Q3 2022 Accelerate Diagnostics Inc Earnings Call
Good afternoon, and welcome to the accelerate diagnostics incorporated third quarter 2022 earnings call.
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Please note this event is being recorded.
I would now like to turn the conference I've actually Mr. Jack Phillips, President and Chief Executive Officer. Please go ahead.
Before we begin it is important to share that information presented during this call may contain forward looking statements within the meaning of section 27, a other Securities Act of 1933 and section 21 E of the Securities Exchange 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 discussed in greater detail in our annual report on Form 10-K for the year ended December 31st 2021, and the other reports we file with the SEC it.
It is my pleasure to now introduce the company's president and CEO Jack Phillips.
Thank you Laura good afternoon, everyone and welcome to our third quarter earnings call on today's call. We will discuss progress with the Becton Dickinson commercial partnership the regulatory status of arc and our third quarter results before providing additional detail on each of these areas I'd like to hand, it over to our chief.
Financial Officer, Steve Reichling to review, our third quarter financial results Steve. Thank.
Thank you Jack and good afternoon, everyone.
Net sales were $3 million for the quarter and $9 $8 million year to date. This compares to 3.1 and $8 $4 million for the same periods in the prior year.
This represents a slight decline quarter over quarter, and 16% growth year to date.
This decline is due to fluctuations in the timing of capital revenue.
Meanwhile, recurring revenues continue to grow sequentially quarter over quarter and over comparable periods from the prior year.
Cost of goods sold were $2 $2 million for the quarter and $7 $1 million year to date, resulting in gross margins of 27% and 28% respectively.
This compares to cost of goods sold of $2 $1 million and $5.5 million and gross margins of 32% and 35% respectively. During the same periods in the prior year.
The decline in gross margins resulted from continued inflation and production costs and other factors.
Selling general and administrative expenses, excluding noncash stock based compensation expense were $7 $3 million for the quarter and $23 $9 million year to date.
This compares to seven five and $23 $3 million from the same periods in the prior year.
SG&A remained relatively unchanged over these periods.
Noncash stock based compensation expense in SG&A was $9 million in the quarter and $6 $6 million year to date.
This compares to $3 three and $14 $5 million from the same periods in the prior year.
Research and development costs, excluding noncash stock based compensation expense were $7 $1 million for the quarter and $19 $8 million year to date.
This compares to $4 four and $13 million from the same period in the prior year.
These increases were the result of accelerating investment in our next generation assay platform.
This included the cost of several nexgen assay instruments and the purchase of equipment to finalize our semi automated consumable line.
Noncash stock based compensation expense and R&D were <unk> 2 million for the quarter and $1 $1 million year to date. This compares to a 0.3 and $4 $3 million from the same periods in the prior year.
Our net loss, excluding noncash stock based compensation expense was $14 $5 million for the quarter and $39 $5 million year to date.
Our GAAP net loss was $15 $7 million for the quarter and $47 $7 million year to date.
<unk> and a net loss per share of <unk> 18 cents and 62 cents respectively.
Net cash used was $14 $3 million for the quarter and $41 $1 million year to date, excluding cash flows from financing.
We ended the quarter with cash and investments of $55 $4 million.
Based on the recent reduction of our direct sales force, we anticipate our quarterly burn to produce starting in the fourth quarter.
After <unk> and refinancing a majority of the outstanding convertible debt.
We have approximately 56 million that remains due in March of 2023.
This remains a significant overhang that we are working diligently to address and hope to resolve with the cooperation of our debtholders.
However in these difficult markets. There is no guarantee regarding what terms of any resolution might be.
As a reminder, we have $4 million from our previously announced insider financing round now due to us in December after several extensions in.
In addition, our global commercial partnership with Becton Dickinson includes a $15 million upfront exclusive license fee.
This fee is to be paid over the term of the agreement with the first 3 million to be paid upon the start of commercialization.
I will now hand, it back to Jack to review, our third quarter results in greater detail.
Over to you Jack.
Thanks, Steve I will quickly cover our third quarter commercial results and then turn to updates on arc. The BD partnership in our next generation <unk> platform development.
In the third quarter, we continued to see global conditions for selling our products gradually improve.
This is the result of a slowly normalizing post pandemic hospital environment and growing buzz from our BD partnership hospitals are slowly regaining their footing and seeing their patient mix improve.
This has contributed to a full return to pre pandemic levels of bloodstream infection testing and more predictable customer consumable purchases what has been slower to recover as hospital staffing levels.
Record turnover persist, resulting in high vacancy rates throughout the hospital, including a lack of adequate lab technicians.
This continues to negatively impact hospitals ability to take on new projects and as a result, our ability to close new business our counterparts at B D. C. This challenge as an opportunity BD as a leader in lab automation and bolstered with accelerates products can offer improved end to end workflow solutions.
To both reduce time to resolve and free up scarce resources since announcing the partnership we've received significant positive feedback from current and prospective customers about the potential of bringing our two product portfolios together.
Despite hospital staffing challenges a smaller U S sales team and a focus on BD integration. The U S contracted six new Pheno instruments and brought another nine pheno instruments live we ended the quarter with a revenue generating installed base of 323 Pheno.
And the backlog of 79 Pheno instruments pending implementation.
Additionally, during the quarter, we added several arc evaluations and moved several customers to commercial contracting after successful arc evaluations clearer.
Clearly these accounts predated our pause on our commercial activity in the U S. Due to ongoing regulatory discussions with the FDA I will expand upon the regulatory status embark momentarily.
In EMEA, our commercial progress remains steady we added several new contracted and clinically live customers and grew our annuity per customer. We also sold several arc instruments. During the quarter. These factors contributed to global revenue revenues consistent with our internal forecast for the quarter.
In October we announced that we have been in recent discussions with the FDA regarding the regulatory status of arc in the U S before getting into the current status of these discussions near term impacts and the likely path to resolution I'd like to provide a bit of context in history. There are.
Two regulatory pathways for in vitro diagnostic devices class, one registration and class II clearance class one devices present, lower risk and are generally simpler and don't confers specific diagnostic claims.
These devices can be registered directly with the F. D. A class II devices require a manufacturer to demonstrate equivalents to another similar legally marketed device through a pre market approval process known as a five 10-K.
Arc is a unique product in the market and it concentrates and clean samples for drowns downstream applications. It also provides no specific diagnostic result, but adds value to other diagnostic results.
Based on our regulatory assessment, we determined that arc is a class one device and registered it as such with the FDA. After collaborative discussions with the FDA They would like us to file the arc as a class II five 10-K.
The FDA acknowledged our creates a new device category and therefore will be creating a unique code under which to file we are still in active dialogue around the particulars of data to be submitted and associated timelines.
In the near term this news complicates our efforts to commercialize arc in the United States, but it has no impact on sales efforts in EMEA.
As mentioned previously the potential for arc as significant in Europe , and we sold our first instruments there during the quarter.
In the U S. We will continue to work with our leading evaluation sites on a research use only basis to generate and publish data on arc. They continue to have a positive experience with the product in an experimental setting for improving lab workflows.
In a recent cap today article marching Morgan director of clinical Microbiology pathology and laboratory medicine at Cedars Sinai stated the art has met the lab efficiency goals, some 99% of the time the system supplies, a usable nonviable liquid palette and the instrument funnel.
<unk> without problems, we've not had any operational issues.
We had several U S customers in the contracting phase, which we planned to close in the fourth quarter and which are now on hold due to these delayed capital revenue opportunities. We now expect to come in just below the low end of our revenue guidance of $13 million to $14 million for the year. It remains too soon to.
Estimate any impacts in 2023 due to ongoing discussions with the FDA and a pending assessment on how much bd's EMEA team could sell in 2023 to compensate we've been fully transparent with BD throughout this process and they have indicated they remain fully committed to the partnership.
Last quarter, we announced the formation of an exclusive global commercial partnership with Becton Dickinson.
BD is the global leader in microbiology with over $1 1 billion in annual revenues they have thousands of customers spanning most countries globally.
Nearly every clinical microbiology lab in the World uses at least one of their products to.
To recap there are three drivers for joining forces with BD.
First to significantly improve our commercial reach both in the U S and abroad.
To improve our selling effectiveness by combining offerings with the BD suite of products and lastly to collaborate on future innovation now deep into the commercial integration process. We continue to believe this partnership will translate into greater market penetration, resulting in higher sales for both come.
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During the past few months, we have had significant access to BD sales leadership and members of their global sales teams, we continue to be impressed by their expertise and breadth.
Dickinson has the largest direct sales force in microbiology in the United States their sales forces Forex the size of accelerates.
Their broad coverage allows them to call on every microbiology lab in the country.
Training of their sales force on our products and alignment on go to market strategies are nearly complete.
Outside of the U S. The expansion of global coverage is even more profound.
Currently we are in 18 countries in Europe , and the Middle East BD as a global powerhouse with over 50% of its revenues outside of the United States. BD has some 200 direct sales reps in EMEA and a large logistics and distribution network.
The second driver for entering into the agreement is to improve our commercial effectiveness, we anticipate higher close rates and improved deal economics through greater stakeholder access and product synergies, while we haven't officially kicked off joint commercial efforts, we are already seeing inbound.
<unk> from prospective customers and doors are being opened through bd's relationships with bd's broad existing portfolio and the addition of accelerates products. We are creating the best end to end solutions for microbiology to drive market share growth.
The third driver for entering this partnership is to collaborate on future product development efforts. There is particular interest in these early days of the partnership to connect our products to Bd's Synapsis lab software system.
Early scoping discussions on Synopsys has begun. Additionally, there is excitement around our next generation platform development. We have achieved design lock on the instrument and consumable the graphic user interface has been finalized and several more alpha units are now built and we began running samples and analyzing data.
Given the progress to date, we are increasingly confident on our ability to have a clinical trial data readout on positive blood in 15 to 18 months.
This would put us on track for a U S launch in 2024.
As a reminder, the low cost and high throughput design of this nextgen a S. T system will address all susceptibility testing. This is a 10 fold increase over Pheno is current addressable testing volumes in.
In turn this system will bring material increases to annuities at higher gross margins.
We are driving toward going commercially live with BD, initially pheno and the U S and our plus Pheno in EMEA in early 2023.
Accordingly, we are not expecting any commercial benefits from this partnership in the current fiscal year. We do however, see potential for significantly improved customer contracting higher revenues and materially reduce cash burn in 2023 and beyond.
In summary, the pause on our commercialization in the U S.
Staffing challenges at hospitals, and an upcoming debt maturity, our headwinds, which we are working to resolve each day we.
We believe the situation will be resolved efficiently and in the longer term represent only a speed bump two years of success selling this important workflow device.
Our partnership with BD will increase our commercial breadth and effectiveness through bringing workflow solutions to today's labor shortages and with respect to our capital structure. We are doing everything we can in a tough market to resolve the most significant overhang faced by the company over the past several years.
We are maintaining a laser focus on ensuring BD success and delivering a market, beating next generation <unk> system.
We made great progress on these priorities during the quarter and remain enthusiastic about their potential to transform the company.
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 a X Dx dotcom.
Okay.
Thank you we will now begin the question and answer session.
Your first question comes from Andrew Brachman with William Blair. Please go ahead.
Hi, guys. Good afternoon, thanks for taking the questions.
Certainly a lot of detail there in the script about sort of the ongoing with the BD relationship, but maybe just hear you know a few months and can you just maybe peel back the onion, a little bit and talk a.
A bit more about some of those early signs of success.
Success that you've talked about there are anything in particular, you might want to call out just as you bring the teams together here. Thanks.
Sure Andrew Thanks for the question, Yeah, I would love love to take that one and Steve can jump in whereas where appropriate.
Gosh, I can't say enough about the great start that we've had with this BD with our with our BD partnership, it's frankly everything that I thought it would be.
Wonderful collaboration from the top.
So from senior leadership, all the way down through the.
The commercial organizations both in the U S. A.
And then in EMEA.
It's really been phenomenal collaboration let me give you a few specifics Andrew I guess first first of all both both organizations have setup project offices, we have a dedicated leader senior leader within accelerate that's that's leading the efforts across our organization as does <unk>.
D. Both in the U S and in EMEA.
The work we're doing right now is focused on a number of areas. One is to really align the marketing organizations on.
Putting together the proper a blood stream infection story the tremendous.
The tremendous impact that both companies can have.
Both with BD products and the accelerate products in really repositioning the market for bloodstream infection with with our solutions. So that work's ongoing. The next comment I would say is training training and training we've been working with the sales organizations in the U S.
Well as EMEA.
We've been actively.
We've collected.
Wonderful we've put together wonderful training modules for the BD sales folks and I would say our team is also going through training to learn about the BD products and solutions as well.
That's been done virtually at this point this week in Athens in EMEA.
In Athens, Greece, there's a sales meeting for that region.
The accelerate team is there and we'll be doing training onsite there and then next month.
I'll also be doing training face to face with the BD sales team of the U S and that'll happen in Florida. The first week in December and then from there we are actually working on the many different aspects of bringing the organizations together the back office type things how do you do.
How do you do deals how do you put together proposals et cetera et cetera, and then from that we're looking to go commercially live here early in early in 2023.
Does that answer your question Andrew cannot provide any more color there.
No that was great and are certainly a lot for you guys to be working on so we're excited to hear about those updates.
As it relates to our kit can you, maybe just sort of level set us on how you view that product, particularly in EMEA and Europe I think in the past you've sort of talked about the prevalence of moldy, there and sort of the market opportunity can you just sort of give us an update on how youre thinking about that maybe in light of the FDA situation here.
Yeah sure sure so.
Just to be clear as I as I indicated in my prepared comments, we are on market in EMEA.
The.
The FTAA work that we're doing in the U S. It's paused our efforts in the U S does not impact EMEA. So we are preparing right now the same as we would have been a month ago or two months ago with regard to launching.
In EMEA, we've already sold a couple arc units in Italy. Those are under evaluation those are getting live right now and I would say there is a tremendous opportunity in EMEA for multi multi is a very very well established platform.
Across all countries in Europe , and the Middle East.
There is no automation for front end preparing the front end.
For multi there and we will be using arc, they will be using arc.
For that to prepare those those most valuable samples and and we expect again, we expect to have a very very solid.
Market for moldy in in Europe , and European countries, as well as as well as the middle East.
Okay, and then just last one for me Steve It sounds like you're sort of still are still going through some of the diligence and work as it relates to the converts I think it's 56 million you said due March 23, how should we be thinking about you guys, providing updates around our sort of steps with with dealing with that.
Yeah.
It's certainly a daily focus of mine and of Jacks and there's two significant work streams there.
One is we're pursuing opportunities around venture debt and at the same time, we're working with our existing bondholders.
And so that's probably as much details I can provide right now, but it is a laser focus of ours and we are optimistic of a reasonable resolution.
Got it thanks guys.
Thanks, Andrew.
Your next question comes from Alex Nowak with Craig Hallum Capital Great. Please go ahead.
Great. Good afternoon, everyone. This is connor on for Alex Thanks for taking the questions here I guess, just starting first on expenses.
Just some more granularity on where opex spend can go from here just on a quarterly basis, and then to 23, just especially as you know the BT relationship might not get going until early 'twenty, three which is.
Be helpful to hear kind of some levers you can pull in the short term to preserve some cash here.
Dave you want to go ahead and take that.
Sure.
So the first thing to say like we mentioned in the script is the BD partnership as an opportunity to reduce our sales and marketing and so we've taken some measures there will start to see the benefits of that in the fourth quarter.
Also in R&D. This was a very heavy year for.
Our next generation assay program.
With a lot of money spent on third party external engineers.
And we expect that.
And that external engineering will come down in the new year, and we'll have some offset to a degree yet undetermined.
Clinical trials.
But it did take it a level deeper then.
Then Matt will probably have to wait for January when we rollout our our net burn guidance, but.
We are expecting it to be a material reduction in that cash burn.
And that's also aided by the reduction in interest expense, which has been coming down with the work we've done on the convert thus far.
Got it okay.
All makes sense.
Maybe you can just speak a little bit to how you know BD is planning to incorporate it accelerates products into their workflow maybe speak to any internal initiatives going on at BD to kind of prep.
Accelerate products into the channels and maybe.
And maybe also just speak to how.
The X Dx portfolio is going to stack up against you know Bds.
<unk>, just prioritization on kind of their own microbiology portfolio.
Sure sure no problem Conor So a couple of things I guess I'll take the last one first as I mentioned prior here BD has been very excited and very bullish.
To be partnering with accelerate and our products all the way through the sales team.
Great excitement and really having something new to sell having something new to incorporate into their overall product portfolio.
We're also putting together with BD are leading the effort, but commission plans and targets and things like that for <unk> that are most important for any sales organization.
As far as incorporation into their overall story I mean, that's that's the big headline for this partnership frankly.
The ability to bring the great products together with BD Bd's products BD is the largest microbiology.
Player in the World with $1 1 billion in revenue and with that they have tremendous end to end solutions.
But the areas of you know that they were very focused and are very focused in improving ensuring up as are the areas that accelerate brings brings to them. It starts with pheno.
Rapid a S T. A rapid identification that is something that again will fit nicely with.
With Bd's blood culture solutions.
As well as there were there Phoenix solution, which is a.
Lower ASP type solution, and then they're multi distribution as well that they have through broker.
Again that will that will be for arc. It will be helpful. In EMEA as we get into the U S. We're clearly going to be going through.
Working with the FDA to go through a.
Likely a class II filing for arc to be used in conjunction with with thermo.
They are multi platform so anyway.
With that I would say that BD is working on a.
Working on a total refresh of their bloodstream infection story.
This is something that they'll be looking at launching the first part of the year and and accelerate and our solutions are very much part of that that overall solution that they're they're re crafting right now.
Got it okay. That's helpful.
Just one more quick one on the arch that are being used in academia like what wasn't.
Needs to be done to get those kind of re labelled as are you. All I mean is that pretty straightforward.
Those can stay on the market.
Okay, and then just kind of where are you at with kind of pulling those clinical use arc soft market.
Yes, so the the answer is that it's fairly straightforward to.
Repurpose those systems to our UO they need to be properly re labelled which were already in the process of and likely complete right now for all the sites that will be maintaining our UO products and kits internally will be relabeling, our kits as our U O as well.
Prior to shipping them and then.
You know the clinical systems that will.
We'll be pausing on we've already started to remove those from from clinical sites that will not be moving forward with any kind of our UO product.
Okay got it all makes sense. Thank you for the questions appreciate it.
Okay Connor thank you.
This concludes our question answer session I would like to turn the conference back over to Mr. Phillips for any closing remarks.
Yes. Thank you very much and thank you for all the shareholders that are dialing in today and the analysts as well for the questions.
I'd like to just close by first thanking our customers our dedicated and committed customers for the work they're doing with Pheno.
In the marketplace, we continue to have tremendous impact on the lives of patients.
Through rapid I'd and susceptibility testing.
Want to recognize the great work of our employees every day day in and day out there showing up.
To really make a difference and for our shareholders to be committed as.
As we continue to build a great company.
We have three clear priorities one is to make.
The BD partnership a wild success.
Globally.
As I said in my remarks, we're well on our way to doing that we couldnt ask for a more tremendous partner then BD.
And we're well on our way to to really getting of successful commercial plan launched with BD.
The next area is to deliver on our next generation innovation milestones. We continue to make really good progress. There. We have alpha units were up to about eight alpha units here.
In Tucson, we look to be running.
Assay development and moving hopefully to clinical studies here.
Over the next year and then lastly, as Steve mentioned, we will be and are addressing our near term debt overhang and that continues to be a work in progress and we hope to bring that to resolution very soon so anyway with that I'll end the call. Thank you again for your support.
And <unk>.
Look forward to good things here moving forward with accelerate thanks, a lot bye bye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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