Q2 2021 T2 Biosystems Inc Earnings Call
Greetings and welcome to the T..2 biosystems second quarter 2021earnings conference call. At this time, all participants are in a listen only mode.
For the answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder of this conference is being recorded I would now like to turn the conference over to your host Greg how to check managing director of Gilmartin group for Us.
Go ahead.
Thank you operator, I would like to remind everyone that comments made by management today and answers. The questions will include forward looking statements.
Those include statements related to T..2 biosystems future financial and the operating results and plans for developing and marketing of new products.
Forward 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 in T..2 biosystems of annual report on form 10-K filed with the SEC on March 31, 2021, and other filings the company.
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 chairman and CEO, John first of all John.
Thank you for joining our second quarter 'twenty, 1 'twenty 1 earnings conference call.
Today I'll review, the company's second quarter performance and provide updates across our 3 corporate priorities.
I'll, then turn the call over to John Sprague who of.
The review our financial results for the second quarter before I make some closing remarks, and we open the call for questions and answers.
During the second quarter. The T do biosystems team generated total revenue of $6.7 million, an increase of 162 per cent compared to the prior year period.
Product revenue during the second quarter was $3.7 million, an increase of 253 per cent compared to the prior year period.
Second quarter product revenue was driven mainly by hospitals utilization of our test panels.
Our U S hospital customers continue to increase usage of our sepsis related diagnostic products compared to prior year periods and.
In the second quarter, the annualized the U S test utilization for our sepsis related diagnostic products T..2 bacteria and T to Canada within our legacy sepsis installed base of T. T. Dx instruments was $98000 per instrument.
A 17% increase compared to the prior year period.
The test utilization decreased slightly compared to the first quarter of 2021 as our ability to deliver to customers was impacted by raw material supply shortages of matter that was resolved early in the third quarter.
Long term, we continue to believe that the annualized U S test utilization for customers routinely using our sepsis related products will reach $200000 per instrument.
Sales of our COVID-19 diagnostic test the <unk>.
T..2 Sars Covid 2 panel were impacted by lower overall infection rates during the second quarter.
Due to wider vaccination within the U S population and changes to testing guidance from local regulatory agencies.
As well as hospitals increased access to testing alternatives.
In the second quarter, the annualized U S test utilization for our T..2 Sars Covid 2 panel within our Covid driven instrument base of T..2 Dx instruments was $148000 per instrument compared to $214000 per instrument during the first quarter of 2021.
These results reflect the fact that our efforts remain completely focused on our mission.
To fundamentally change the way medicine is practiced through transformative diagnostics that improve the lives of patients around the world.
Our opportunity to make the greatest impact is through our sepsis related products that enable clinicians to improve patient outcomes and reduce the overall cost of care for patients at risk of sepsis.
We offer clinicians 3 potentially lifesaving sepsis related test panels T.
T 2 bacteria T to Canada, and teach of resistance, which run on our T to Dx instrument and address 1 of the greatest needs for patients at risk of sepsis rapid detection.
The current standard of care for patients at risk of sepsis relies on broad empiric protocols to administer anti microbial therapy. Despite the fact that such protocols are only optimal in approximately 1 half of cases.
To further complicate matters. The current standard of care continues to rely on a positive blood culture to identify the presence of of bloodstream infection and target therapy for patients suspected of sepsis.
Due to their poor sensitivity blood cultures, often require multiple samples of blood from critically ill patients and take anywhere from 1 to 5 days to achieve the growth necessary for pathogen identification.
Additional testing such as traditional microbiology or post culture of molecular diagnostic tests.
That would be required for determination of species of I D and susceptibility.
In contrast, our T..2 bacteria and teacher candidate of panels are the only FDA cleared diagnostics that can detect sepsis, causing pathogens directly from whole blood samples producing results in 3 to 5 hours compared to the days required by the combination of blood culture and post culture of molecular diagnostic products.
This time to result advantage provides tremendous benefits to both patients and clinicians as studies have shown that the mortality rate of patients experiencing septic shock increased by up to 8% for every hour of delayed appropriate and for microbial therapy.
Sepsis remains 1 of the greatest health care of threats and its impacts are far reaching it.
It is the leading cause of death in the U S hospitals, claiming the lives of approximately 270000 Americans each year.
It is also the leading cause of hospitalization in the U S costing more than $62 billion for Subsys care for patients in the hospitals and skilled nursing facilities. According to the U S Department of health and services.
The morbidity associated with sepsis is significant.
As sepsis patients are also prone to developing a number of complications such as reoccurring of infection and sepsis limb amputation and long term physical and psychological effects.
These complications can lead to longer hospital stays.
The increased medical costs and a substantial impact on the quality of life for patients.
Clearly there was a massive disconnect between the current detection standard and the needs of patients.
We believe that today's standard of care represents a failure of our health systems.
Adequately treat patients at risk of sepsis and is unacceptable.
We also believe routine use of our sepsis related diagnostic products can fundamentally change and improve sepsis management and the hospitals around the world.
To advance our mission and create value across our stakeholders, we're focused on 3 corporate priorities.
Accelerating our sales enhancing our operations and advancing our pipeline.
I'll now discuss our recent progress and the strategic approach for each of these priorities.
Starting with our first priority accelerating our sales.
Our strategy to accelerate sales consists of 3 tactical components, 1 transitioning instruments sold in the U S. During the second half of 'twenty 'twenty from COVID-19 to sepsis testing.
2 increasing sepsis test utilization within our legacy installed base and.
And 3 expanding our T to Dx instrument installed base.
In the second quarter, we sold 3 T to Dx instruments, including 2 in the U S.
And we also achieved routine use for T..2 bacteria and T. T candidate panels in 3 ex U S hospitals following tenders, 1 in Austria, France, and Kuwait, which we believe will be among our largest customers.
To accelerate sales we have increased the size of our U S sales team, which now stands at 11 regional account managers.
Banded our commercial organization.
And focused our commercial strategy to more comprehensively address the needs of our customers.
Because of our technology addresses 1 of the most complex health care problems. Several functional groups in the hospital are involved in the sales process, including clinicians laboratory ends pharmacist and administrators.
Each of these key stakeholders has unique needs and challenges in our commercial team has made incredible strides to advance our sales funnel opportunities by bringing this coalition together and building a hospital specific business and clinical case.
Our team recently completed and advanced sales training to further expand their knowledge of how to drive change in clinical practice, which includes increased engagement with our customers.
At this time of our U S sales team has more than 200 hospitals that are officially in the sales funnel and we continue to support their efforts by increasing our clinical marketing effort to build a larger funnel of potential customers.
In the first quarter of 2021 we appointed Doctor of part out of Hoosier to the newly created position us position of Chief Medical Officer.
Dr. Rowe, who share has been actively building out our clinical and medical affairs team.
With the priority to enhance the messaging around the value of our products.
This will be accomplished by partnering with both early adopter customers.
And with key opinion leaders or kols to generate and share data via scientific journal publications and at medical conferences and trade shows.
Dr Rowe, who share and her team had been working closely with Kols with the mission to deepen our presence at key medical conferences and build widespread awareness among the scientific community of the value of our products.
Starting in the first quarter, we have had numerous high profile of presentations at a number of conferences, including presentations at the American Society for Microbiology and Federation of European Microbiology Sciences World Microbe for them.
The sepsis alliances inaugural Subsys Tech and innovation in 2021conference.
And the European Society of clinical microbiology, and infectious diseases, 31st European Congress of clinical microbiology and infectious diseases.
At the European Congress of clinical microbiology, and infectious diseases. Several studies were presented by independent investigators that evaluated our products compared to blood culture and post culture of molecular platforms.
Including diagnostic accuracy time to results and clinical impact.
And a prospective observational study conducted by Dr. <unk> at the University of Perugia. The T..2 bacteria panel demonstrated a sensitivity of 100 per cent and a negative predicted value or NPV of 100 per cent as compared to blood culture sensitivity of 57.1 per.
<unk> and negative predictive value of the 81.8 per cent.
The time to report T..2 bacteria results was 4.17 hours as compared to blood culture time to result of 36 point 30 for hours.
Most importantly, a positive T..2 bacteria resulted in a change from empiric therapy, 2 directed therapy in 29.2% of patients on the same day as the T..2 battery of sample drawing.
And a negative T..2 bacteria resulted in a change from empiric therapy, 2 directed therapy in 8% of patients.
We believe commercial success requires clinical data bolstered by economic evidence.
And as a key to accelerating sales, including transitioning instruments from COVID-19 to sepsis diagnostic testing increasing test utilization among our current sepsis accounts and expanding our installed base.
Demonstrating and messaging these improved clinical outcomes and reductions in the cost of care achieved by our customers through routine use of our products is very compelling.
We place a higher priority on adding to and organizing these data for use by our commercial team.
The strategy is already generating additional interest and deeper customer conversations.
And what we view as a validation CMS has again decided to extend the new technology add on payment or <unk> for our T..2 bacteria panel through fiscal year 2022.
The favorable reimbursement further increases the economic value of the test the hospitals.
Our commercial team will continue to leverage this designation and educate customers on the benefits.
Now I want to circle back to the tactical kimono components of our sales strategy.
Early in the COVID-19 pandemic, we recognize the need among our U S hospital customers the.
Once the could potentially use our substance products to detect the stars koby to quickly and accurately.
In a short period of time, we were able to leverage our technology to develop a test that met those needs.
As the Sars Covid 2 virus continues to evolve we have been diligent in our efforts to ensure that our test is able to detect emerging variants.
In fact, we recently announced that our T..2 Sars Covid 2 panel is capable of detecting all variants of the interest and concern as noted by the CDC, including the Alpha beta gamma.
Delta and Lambda variance of the virus.
Just on sequence and in silica of analysis.
Offering this test open the door to many new customers for T. G biosystems.
As part of the sales process, we were disciplined in pre qualifying potential COVID-19 customers based on their willingness to explore adoption of our sepsis diagnostic panels following the pandemic.
Executing on this opportunity we more than doubled our U S installed base of instruments during the second half of 'twenty 'twenty.
As a company that focuses on making a difference in the lives of sepsis patients rapidly detecting the pathogens that cause sepsis remains our number 1 focus and underpinned our decision to develop and commercialize of COVID-19 diagnostic test.
Although COVID-19 testing volumes in the U S declined in the second quarter with the adoption of vaccines as of the end of June our sales team had been granted access to visit many of our current customers and potential new customers to actively engage in face to face discussion around the adoption of our sepsis related.
<unk>.
Is generally in line with our previously stated expectation that hospital access was going to be limited in the first half of the year with access opening up in the second half.
At this time, we feel the U S hospitals now have the necessary precautions and procedures in place for continued interactions through the second half of the year, allowing us to continue to drive new sepsis opportunities through our sales funnel.
Overall, the impacts of COVID-19, and remain a headwind to the adoption of our sepsis products.
We remain optimistic that we will continue to have open access to our hospital customers through the second half of the year as well as an increasing mind share of personnel within the hospitals.
Accordingly, we continue to expect total revenue for the full year 2021 to be between $24 million and $26 million.
We are adjusting our expectation for the mix of product and research revenues.
We now expect product revenues of $14 million to $15 million down from $16 million to $18 billion driven by lower T..2 Sars Covid 2 panel sales, but partially offset by increased sepsis test panel sales.
At the same time due to updated expectations around timing of milestones and options under the BARDA contract, which I will discuss later, we now expect research contribution revenues of $10 million 2 of $11 million up from $8 million.
Also we continue to expect to enter into at least 30 T to Dx instrument contracts in 2021.
Moving to our second priority enhancing our operations.
At the beginning of 2021 we set the goal of enhancing our business operations with a focus on product gross margins operating cost structure and efficiency.
We reviewed all business and manufacturing processes as well as our business tools. During this review each cost line item was carefully scrutinized to ensure that expenses or investments were aligned with our 2021 priorities, including our growth objectives.
We continue to focus on scaling our manufacturing capabilities and strengthening our supply chain.
For the last year, we've scaled our manufacturer.
From being able to produce 2000 tests a week to over 7000 tests a day.
We did this by scrutinizing every aspect of the manufacturing process, eliminating waste and the adding efficiencies.
The increased volume and efficiencies added to our processes.
And that of favorable impact on our product gross margins.
We also examined the tool sets, we use across our business to weed out any inhibitors to growth and make the business more efficient.
1 key element of efficiency improvement will be the rollout of the new ERP system, We expect to go live in the coming months.
This updated tool will allow us to better track all of our manufacturing processes.
Improve our customer service better understand and predict customer ordering patterns and identify additional opportunities for improvement.
Lastly, moving to our third priority advancing our pipeline.
Well our long term goal is to change the standard of care for patients at risk of sepsis. Our immediate goal is to deepen our market penetration by continuing to enhance our product offering.
In 2019, we were awarded the product development contract by the Biomedical Advanced Research development authority for BARDA.
That is valued at up to $69 million based upon the achievement of certain milestones.
In collaboration with the team at BARDA, we continue to make great progress and are confident in our ability to meet all of the milestones defined it option 1 by October 2021 gig.
Given this progress we are optimistic about the opportunity to gain approval for option 2.
On our first quarter earnings call, we had announced that after discussions with BARDA. We have mutually agreed to modify the terms of the existing contract to accelerate certain milestones, including for the development of the comprehensive sepsis panel. The next generation instrument and the biotech panel.
Additionally, BARDA has agreed to add milestones for the teacher resistance panel, which provides funding and assistance to conduct clinical trials and pursue U S regulatory approval.
While the teacher of resistance panel is currently being sold in Europe under our CE Mark additional verification and validation studies are needed to initiate the clinical trial required to pursue U S. F. T H 5.10-K clearance.
The teacher resistance panel was granted breakthrough device designation by the FDA, which is the expedited communications with the agency on proposed analytical and clinical requirements.
We plan to initiate the U S clinical trial for the teacher resistance panel during the first quarter of 2022.
The initial findings from the multicenter prospective study of the teacher resistance panel for the detection of resistance markers in blood samples from patients suspected of bloodstream infection were presented at the European Congress of clinical microbiology and infectious diseases. The.
Our objective of the study was to compare the T..2 resistance panel with blood culture, and molecular and phenotypic resistance testing evaluating sensitivity and specificity as well as time to detection of resistant markers in patients with bacterial bloodstream infections.
The T..2 resistance panel mean time to result was 4 point for hours compared to 101 point for hours for final reporting of positive blood cultures with antibiotic susceptibility testing.
Time for data from molecular resistance assay results following blood cultures was $33.7 hours.
When monitored for the impact of significant antibiotic changes at 1 site. The use of teacher resistance allowed 22 events of discontinuance of unnecessary antibiotics and 10 events of the escalation of antibiotics.
In summary, the teacher resistance molecular markers, we're sensitive and specific for the detection of drug resistant genes in patients with resistant bacterial bloodstream infections, when compared to standard molecular resistance detection systems and phenotypic identification systems, while also significantly reducing time to deter.
Of resistance genes compared to standard methodology by approximately 90%.
The bio threat panel is designed to be a highly sensitive direct from blood panel able to detect 6 major biotech panels pathogens from a single blood sample.
This panel will run on our F T a clear T to Dx instruments.
We have completed development for this panel and have demonstrated preliminary detection of all targeted biotech panels.
Pathogens directly in whole blood at less than 25 CFU per ml.
I'm pleased to inform you that we plan to initiate the U S clinical trial for the bio threat panel during the first quarter of 2022.
The next generation instrument will utilize a single of whole blood sample independent of blood culture and is designed to be fully automated on demand and random access similar to our T. T Dx instrument, but with faster turnaround times and a much larger target menu.
It is being developed in parallel with the comprehensive sepsis panel to detect an increased number of pathogens and resistance genes at the same level of sensitivity our customers have come to expect.
We're pleased to announce that we have completed building our alpha prototypes.
Which we are testing against our requirements.
From this testing we have begun final design iterations for a beta prototypes at which point it will merge with the assay and start full scale on system wet testing.
The comprehensive sepsis panel is designed to detect the approximately 99% of all bloodstream infections caused by bacterial and Canada species as well as all bloodborne antibiotic resistant threats identified by the CDC and a single test with the time the result of approximately 3 hours.
The test will build on existing technology and detect pathogens resistant markers directly from blood samples without the need to wait for a positive blood culture.
We believe this comprehensive set of sepsis panel has the potential to completely disrupt the traditional blood culture workflow and become a standard of care.
Early development studies with the comprehensive sepsis panel utilizing manual testing has demonstrated our ability to detect all panel targets directly in the whole blood at levels below 50 <unk> per ml.
As we move forward with development studies, we will continue to optimize our manual work for conditions utilizing processes and sub assemblies from alpha and beta prototypes to increased sensitivity and ensure smooth migration onto the automated system.
Finally, I'd like to share an update that was previously discussed at our shareholder meeting.
John Mcdonough has resigned from our board of directors.
On behalf of the board I want to thank John for his service to T..2 biosystems over the last 14 years and we wish him the best in the future.
Our board has determined that it is in the best interest of the company and its stockholders to combine the roles of chairman and CEO and to appoint a lead independent director.
Accordingly, I have been appointed as chairman of the board of Directors and Jack Cumming, former chairman and CEO of Hologic will continue to serve as lead independent director.
With that I will now turn the call over to John Sprague to go over the details of our second quarter financial results.
Thanks, John.
Total revenue for the second quarter of 2021 was $6.7 million, an increase of 162 per cent compared to the prior year period.
Product revenue was $3.7 million, an increase of 253 per cent compared to the prior year period, driven primarily by increased sepsis and COVID-19 test sales.
The research contribution of revenue was $3 million, an increase of 100 per cent compared to the prior year period, driven by increased BARDA contract activities.
Product costs for the second quarter of 2021, well for $8 million, an increase of $2.5 million compared to the prior year period, driven by increased sales.
Research and development expenses were $5.4 million, an increase of $1.6 million driven by increased BARDA contract activities.
Selling general and administrative expenses were $7.2 million, an increase of $1.9 million driven by increased commercial team head count.
Net loss for the second quarter of 2021 was $12.5 million.08 per share compared to a net loss of $10.7 million.09 per share for the prior year period.
Total cash was $53.3 million as of June 32021, including excuse me, including marketable securities and restricted cash.
In the second quarter of 2021, we strengthened our balance sheet by selling the $16.8 million shares for net proceeds of $22 million through the ATM facility. We also achieved of the final revenue covenant of $20 million for the CRT debt agreement in June 2021.
As John mentioned for guidance, we continue to expect total revenue for the full year 2021 of $24 million to $26 million, but we're adjusting the mix of product and research contribution revenues. We now expect product revenue of $14 million to $15 million and research contribution of revenues of $10 million to $11 million.
We continue to expect to enter into at least 30 T to Dx instrument cartridge of pop contracts in 2021.
Thank you and back to John's peripheral for closing remarks.
Our team continues to make meaningful progress across our 3 corporate priorities accelerating our sales enhancing our operations and advancing our pipeline.
Our sales have accelerated considerably compared to the prior year period.
With total revenue growth of 162% and product revenue growth of 253 per cent.
We anticipate that the second half of the year will provide a more favorable opportunity to accelerate product sales as hospitals loosen restrictions and grant increased access to our expanded sales team.
Simultaneously, we continue to strengthen our medical and clinical affairs teams to generate additional clinical and economic data to support the adoption of our products build relationships with key opinion leaders increase our presence at scientific meetings and provide support to our customers.
Our efforts to improve our internal operations are beginning to yield encouraging results and we remain committed to the development of our pipeline products of revolutionary diagnostics, including the teacher resistance panel.
We're very excited about the opportunity to change the standard of care for patients at risk of sepsis and we look forward to updating you on our next call.
With that we'll open it up to questions operator.
At this time, we'll be conducting a question the answer session. If you would like to ask a question. Please press star 1 on your telephone keypad, a confirmation tone will indicate that your line is in the question queue you.
You May press star 2 if he would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the starkey of 1 moment. Please while we poll for question.
Our first question is from Mark.
Massaro with B T. I G. Please proceed with your question.
Okay.
Maybe for Mike Thanks for taking the question.
And so that's 1 of them if you kind of discuss how the.
Chest of Covid versus that of course is progressing well put T. R.
Our parents all of them.
And for them.
And what initiatives you have to be the utilization and if I could just add a follow up how many times have you converted best for them.
What are your expectations for.
For conversion.
Thanks.
I'll take those in reverse order if that's okay. We expect to convert 14 accounts out of the Covid accounts that we sold last year, we have converted 2 so far that's in line with our expectations given the fact that we thought the second half would be of much more favorable environment and that our sales team was the <unk>.
Essentially locked out of hospitals during the first half of the year due to COVID-19 restrictions in terms of the utilization, we really bifurcate the sepsis test utilization and the Covid test utilization.
And we separate those into legacy sepsis instruments, those would be the instruments that we sold into the U S. Prior to <unk>.
July 1st of 2020.
So we want to keep it constant measurement on our ability to drive increased utilization on those accounts.
And it has gone from about $50000 per instrument annualized.
I'm Gonna continue to lead them to the opportunity and continue to build our commercial organization. Accordingly, I spend a fair amount of time in the prepared remarks talking about the importance of clinical data and economic data in terms of being able to successfully drive customer adoption and increased tests.
Utilization, but also longer term to drive changes in the standard of care that is clearly failing patients payers and providers and so weird <unk> rebuilding our clinical and medical affairs team under Doctor of whose <unk> and we're rebuilding that from what.
Brickley was a team predominantly bill with farm D's 2 of team that is built with personnel that more accurately reflect the kind of customers that we are working with on a day to day basis in such as that means laboratory professionals, Yes farm DS, but also medical doctors that have.
Creance in infectious disease. So I think by the end of the year, you'll see an entirely rebuilt medical and clinical affairs team that can do exactly what we aspire to do in that case.
Build a very strong dataset clinical data and economic data to help support our sales team and drive additional sales and drive greater adoption.
Ladies and gentlemen, we've reached the end of the question and answer session and I would like to turn the call back over to Johns principal for the closing remarks.
Thank you very much for participating in our quarter 2.2021 earnings call.
We look forward to updating you next quarter of a great day.
This concludes Tonight's conference you may disconnect your lines at this time. Thank you for your participation.
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