Q1 2022 T2 Biosystems Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the T. Two bio systems first quarter 2022 earnings conference call.
At this time, all participants have been placed on a listen only mode and the floor will be open for questions and comments after the presentation.
It is now my pleasure to turn the floor over to your host Malcolm Mccloud, Sir the floor is yours.
Thank you operator, I would like to remind everyone that comments made by management today and answers to questions will include forward. Looking statements. These include statements related to Q2, 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 23, two.
22, 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 chairman and CEO John <unk> John .
Thank you all for joining our first quarter 2022 earnings conference call.
Today I will review the company's performance in the first quarter and provide details on the progress we're making on our three corporate priorities.
We'll then turn the call over to our Chief Financial Officer, John Sprague.
Who will review our first quarter financial results before I make some closing remarks, and we open the call for questions and answers.
First I would like to address today's announcement related to our NASDAQ listing.
Today, we received a letter from the NASDAQ stock market informing the company that its shares of common stock, but failed to comply with the $1 minimum bid price required for continued listing on the NASDAQ global market under NASDAQ listing rule 5501 and.
And as a result, the company's shares are subject to delisting.
The letter further stated that the company May appeal, the NASDAQ staff delisting determination to announce back listing qualifications hearing panel.
The company has filed an appeal and hearing request to the NASDAQ staff's determination, which will stay the delisting of the company's shares of common stock from the NASDAQ global market pending the panel's decision.
The NASDAQ staff has informed the company that the delisting action has been stayed.
Pending a final written decision by the panel and the hearing date has been set for June .
2022.
While there can be no assurance that the panel will grant the Companys request for continued listing.
The company intends to present, a plan to regain compliance to the panel that includes a discussion of the events that it believes will enable it to regain compliance in this timeframe and a commitment to effect a reverse stock split if necessary.
During the first quarter the <unk> biosystems team generated total revenue of $7 2 million.
<unk> product revenue of $3 8 million and R&D revenue of $3 4 million.
We entered into contracts for 15 <unk> instruments during the first quarter <unk>.
Including 11 in the United States and four internationally.
All of which will be used for sepsis.
We continue to make progress on our three corporate priorities accelerating our sales enhancing our operations and advancing our pipeline.
Our first quarter results and our sales funnel have been positively impacted by our investments in sales marketing and medical affairs.
We're experienced sales success in the United States market.
As well as outside of the U S. Having signed numerous distribution agreements in Europe Asia Pacific and Latin America.
Most recently in Norway, Finland, and Turkey.
And we anticipate additional international expansion.
We also continue to enhance our operations through manufacturing efficiency and workflow updates along with broad organizational cost controls.
On the new product pipeline, we are advancing our two U S clinical trials launched.
Launched in December of 2021.
The teacher resistance panel and the <unk> bio threat panel.
As we continue to execute on our strategy, we are simultaneously furthering our mission.
To fundamentally change the way medicine is practiced through transformative culture independent diagnostics that improve the lives of patients around the world.
To remind you.
This is the number one cause of death in U S hospitals.
Claiming nearly 270000 lives annually.
Substance is the number one cost of hospitalization in the United States costing our health care system, approximately $62 billion annually.
Finally substance is the number one cause of 30 day Hospital Readmissions.
<unk> and nearly 20% of survivors to be re hospitalized within 30 days and approximately 40% within 90 days.
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 one half of <unk>.
To further complicate matters. The current standard of care continues to rely on a positive blood culture to identify the presence of a blood stream infection.
<unk> therapy for patients suspected of sepsis.
Due to their poor sensitivity blood culture is 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 pulse culture molecular diagnostic tests may then be required for determinations of species identification and susceptibility.
Our aim at <unk> Biosystems is to advanced care by enabling faster times to targeted therapy.
We're commercializing the first and only FDA cleared products able to detect sepsis, causing pathogens directly in whole blood.
Just three to five hours, eliminating the need to wait for a positive blood culture.
This is critical as each hour of delayed targeted treatment.
This patient mortality rates by up to 8%.
Our products enable conditions to achieve faster targeted antimicrobial therapy by rapidly identifying sepsis, causing pathogens and antibiotic resistant genes.
At our analyst and Investor Day in April .
The critical nature of this mission and.
Our progress spearheading the advancement of culture independent diagnostics.
Was validated and articulated by influential key opinion leader and <unk> users Dr.
Dr. Thomas Walsh, the founding director of center of innovative Therapeutics and diagnostics.
Dr. James Schneider director of Microbiology, and infectious diseases molecular diagnostics at the University of Louisville School of Medicine and hospital.
To advance our mission and create value for our stakeholders, we're focused on three corporate priorities.
Accelerating our sales enhancing our operations and advancing our pipeline.
I'll now provide an update on our recent progress as it relates to each of these three corporate priorities.
Starting with our first priority accelerating our sales.
We have focused our sales strategy with respect to two distinct objectives.
One significantly expanding our <unk> Dx instrument installed base through the sale of placement of new instruments.
And to doubling our sepsis test revenue.
By driving broad adoption and utilization among new and existing customers.
In the first quarter, we entered into 15.
Q2, Dx instrument contracts.
Spanning our installed base of instruments to <unk> 91 in the United States and 55 internationally.
We generated sepsis panel revenue of $1 1 million.
In the United States, we achieved annualized sepsis test utilization of $109000 for legacy <unk> Dx instrument.
While disruptions from the COVID-19 case surge in January negatively impacted sepsis test utilization.
This test panels were strong in the last weeks of the quarter.
We continue to believe that overtime annualized U S sepsis test utilization will reach $200000 per instrument.
In recent quarters, we have significantly expanded our U S commercial team to accelerate sales of our <unk> product market penetration.
Under new leadership the team has been organized regionally.
And is implemented and advanced metrics driven sales process.
Our new sales management process allows us to generate qualify and forecast lead conversions more accurately.
We're confident the new structure and analytics can help build and execute a strong funnel of placements and utilization with greater visibility into monthly and annual performance.
To that end, we're able to tightly manage the sales force against internal quantitative performance metrics.
We're seeing increased productivity as our expanded commercial team gains traction in the market.
The <unk> Dx instrument placement model, we're now offering.
It is also shortening deal cycle times.
Placements are generating higher test panel pricing.
And established volume requirements.
Waning COVID-19 demand is creating capacity for new hospitals to evaluate substance solutions and also provide the opportunity to convert COVID-19 driven instrument placements to sepsis testing.
We expect these instruments will eventually transition to sepsis testing in the coming quarters.
We have rebuilt and expanded our medical and clinical affairs teams.
These teams are actively engaged with key opinion leaders or kols and working together to generate and disseminate real world data through scientific journal publications at medical conferences.
Industry Tradeshows.
Our medical affairs team, which consists of infectious disease doctors.
Laboratory professionals and Pharm DS is now reporting into Brett Gibson, our chief commercial officer.
And this organizational realignment ensures that these resources are best positioned to drive growth in our <unk> business.
Our clinical affairs team is now reporting into Roger Smith, our senior Vice President of Science R&D.
Which aligns our product development and clinical validation under common leadership.
Our partner <unk> has resigned as chief medical officer to pursue other opportunities.
We thank her for her contributions to <unk> biosystems and our customers.
Hospitals around the globe largely face the same challenges when caring for patients susceptible suspected of sepsis.
And we view this as an opportunity to bring our solutions to additional patients and customers.
To capture this opportunity.
<unk> our distributor relationships, we have employed three international business managers.
As previously announced we expanded our distribution networks with agreements in Norway, Finland, and Turkey during the first quarter.
We are having success expanding our international distribution network, enabling commercialization of our products in more countries and we anticipate further expansion in 2022.
Moving to our second priority enhancing our operations.
We're continuing to make investments and implement changes to our operations that will enable sustained long term growth.
Scaling our manufacturing capabilities and strengthening our supply chain have been major focuses in recent quarters.
We have made strategic investments in tooling automation and efficiency projects to further scale, our manufacturing capabilities and continue to improve our cost of goods.
The workflow updates that we have implemented have resulted in lower scrap rates and higher efficiency with reagent materials.
As a result, we expect to see gross margin improvement throughout the year.
We are experiencing supply chain challenges and our team has been effectively managing these dynamics by building inventory through pre purchases and continuously evaluating alternate materials suppliers where possible.
Moving to our third priority advancing our pipeline.
Our new product development priorities continue to be the programs under our milestone based product development contract awarded by the U S. Biomedical advanced research development authority or BARDA, which is valued at up to $69 million.
We highlighted the four products that were developing under our contract with BARDA.
<unk> resistance panel the <unk> bio threat panel.
The comprehensive panel in the next generation instrument at our recent analyst and Investor Day.
This pipeline represents a portfolio of differentiated diagnostics that have the potential to meaningfully advanced standards of care.
And protect our nation from bio threat attacks.
We are pleased that our scientific and engineering teams successfully completed the milestones described under option to a of the BARDA contract during the first quarter.
BARDA subsequently chose to exercise option to be of the contract, which is valued at $4 4 million and planned for the period between April 2022 and July 2022.
Upon successful completion of option to be.
We're optimistic that BARDA will choose to exercise option three to continue to support the development of these important products.
As a reminder, in December 2021, we initiated the U S clinical trials for the <unk> resistance panel and the <unk> bio threat panel.
Both ahead of our previously announced schedule.
We designed these clinical trials to evaluate the performance of the teacher resistance and tissue bio threat panels the.
The data will be used to support respective regulatory submissions to the U S food and drug administration in 2022.
The teacher resistance panel as a direct from blood test panel designed to run on the <unk> instrument and simultaneously detect 13 antibiotic resistance genes from both Gram positive and Gram negative bacterial pathogens, which are known to cause antibiotic resistant infections in three to five.
Hours.
We are 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 was granted breakthrough device designation from the FDA, which provides for a prioritize FDA review process.
The clinical trial will include up to 500 patients from multiple sites across the United States.
We expect the trial to be completed in 2022.
Opening the door for the filing of an FDA submission as early as this year.
The <unk> panel is a direct from blood test panel designed to run on the <unk> Dx instrument and simultaneously detect six bio threat pathogens identified as threats by the U S government.
Including <unk>.
<unk> and <unk>.
Frances seller pool Renesas.
Brokered area now.
Brokered area.
Please.
Arsenious past us.
Rickettsia.
<unk>.
Similar to our Subsys products.
Our CTO bio threat panel is designed to provide results in three to five hours.
Without the need to wait days for a positive blood culture.
The U S. Clinical trial includes negative samples being analyzed at a single site.
Which has been completed.
And positive samples being prepared and analyzed at a high containment biosafety level III laboratory, which is expected to be completed in 2022 potentially enabling the filing of an FDA submission in 2022.
The comprehensive panel for the detection of blood stream infections and antimicrobial resistance is a direct from blood test panel designed to run on our next generation instrument.
And detect greater than 95% of all bloodstream infections caused by bacterial and Canada pathogens.
As well as antibiotic resistant markers identified as threats by the centers for disease control and prevention and.
In a single test with the time the result of approximately three hours.
We're developing the comprehensive sepsis panel using our preexisting proprietary technology.
The next generation instrument is designed to be fully automated on demand and random access similar to our <unk> Dx instrument, but with faster turnaround times and the ability to detect an increased number of pathogens and resistance genes from a single whole blood sample.
We're pleased to announce that we have successfully completed the build of multiple development units ahead of schedule.
We're in the process of conducting qualification testing on all of them with the goal of merging the assay to initiate full scale system wet testing.
We believe that our next generation instrument and comprehensive panel for the detection of blood stream infections and antimicrobial resistance will replace most blood cultures for patients at risk of sepsis.
The launch of those new products will transition the position of <unk>.
Use as an adjunct test to the primary product to detect sepsis, causing pathogens and antibiotic resistant genes.
Finally, we have submitted two applications with the U S food and drug administration for breakthrough device designation.
One the <unk> bio threat panel, which we announced on April in April 2022.
And to the tissue line panel, which we included in today's first quarter earnings press release.
The tier two Lyme panel is a qualitative molecular diagnostic assay designed to run on our <unk> Dx instrument and to detect the presence of gorilla bacteria directly in human whole blood specimens and provide results in three to five hours.
As a reminder, the FDA breakthrough devices program is a voluntary program for certain medical devices and device lead combination products that provide for more effective treatment or diagnosis of life, threatening or irreversibly debilitating diseases or conditions.
It's available for devices and device lead combination products, which are subject to review under pre market approval application or PMA pre.
Premarket notification or 500, 10-K or de Novo classification of the question.
Program is intended to help patients have more timely access to these medical devices by expediting their development assessment and review, while preserving the statutory standards for PMA approval, five 10-K clearance and de Novo marketing authorization consistent with the Fda's mission to protect and promote <unk>.
Account.
With that I'll now turn the call over to John Sprague to go over the details of our first quarter 2022 financial results and our financial outlook for 2022 John .
Thank you John total revenue for the first quarter of 2022 was $7 2 million, an increase of 4% compared to the prior year period, driven by increased <unk> Dx instrument sales and BARDA contract activities offset by decreased COVID-19 test panel sales.
Product revenue was $3 8 million, a decrease of 17% compared to the prior year period.
Research contribution revenues were $3 4 million, an increase of 47% compared to the prior year period.
Product costs for the first quarter of 2022 were $6 2 million, an increase of $400000 compared to the prior year period, driven by increased <unk> Dx instrument sales and offset by decrease COVID-19 test panel sales.
Research and development expenses were $6 7 million, an increase of $2 million driven by increased BARDA contract activities.
Selling general and administrative expenses were $9 2 million.
An increase of $3 million driven by increased commercial and medical affairs head count.
Net loss for the first quarter of 2022 was $16 $5 million 10 per share compared to a net loss of $10 $7 million seven per share for the prior year period.
Cash marketable securities and restricted cash were $25 million as of March 31, 2022.
We have used the ATM facility minimally in 2022.
<unk> 31, we sold $3 5 million shares for net proceeds of $1 4 million.
<unk> has extended the interest only period at loan maturity to December 31, 2023, and we were in compliance with the remaining loan agreement covenants.
We continue to expect full year 2022 revenue of 28% to $31 million, including product revenue of $16 million to $17 million and research contribution revenues of $12 million to $14 million.
We continue to expect to close 60 to 70, <unk> Dx instrument contracts in 2022, and COVID-19 revenue decreased from $9 five to $3 5 million. Thank you and back to John's personal for closing remarks.
Thank you John .
We are pleased with the progress.
Across our three corporate priorities during the first quarter.
And we're encouraged by the financial results, we're generating following the expansion of our commercial and medical affairs teams.
Under new commercial leadership, our expanded sales force is increasing the installed base of <unk> instruments globally.
While focusing on increasing adoption and utilization of our <unk> products.
Our medical Affairs team will work closely with our sales team to increase awareness of our sepsis products through KOL engagement as well as the generation of additional clinical and economic evidence to reinforce the value proposition of our products.
Expansion of our international distribution network is ongoing.
Capture the global demand for our culture independent diagnostics.
We have improved our manufacturing efficiency and continue to make investments to scale the business and improved product gross margins.
Finally, we continue to successfully complete the milestones associated with the BARDA product development contract.
This advances us towards to FDA regulatory submissions, we expect to make in 2022 and drives the next generation of culture independent products to rapidly detect bloodstream infections and antibiotic resistant genes.
Our recent accomplishments have created business momentum early in 2022, and we're extremely excited about the future of <unk> biosystems and confident in our ability to change the standard of care for patients at risk of sepsis.
Now, let's open it up to questions operator.
Ladies and gentlemen, the floor is now open for questions.
Any questions or comments. Please press star one on your phone at this time.
We ask that while posing your question. Please pickup your handset listening on speaker phone to provide optimal sound quality.
Please hold while we poll for questions.
Your first question for today is coming from Ben Hayner with Alliance Global Partners. Your line is live.
Good afternoon, gentlemen, thanks for taking the questions.
First off for me just congrats on on filing for the <unk>.
Breakthrough designation on tier two Lyme and the tissue bio threat panel, but I am curious about T. Two line do you have an idea of what a live trial could look like being that the.
The current tests out there or not consider particularly accurate.
Ben Thanks for your comments on the quarter, we think that success with the breakthrough device submission would facilitate those kinds of discussions with the agency as you probably know there are an awful lot of submissions in Q and we're hopeful that as successful breakthrough device.
Mission.
Advance the cause much faster than otherwise.
Okay that makes sense and then on the positive on for tissue bio threat.
It doesn't sound like that's scheduled I mean is that something that youre, just kind of beholden to whatever the labs that are <unk>.
To do this types of testing these types of testing are able to schedule it or how does that work on the positive arm.
It's a single site then.
It is 100% contrived samples and there are multiple <unk> dx instruments at that site.
So we do believe that that's a pretty straightforward positive arm of the study and we anticipate that it will be completed prior to the <unk> resistance clinical trial.
Okay.
That's fair enough and then lastly from me on that.
The placements you mentioned higher test panel pricing and volume commitments can you share.
Maybe how those differ from.
The more traditional.
Sales or contracts that you have had in terms of.
Pricing X percent higher or the volume commitments.
Those are those impacted by the agreements that you are signing these days.
I'm going to ask Brett given to take that question, our chief commercial officer is here with us.
Hey, Brad.
Okay. So.
Yes.
With the placements and as John mentioned, we and as we said coming into the beginning of the year, we anticipated that it made sense from an acceleration standpoint to rely more heavily on placements and we certainly still after capital options although.
90% of the time in the U S plus it's been placements. So obviously, we're accelerating the sales cycle with that greatly.
Clear benefit so in answer to your question yes.
We certainly get a.
Thanks.
A rather substantial uptick on the price front and in exchange for that I mean keep in mind.
A capital sale of the instruments of $100000. So so those.
Obviously the rates that we put on there certainly are more significant and what it does also as part of that.
We also tie volume expectations to that so that when we do those with an account. They obviously they are signing up for increased pricing, but at the same time also signing up for volume commitments that then we monitor against a contract that we put in place with them. So.
Okay that makes sense thanks for the.
Thanks for the color there.
I'll leave it at that thanks for taking the questions gentlemen, congrats on the progress.
Thanks Ben.
Yes.
Your next question for today is coming from Steve Brozak with WPB, Steve Your line is live.
Hi, John and thanks for the update of course.
I wanted to dive into a couple of questions to see the landscape as we're looking at it right now.
On the first part I know this may initially be anecdotal, but you would.
During the.
The J P Morgan week.
You had discussed a group had discussed around the increased prevalence watching COVID-19 patients who are also now dealing with subsys.
Can you give us any insight and again I know, it's anecdotal, but can you give us any insight into what youre seeing there and what the clinicians are presenting back to you along those lines and I do have one question here and you may not know the answer to it are you seeing anything that might play in the underserved community that made.
There are even more attention to this particular question a phenomenon I've got another question after that thank you.
Sure. Thank you Steve.
Early on in the Covid pandemic, there was data first coming out of China than in the U S. And then other countries as the virus spread around the world.
That up to.
30% of critically ill hospitalized COVID-19 patients.
Would go on to develop sepsis or blood stream infections and sepsis.
And that data has been pretty consistent from early 2020.
Through today's date, and we have had clinicians present on that one of whom said.
A third of the patients that came into us ICU with Coke.
With Covid became septic. So this is something that is has been happening for the last couple of years and we would anticipate it continuing to happen because these critically ill COVID-19 patients are very susceptible and very vulnerable to bloodstream infections and sepsis in terms of the underserved communities.
Sepsis Alliance has put out a lot of data on the impact of sepsis in the underserved and particularly the Latino and African American communities and it's.
Pretty much across the board a factor of two higher so there is a disproportional impact of sepsis in the underserved and we're trying to do something about that.
Okay.
That actually leads me to my next question because obviously the one thing.
<unk> technology is something that is standing standardizes.
A treatment protocol and puts it on a on a level playing field for those clinicians.
And rapidly addresses.
The critical time that you need to treat sepsis.
How would that play into the greater adoption for those.
Quote unquote underserved hospital systems and for those patients who are disadvantaged.
Would you model that into the future as far as being able to assist or deal with that.
I may have one more follow up after that please thank you.
Well I would go back to the comment that Ben asked Bret about our commercial strategy.
And one of the shifts that we've made from a capital sale to replacement program.
Obviously, one of the obstacles to whether they're critical access hospitals are hospitals that serve underserved communities.
Access to capital and so by minimizing the requirement on the capital side to get access to our technology. We opened the doors for many more institutions to get access to our products and and we strongly believe that our products can identify these pathogens much faster lead to faster target.
Good therapy and there is <unk>.
Significant data out there that shows we can identify these pathogens faster we can achieve targeted therapy faster, we can escalate compare protocols with broad spectrum antibiotics faster so.
We are looking at all kinds of opportunities to try to accelerate the commercialization in these underserved communities.
Great.
One last item.
More application note and I'll hop back in the queue.
Obviously in going over the last year's worth of press releases queues and case I've noticed a significant decrease in terms of expenses being able to go out there and cut.
<unk>.
I would ask you in terms of what your plans are in to the future as far as being able to.
Both cut costs, but also <unk>.
Equally important what can you tell us about the ability to ramp up on manufacturing given the configuration that you have got right now in front of me.
Let me hop back in the queue after that thank you.
Well one of the blessings that.
Impacted us with respect to Covid as it required us to dramatically scale, our manufacturing capabilities in the past we've talked about a seven fold increase in manufacturing output both for our consumables.
Our instruments typically companies like ours go through.
Growth pains over more extended period of time, and we ramped that up within a couple of quarters to those levels. So having gone through that process once very dramatically.
There's a lot more confidence that we can do it again and again and again, we spent a lot of time strengthening our supply chain. It's actually been very very helpful. In the current environment, because we were a bit ahead of that.
And.
We obviously intend to sell as we sit here today twice as many instruments as we sold last year globally.
And so we're continuing to scale our operations and if we had the opportunity to double that again with some support whether it's government support or other to go.
So after these underserved communities, we would absolutely get behind that.
Great again, thanks for the thanks for the translation.
Updates and congrats on the quarter.
Thank you, Steve and Steve.
There are no further questions in queue I would like to turn the floor back over to John <unk> for any closing remarks.
Thank you very much for joining our first quarter 2022 earnings call. We appreciate your support and we look forward to updating you next quarter.
Great day.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.