Q3 2021 T2 Biosystems Inc Earnings Call
Good afternoon, and welcome to the take two bio systems third quarter 2021 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
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Please note. This event is being recorded I would now like to turn the conference over to Philip Taylor Investor Relations. Please go ahead.
Thank you operator, I'd like to remind everyone that comments made by management today and answers to questions will include forward looking statements.
Those include statements related to teacher Biosystems, future financial and operating results and plans for developing and marketing 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 <unk> Biosystems annual report on Form 10-K filed with the SEC on March.
31, 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'd like to turn the call over to chairman and CEO John <unk> John.
Thank you for joining our third quarter 2021 earnings conference call.
Today, I will review the company's third quarter performance and provide updates and developments across our three corporate priorities.
I will then turn the call over to John Sprague, who will review our third quarter financial results before I make some closing remarks, and we open the call for questions and answers.
During the third quarter of 2021, but you do biosystems team generated total revenue of $7 $4 million, an increase of 42% compared to the prior year period.
Product revenue during the third quarter was $4 $3 million, an increase of 15% compared to the prior year period.
Importantly, our U S sepsis test panel revenue increased 55% compared to the prior year period.
And 18% sequentially compared to last quarter.
We're very pleased with the total product sales growth compared to the prior year period.
Which included a record high number of teacher Dx instruments and the launch of our COVID-19 molecular diagnostic tests.
Our mission at <unk> Biosystems is to fundamentally change the way medicine is practiced through transformative diagnostics that improve the lives of patients around the world.
To achieve our mission, we are focused on driving adoption and increasing utilization of our culture independent rapid diagnostic tests for the detection of sepsis, causing pathogens and resistance genes.
Teach you bacteria teaching candida and teacher resistance panels can improve patient outcomes by reducing the time to detect sepsis, causing pathogens.
And accelerating time to achieve targeted therapy, thus, reducing the burden of sepsis.
That's just the body's overwhelming and life threatening response to an infection.
And it's one of the greatest challenges to healthcare systems globally.
And exactly an enormous economic and human toll each year.
I want to share three staggering talks about sepsis.
First sepsis is the leading cost of U S hospitalization.
According to the U S Department of health and human services, such as cost of our health care system, approximately $62 billion annually.
Second sepsis is the leading cause of death in U S hospitals okay.
According to the U S centers for disease control and prevention sepsis claims the lives of approximately 270000 Americans each year.
And third sepsis is the leading cause of 30 day Hospital Readmissions.
According to data from the National Center for Biotechnology information approximately 20% of substance survivors are re hospitalized within 30 days.
The current standard of care for patients at risk of sepsis relies on broad in parent protocols to administer anti microbial therapy.
Despite the fact that such protocols are only optimal in about one half of cases.
The current standard of care also relies on a positive blood culture to identify the presence of a bloodstream infection. Despite.
Despite the fact that blood culture can yield false negative results due to poor sensitivity.
And take one to five days to achieve the growth needed for pathogen identification.
Finally, traditional microbiology for molecular diagnostic tests, which rely on a positive blood culture may then be required to determine species I D and susceptibility.
The challenge in managing patients at risk of sepsis or suspected of sepsis is that it is a race against time.
Each hour of delayed treatment can increase mortality risk by up to 8%.
Therefore early identification of sepsis, causing pathogens is critical to improving patient outcomes.
Our aim at T. Two biosystems is to change the standard of care by enabling targeted therapy faster.
Our teacher bacteria and key to Canada panels are the first and only FDA cleared products able to detect sepsis, causing pathogens directly from whole blood within three to five hours.
Without the need to wait days for a positive blood culture.
Strategically we are focusing our efforts around three corporate priorities to create and provide value.
Accelerating our sales.
Enhancing our operations and.
And advancing our pipeline.
Starting with our first priority accelerating our sales.
Our sales strategy consists of three elements one increased sepsis test utilization among our installed base of tea to Dx instruments.
To expand our T to Dx instrument installed base by selling or placing new instruments.
And three transition to U S. Covid driven instruments sold during 2020 from Archie to Sars Cov, two panel to sepsis panels.
During the third quarter, we achieved annualized sepsis test utilization of $115000 per legacy T to Dx instrument within our U S hospital customers, a 55% increase compared to the prior year period.
Long term, we continue to believe that routine use implementation of our sepsis panels will reach $200000 per instrument.
In line with our expectations, we entered into contracts for eight T to Dx instruments during the third quarter.
Including one in the United States and seven internationally.
In addition, we have already entered into five teach you Dx instrument contracts during the fourth quarter and we continue to believe we will enter into at least 30 teacher Dx instrument contracts for the full year 2021.
As a reminder, we sold 47 T to Dx instruments to U S hospitals during 2020 for COVID-19 testing and plan to transition these customers to sepsis testing overtime.
We prequalified these customers based on their commitment to evaluate our sepsis panels following the pandemic.
And we continue to believe these customers will convert to our sepsis panels.
While we have converted some accounts the widespread conversion has been delayed as these customers continue to use our COVID-19 tests and currently lack capacity to evaluate our subsys products due to continued demands of the pandemic.
With the evolution of the Sars Cov, two virus mutating into different variants.
We've been diligent in our efforts to ensure that our test is capable of detecting the new variants.
Date based on sequence and in silica analysis, our teacher starts koby to panel can detect all variance of interest as noted by the CDC, including the Alpha beta Gamma Delta Lambda move and Io to variance.
The recent increases in COVID-19 infection rates have led to continued customer demand for our T to Sars Cov, two panel, which we expect will continue through the remainder of the year.
Because our products and technology are at the forefront of solving one of the most complex health care problems. Several functional groups at each hospital are involved in the purchase decision.
Accordingly, we are building a team and commercial process to address the priorities for clinicians laboratory and pharmacist and administrators.
As we announced today, Brett Gibson will join <unk> Biosystems as Chief Commercial officer effective Monday November eight, replacing Tony Pare, who recently accepted a CEO role with another firm.
Brett will lead our commercial growth initiatives with direct responsibility for global sales marketing service and customer support.
He brings significant industry experience and commercial leadership, having served as chief Executive Officer for two early stage medical technology companies.
As Chief commercial officer at <unk> Diagnostics, formerly ITC medical where Brett and I worked together.
And in several sales and marketing leadership roles at data scope Caribbean, Boston Scientific and Johnson and Johnson.
Brett began his career as a U S Army officer, serving in Panama and Central America.
As we've previously described we are expanding our U S commercial team to increase teacher Dx instrument sales and drive adoption and increased utilization of our sepsis test.
During the second quarter, we expanded from two to 11 regional account managers and we spent significant time training our new team during the second and third quarters.
Our plan is to expand to 20 regional account managers by January 2022.
The regional account managers are working closely with our medical affairs team to support the needs of our customers and provide customer centric solutions.
To further expand our business, we've initiated commercialization in the Asia Pacific region through distribution agreements in Singapore, and South Korea.
Under terms of the distribution agreements, we would sell our sepsis products, including T to Dx instruments and T. Two bacteria T to Canada and teacher resistance panels to our new distribution partners in Singapore, and South Korea.
The Asia Pacific region home to $4 6 billion people.
Representing meaningful growth opportunity for <unk> bio systems, and we view, Singapore, and South Korea as ideal locations to establish a commercial foothold and build long term relationships with distributors and customers.
According to estimates by the Asia Pacific Sepsis Alliance National substance incidents in the region ranges from 120 to 1600 per 100000 people with mortality rates related to sepsis up to 35%.
I'm pleased to report that we have initiated shipments to these new geographies as part of the initial instrument purchase orders with two T do X instruments shipped to Singapore during the third quarter and for Q2 Dx instruments to be shipped to South Korea during the fourth quarter.
Simultaneous with our commercial expansion.
We have been rebuilding our clinical and medical affairs teams to raise awareness and enhance the messaging on the clinical value of our products are.
Our new team is comprised of laboratory professionals pathologist clinical microbiologist infectious disease doctors and Pharm DS and is actively engaged with key opinion leaders to generate and share real world data with scientific journal publications at medical conferences and at industry trade shows.
Our ability to demonstrate and message it.
Improvements in clinical outcomes and cost reductions are key elements of our value proposition.
We're committed to the generation of clinical and health economic outcome data to support the adoption and utilization of our rapid diagnostic technology.
Especially when it comes to bloodstream infections and sepsis.
Accordingly, we are increasing our clinical data library, and our presence at key medical conferences.
Earlier this year and meta analysis of 14 controlled studies was published an expert review of medical device a peer reviewed medical journal comparing our subsys products to the blood culture standard of care.
The use of T. Two products showed significant clinical improvements and efficiencies.
Including faster time to species identification by 77 hours.
Faster time to administer targeted anti microbial therapy by 42 hours.
Faster time to de escalation of empiric therapy by seven hours and decreased length of patient stay in the intensive care unit by five days.
During the third quarter, we unveiled new data with the medical community at several conferences, including Sepsis Alliance Summit. The American Association for clinical Chemistry annual scientific meeting and clinical Lab Expo The college of American pathologist annual meeting and IV week.
This allows our team to continue essential discussions on the important role of culture independent rapid diagnostic tests in the timely and accurate detection of sepsis, causing pathogens.
As well as positive patient and health care outcomes.
Throughout the pandemic, our commercial and medical affairs teams have faced hospital access restrictions that limited in person engagement.
That has been a headwind to the adoption of our subsurface products.
We had previously expected a more favorable environment during the second half of the year as hospitals are loosened restrictions and granted increased access.
We have seen improvements and we anticipate that our sales and medical affairs teams will have continued access to U S hospitals during the fourth quarter.
And that hospital personnel will have increased bandwidth to engage in discussions regarding sepsis protocols and innovative diagnostic technology for substance management.
We are raising our revenue expectations to reflect our third quarter results and now expect total revenue for the full year of 2021 of $25 million to $27 million consisting of increased product revenue of $15 million to $16 billion and research and contribution revenue.
<unk>, a $10 million to $11 million, which remains unchanged.
And 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 <unk>.
Beginning of 2021, we set the goal of enhancing our business operations with an emphasis 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 and investments were aligned with our 2021 priorities, including our growth objectives.
Throughout 2021, we are focused on scaling our manufacturing capabilities and strengthening our supply chain.
Over the last year, we've scaled our manufacturing from being able to produce 2000 tests a week to over 7000 tests a day.
To achieve this level of production, we scrutinized every aspect of the manufacturing process eliminated waste and added efficiencies.
As a result of these initiatives and increased volumes, we are seeing significant improvement in our product gross margins.
Not only did we make efforts to streamline our manufacturing process, but we also explored new tools to help us better manage our growth.
We assessed multiple tools and determined that one of the best ways to improve our efficiency by implementing a new Oracle ERP system.
Which we implemented in the third quarter.
This new system will help us gain efficiencies and scale across operations, including supply chain and accounting.
During the third quarter, we finalized a lease that will consolidate our existing operations into a 70000 square foot state of the art life Sciences facility in Billerica, Massachusetts to accommodate current and future growth.
The new facility will include R&D labs, and manufacturing space designed specifically to advance the development of current and new products, while reducing operating costs.
Delighted by a 60% reduction in rent.
We expect the move to occur during the second half of 2022 at which time, we will exit our current facilities.
Lastly, moving to our third priority advancing our pipeline.
We are continuing to advance the programs outlined in our product development contract awarded by the Biomedical Advanced Research development authority or BARDA.
That is valued at up to $69 million based on the achievement of certain milestones with defined contract phases.
During the third quarter, our scientific team successfully completed the milestones under option one of the contract.
Which led to BARDA decision to exercise option too.
Option two is planned for the period between October 2021, and March 2022, and valued at $6 $4 million.
As a reminder, we're developing for products under the BARDA contract the teacher resistance panel the teacher bio threat panel.
Comprehensive sepsis panel in the next generation instrument.
The teacher resistance panel is a direct from blood test panel designed to detect 13 antibiotic resistant genes from Gram positive and Gram negative pathogens in three to five hours and runs on our FDA cleared T to Dx instrument.
We're currently marketing and selling the TT resistance panel in Europe under CE Mark.
And we're on a pathway to apply for U S. FDA five 10-K clearance prior to commercialization in the U S market.
The teacher resistance panel has previously received breakthrough device designation from the FDA and we are engaged in conversations with the FDA on the clinical trial requirements required for five 10-K submission.
We plan to initiate a multi site clinical trial during the first quarter of 2022.
Which is anticipated to involve 10 sites and will recruit up to 1500 subjects.
The teacher biotech panel as a direct from blood panel designed to detect six bio threat pathogens and runs our FDA cleared <unk> Dx instrument.
The development of the teacher bio threat panel has concluded.
And we've demonstrated preliminary detection of targeted bio threat pathogens directly in whole blood at clinically relevant concentrations.
Analytical verification studies have been initiated and we plan to initiate the clinical trial for the <unk> panel during the first quarter of 2022.
With positive samples being prepared and analyzed in a high containment biosafety level III or BSL three laboratory.
The comprehensive Subsys panel is a direct from blood test panel designed to detect up to 99% of all bloodstream infections caused by bacterial and candidates species as well as all bloodborne antibiotic resistant threats identified as urgent by the centers for disease control and prevention.
In a single test with time to result of approximately three hours.
The comprehensive sepsis panel is being developed using our preexisting and proprietary technology.
The next generation instrument is being developed in parallel with our comprehensive sepsis panel and is designed to be fully automated on demand and random access similar to our T. G Dx instrument, but with faster turnaround times and the ability to detect an increased number of pathogens and resistance genes from a single.
Oh blood sample.
Industrial design is nearing completion and based on the current schedule. We plan to have a fully functioning beta unit in mid 2022.
Once completed we will merge the prototypes with the assay and initiate full scale system wet testing.
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 third quarter of 2021 was $7 $4 million, an increase of 42% compared to the prior year period.
Product revenue was $4 $3 million, an increase of 15% compared to the prior year period, driven primarily by increased test panel sales.
Research contribution revenue was $3 $1 million, an increase of 110 per cent compared to the prior year period, driven by increased BARDA contract activity.
<unk> costs for the third quarter of 2021 were $4 $7 million, a decrease of $2 $1 million compared to the prior year period, driven by manufacturing cost efficiency initiatives.
Research and development expenses were $6 $4 million, an increase of $2 $6 million driven by increased BARDA contract activity.
Selling general and administrative expenses were $8 $5 million, an increase of $3.3 million driven by increased commercial team head count increased trade show activity and an ERP system implementation, which went live in October.
Net loss for the third quarter of 2021 was $14 million.08 per share.
To a net loss of $11 $3 million.08 per share for the prior year period.
Cash marketable securities and restricted cash were $43 $6 million as of September 32021.
We did not use the ATM facility in the third and fourth quarter of 2021, and we were in compliance with the main covenants of the C or G loan agreement.
As John mentioned with respect to 2021 guidance, we are raising our revenue expectations to reflect our third quarter results and now expect total revenue for the full year 2021 of $25 million to $27 million.
Consisting of increased product revenue of $15 million to $16 million and research contribution revenue of $10 million to $11 million, which remains unchanged.
We continue to.
Back to enter into at least 30 teacher Dx instrument contracts in 2021.
Thank you and back to John's peripheral for closing remarks.
Thank you John.
We're building a foundation for sustained growth and we are encouraged by the progress made across our corporate priorities during the third quarter.
Our sales have increased considerably compared to the prior year period, and we continue to expand our commercial and medical affairs team to raise awareness of our technology and drive adoption and utilization of our products.
Simultaneously, we are advancing new products toward commercialization, including the teacher resistance panel and to do bio threat panel and taking actions to efficiently scale, our manufacturing and prepare to produce future products like our next generation instrument and comprehensive sepsis panel.
I'm confident we will continue to make major contributions to the advancement of care for patients at risk of sepsis.
Before concluding I'd like to welcome Laura Adams to our board of directors, She's a health care industry thought leader, who continues to optimize patient care delivery through data and analytics. We're excited to have her on board and look forward to her valued input and leadership.
I would also like to thank Tony for his contributions to the company and wish him well in his new role and finally, welcome Brett given as our new Chief commercial officer.
Now, let's open it up to questions operator.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the king.
Cause I try a question. Please press Star then two.
Our first question comes from Mark Massaro.
<unk>. Please go ahead.
Okay.
Hi, Thanks for taking the question.
Hmm.
Cause they tasking them contributing to revenue.
How's that fifth Avenue kind of sequentially.
If you could also provide a further update on how transitioning instruments. So convicted that this attack.
Sure. So the sequential growth of our Subsys business from quarter to quarter I believe we stated in the prepared remarks was about 18%.
Our installed base of instruments.
And that happens through a combination of things increased awareness about our technology increased adoption of other tests panels. For example, if a customers using only R. T. Two candida panel expanding that to also introduce our teacher bacteria panel.
Wider adoption within an account, meaning that more clinicians order the test as we continue to evolve and and we drive that through a combination of <unk>.
Broadening or expanding the clinical data.
Putting that in the hands of our commercial team as well as our medical affairs specialist you'll note that we have completely rebuilt our medical affairs team largely to reflect the kind of customers that we sell too and we sell our products.
Enterprise wide basis within hospitals to laboratory professionals farm D as infectious disease docks and administrators. So we've hired people within our medical affairs team such that we can have peer to peer conversations with our customers and we think that that's going to allow us to continue to drive utilization as we go forward.
Okay cool. Thank thank you very much.