior year, while instrument revenues remained consistent year to date.

Cost of goods sold were $1.7 million in the second quarter and $3.4 million year to date, resulting in gross margins of 38% and 37% respectively.

This compares to cost of goods sold of $1.2 million at $2.5 million and gross margins of 45% and 45% respectively. During the same periods of 2020.

The decline in gross margins of resulted from inflation to production costs and other factors.

Selling general and administrative expenses, excluding noncash stock based compensation expenses were $7.7 million for the quarter and $15.8 million year to date.

This compares to $8.3 million and $18.2 million from the same period in the prior year.

These decreases were the result of the ongoing benefits from cost cutting efforts that were put in place in 2020.

Non cash stock based compensation expenses, SG&A was $5.2 million in the quarter and $11.2 million year to date compared to $3 million and $6 million from the same periods in the prior year.

Research and development costs, excluding noncash stock based compensation expense were $4.4 million for the quarter at $8.6 million year to date. This compares to 5 million and $9.7 million from the same period in the prior year the.

These decreases were the result of improved internal efficiencies and lower external study related costs.

Non cash stock based compensation expense and R&D were $1.3 million in the second quarter and $4.1 million year to date compared to $3 million and $1.5 million from the same periods in the prior year.

Our net loss, excluding noncash stock based compensation expense was $15.1 million for the quarter and $35 million year to date, our GAAP net loss was $21.7 million for the quarter and $46 million year to date, resulting in the net loss.

<unk> per share of 36% and 77, respectively.

Net cash used was $9.3 million for the quarter.

$21.6 million year to date, excluding cash flows from financing activities.

During the second quarter, we closed on the second of 3 equal tranches of the insider financing transaction that we announced in December.

These transactions contributed to $10.7 million in the quarter and $21.4 million year to date.

In addition, we made 1 sale under our ATM facility for $800000 inclusive of these financing activities. We ended the quarter with cash and investments of $68.8 million.

I will now hand, it back to Jack to review, our second quarter results in greater detail Jack.

Thanks, Steve.

Our 2021 priorities are to increase adoption of our integrated <unk>.

<unk> solution launch <unk>.

Launched arc, formerly Fino prep and advance Pino to point out in the first quarter, we outlined the increasing the rate of adoption of our integrated <unk> solution would require a normalization of hospital priorities and access and to be further supported by positive read out from our register.

<unk> study and the implementation of product improvements.

In the second quarter hospital access improved and the number of prospective customer meetings increased however, there remain lingering pandemic related impacts leading to inconsistent access to key hospital stakeholders in regions, where fluctuating COVID-19 cases and hospitalizations remain.

The focus.

Despite these continuing headwinds we saw increases in new customer opportunities contracts and go lives in the quarter.

We continue to build our body of clinical evidence and refine our strategy for using this data to win new business in the quarter. We released data from the largest most comprehensive study ever conducted to evaluate the clinical impacts of rapid susceptibility testing.

This 4 hospital study spanning nearly 800 patients compared key clinical outcomes prior to adopting fino to their current state of using fino, many times per day to optimize patient therapy decisions.

The data clearly demonstrated that the use of fino resulted in material improvements in the time to optimal therapy and reductions in sepsis mortality acute kidney injury and the length of stay.

Notable was that 30 day sepsis mortality was statistically reduced from 15, 9% to 6% with the use of free now.

These are the most compelling data released to date on the clinical necessity of rapid susceptibility testing while it is too early to see the impacts of this data on our business. We are enthusiastic about the outcome of this multiyear study of <unk>.

We're generating new customer interest daily as a result of this.

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

The first wave of these product enhancements, which aimed to improve performance and expand free knows ASP menu for bloodstream infections is rolling out now. Additionally.

Additionally, we progressed a series of enhancements, including new drugs updates the algorithms to address the evolving resistance patterns.

<unk>, 2 reportable <unk> and eco friendly packaging to improve the shipping and storage of our test kits.

Collectively our execution in the quarter and modest improvement in hospital access translated into gradually improving commercial metrics globally.

In the U S. We had of dozens of prospective customers through the sales funnel closed deals, adding 15, new instruments and brought 24 instruments clinically live in the quarter.

These additions brought our U S revenue generating installed base to 298 with another 102 instruments pending go live.

In EMEA, we brought 4 instruments live in contracted 2 additional new instruments.

Our second area of focus for 2021 is opening under address market segments through the launch of a new Pheno test the Asti kit and <unk> a sample preparation system for rapid multi tav identification the.

These new products complement the current integrated <unk> offering by providing an avenue for customers to adopt rapid susceptibility testing on pheno, regardless of existing workflow or prior investments and identification testing.

The Pheno test the Asti kit is launched and now available to customers in the United States. This new test kit answers the need for an important segment of customers, who have rapid identification already in place, but lack rapid susceptibility results.

The new free no solution exception identification test result from an existing system loans, the appropriate antibiotic panel and delivers rapid assay results and about 7 hours days sooner than typical lab workflows, we are seeing strong initial interest.

Dented by significant increases in new qualified customer leads.

Arc, formerly Fino prep is a new platform, which automates the front end steps to deliver a rapid multi identification result.

<unk> is the leading method for obtaining an identification result in the U S and EMEA have on the microbiology laboratories in the U S are equipped with a multi platform, but most of these labs struggle with the cumbersome workflow to deliver a rapid identification the arc platform delivers a.

<unk> improvement in time to result, and hands on time.

Our plus malty will also be a good alternative to molecular syndromic panels by giving customers access to a greater menu at a more affordable price.

In addition to these product extensions, we are working to expand our available market through our multi sample capable next generation platform pheno to point out.

This system incorporates decades 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 <unk> in multiple configurations across different sized hospitals and across various higher volume sample types.

We estimate the Pheno 2 <unk> will expand our available market for full and improve our profitability profile.

In summary, our second quarter financial results were consistent with our internal expectations and a stepwise improvement over the first quarter. We also launched our ESG focus test kit on time and are generating significant interest and accelerate as a result.

Lastly, we concluded our registry study punctuating, our prior body of clinical evidence.

The clinical benefits of rapid susceptibility testing are now difficult to challenge and ignore rapid antibiotic intervention is proven to save lives of.

Voids unnecessary patient side effects and reduces hospital cost with the impacts of the pandemic waning, we will increase the pace of selling our integrated solution.

The address of the balance of the market with our new product offerings and.

And opened a significantly larger market with pheno to point out <unk>.

Collectively, bringing a change to the market and the world that is long overdue.

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 for a follow on meeting to investors at <unk> Dx Dot com.

Yes, Thank you and as of note. This call is being recorded on the first question comes from Alex Nowak with Craig Hallum.

Hey, guys. This is true Mccarthy on for Alex just a few questions here.

First on the gross margin side, what needs to be done to maybe.

The recapture some margin expansion coming out of Covid and get back to pre pandemic levels.

Yes, right now as we mentioned in the script we're seeing.

Any broad impacts from inflation.

Whether those are labor through our value add partners or in raw material costs.

Certainly some of the macroeconomic factors driving inflation for those to settle down would certainly be helpful.

Also.

The increasing levels of production of as we've talked about in the past.

Help us leverage our substantial fixed costs. So those of the 2 principal near term drivers.

Okay got it.

And then next.

And with vaccine raws and the virus under better control I guess give or take.

Offset with the recent Delta Barry how are you thinking about.

Probably to get the sales reps back into the hospital is this still.

On a mid 2021 event as you previously spoke to or do you think of it extends more on through Q3 now.

Yes. So this is Jack Phillips thanks for the question.

So it's evolving.

And I would say as you know.

I would say that access to hospitals has over the past quarter.

Has dramatically improved however over the past weeks, we've had a notable reset relative to the Delta variant as we call on hospitals firsthand.

We're starting to see certain hospitals or are back to being filled to capacity again.

ICU beds or fully filled eds are filled and therefore, they're moving to.

Limited access again, so what we are experiencing is some hospitals that have add.

New.

More liberal access guidelines in place are now kind of over the past several weeks have been retrenching and either cancelling meetings or we're going back to zoom calls. However, having said all of that we are cautiously optimistic though about.

Where we were a year ago versus now it's a dramatic improvement in inter.

Interest by stakeholders.

Even though many of those calls are outside the hospital.

At remote locations or still on zoom type meeting calls they are happening at a much much more frequent basis and therefore, what we're seeing is a significant.

Difficult improvement in the final.

For both IV Asps.

But also our new kit and our new solution the Pheno a S T.

He is generating a lot of a lot of new interest.

Okay. That's helpful and then I guess the last 1 for me.

Our labs.

Opening up to look at equipment beyond Covid tests are you hearing any more buzz about anti microbial bacterial.

And.

The need to counter this.

Where does the focus lie.

Yes so.

Again.

With the Delta variant.

Things spiking across.

Specifically the U S. The.

There has been a bit of a reset in the reset focus on COVID-19, but having said that.

Beyond that I mean stewardship teams are starting to reorganize which is very important for our business there.

They're getting their priorities in line and clearly those priorities are around squarely around anti microbial resistance and how to tackle that and also in the infectious disease area around how to manage sepsis and other serious infectious diseases beyond COVID-19.

So it is absolutely.

Again more of a prominent discussion today than it ever has been over the past year.

And we expect for this trend to continue.

Alright, thanks for the questions.

Thank you and the next question comes from Brian Weinstein of William Blair.

Hi, This is Justin on the lines of Brian the.

The open up I'm wondering if you guys could talk a little bit about geographic expansion opportunity, particularly in EMEA. So any update on that and movement you guys have potentially on China you talked of.

Talks about excuse me on the past.

Yes, yes, sure no problem, so as far as EMEA, let me touch on that we over the past year, we reorganized EMEA.

And.

<unk> developed a new strategy for EMEA strategy based on focused.

Markets, where we believe we can generate the right level of revenue and utilization of Fino I would say that's working very very well EMEA is having a decent year, despite COVID-19 and access challenges like we see in the U S as well.

Having a good year really seeing good good progress in Italy, Spain, Portugal, and then also the middle East as we've got some very good activity going on in the Middle East specifically in Saudi Arabia.

And Kuwait.

Moving on to China, we are still in the middle of our type testing.

Program over there to get to get Fino on market. There were still ways away, we have of system in Hong Kong.

Being utilized today, but to get China F. D. A R. C. C. FDA approved is still going to be a while away.

Great I appreciate that thank you and from a product work flow standpoint, I'm, just wondering what kind of work is being done to potentially shorten the time.

The result of the cash is there any way to shorten the amount of hours to get to <unk>.

So so with Pheno.

With fino today.

Really the time to result, with Pheno is groundbreaking.

And it's been proven with our studies I mean, you can get a full.

I'd.

And full susceptibilities on free known about 7 hours today, which is which is days faster than really the standard of care is today.

So with the product that we have again that is still.

Still again, the the most rapid <unk> solution on the market today.

To your question.

It cannot be any quicker, we're always looking at ways to.

To improve where we're at specifically most of that work's going on today on Pheno, 2 <unk>, which will be our next generation platform.

And part of our focus.

The requirements that we have there are 2 absolutely continue to work on improving.

Speed. The result in time to result, because as we've talked about regularly the.

Key to really managing sepsis.

And really improving clinical outcomes. It does come down to speed it comes down to getting patients on the right therapy quicker and that's exactly what that's exactly what <unk> is doing today.

Great. Thanks, Yeah, I could throw 1 more on there I know you mentioned briefly about expanding the menu.

Could you provide more color on what work is being done to expand that that menu.

Yes sure so.

Again, we were.

We're continuing to look at menu expansion on Fino, 1 and then also <unk>.

2 point of <unk> will be a significant menu expansion for us as well with as we branch into isolates and other alternate testing beyond positive blood culture on Pheno..1 today, we're continually looking at ups.

Updating our menu relative to.

Organisms relative to.

Antibiotics and having the most current antibiotics that are offered on our menu and that's exactly what we're doing and then then the kind of the next area of 4 menu.

That should not be overlooked is just breakpoints and so forth. So you have CLO side breakpoints that of regularly updated.

And I would say in the industry accelerate is really leading the way in providing the most updated breakpoints.

So that so that again the results that you are getting are the most accurate results.

Okay. Thank you.

Okay.

Thank you.

Thank you that concludes the question and answer session as well as the call. Thank you so much for dialing in for todays presentation. You may now disconnect your lines.

Yeah.