Q2 2023 T2 Biosystems Inc Earnings Call

Finally, we announced our intent to explore strategic options, including acquisition merger reverse merger other business combination sale of assets or licensing.

Which we continue to explore despite a significant improvement in our balance sheet since early may.

On our first quarter earnings call, we discussed raw material issues that had limited our ability to produce sufficient volume of sepsis test panels to meet customer demand.

As a reminder, this was identified during routine internal in process inspection, so product that was shipped to customers or distributors was not affected.

While we cleared the majority of the back order that existed at the end of the first quarter. We ended the second quarter with a back order of approximately $350000.

We've made significant changes that we expect to address and resolve the backward, including the hiring of a new vice president of operations.

Improvements to the controls around our manufacturing capabilities.

The advanced purchase of new critical raw materials.

And the engagement of a consultant with significant experience manufacturing our products.

We continue to have strong demand for our sepsis test panels from hospitals around the globe and we expect to resolve the back order to meet the current and future customer and distributor demand for our products.

Finally, I'd like to provide an update on our NASDAQ compliance plants then.

The NASDAQ stock market has rules that require all companies listed on the NASDAQ capital market to maintain a $1 minimum bid price and to maintain a minimum value of listed securities of at least $35 million.

On July six 2023, we participated in an appeal hearing with the NASDAQ and which we presented our plans to regain compliance with both the $1 minimum bid price and the $35 million minimum value of listed securities.

And we requested additional time to regain compliance with those requirements.

I'm pleased to report that the NASDAQ has provided <unk> biosystems with a formal response of proving our appeal and granting an extension to regain compliance until November 22023.

And we are executing on the plans that we presented to the NASDAQ.

Moving to our third priority advancing our pipeline our.

Our new product development priorities target sepsis, bioterrorism, and Lyme disease, which represent areas of significant unmet medical need and which rapid detection can lead to faster targeted antimicrobial treatment and improve patient outcomes.

Near term, we're prioritizing test menu expansion on our FDA cleared <unk> Dx instruments.

Longer term, we're developing a next generation instrument and comprehensive such as test panel.

We are developing five new products intended to expand the test menu on our <unk> instrument <unk>.

Including the <unk> panel the <unk> resistance panel the key to Lyme panel, a candida Auris test and the addition of an acinetobacter <unk> test to our existing FDA cleared <unk> bacteria panel <unk>.

Each new test panel or test represents a differentiated solution to rapidly identify harmful pathogens and potentially allow clinicians to achieve faster targeted anti microbial therapy.

We believe expanding the test menu with these five new products will increase both instrument adoption and test utilization.

The <unk> panel is a direct from blood molecular diagnostic test designed to run on the FDA cleared <unk> Dx instrument and simultaneously detect six bio threat pathogens identified as threats by the U S centers for disease control and prevention or CDC <unk>.

Including organisms that cause anthrax, tularemia, glanders plague and typhus.

If not treated promptly infections with these bio threat pathogens can result in mortality rates of 40% to 90%.

<unk> bio threat panel is able to detect these bio threat pathogens within four hours directly from blood and rapidly provide clinicians with the needed information to appropriately treat infected patients.

We believe the <unk> bio threat panel demonstrates very high sensitivity and specificity for a direct from blood multi target bio threat product and is the only such product developed by our U S owned company.

Which we think will be an important factor in the discussions with U S government entities regarding purchases of the <unk> panel.

We filed an FDA submission for five 10-K clearance for the <unk> panel in early May 2023.

We are actively engaged with the FDA on our submission and we anticipate a positive outcome.

The teacher resistance panel is a direct from blood molecular diagnostic test designed to run on the FDA cleared <unk> Dx instrument and simultaneously detect 13 antibiotic resistance genes known to cause antibiotic resistant infections in just three to five hours without the need to wait days for.

A positive blood culture.

The teacher resistance panel, which is marketed and sold in Europe under CE, Mark detect resistance genes that may confer resistance to common antimicrobials, such as carbon atoms methicillin and vancomycin.

We've advanced the U S clinical trial, including completing patient enrollment and we plan to file an FDA submission for five 10-K clearance after completing additional internal testing, including stability testing.

As a reminder, the teacher resistance panel was granted breakthrough device designation by the FDA.

Which provides for a prioritized review process upon submission.

And has received funding under our contract with BARDA.

The Candida Auris test as a direct from blood and molecular diagnostic test designed to run on the FDA cleared <unk> Dx instrument and detect candida auris species in just three to five hours.

Without the need to wait days for a positive blood culture.

Candida Auris is a multi drug resistant fungal pathogen that has a mortality rate of up to 60% and is recognized as a serious global health threat by the CDC and the World Health organization.

Canada is difficult to identify with standard laboratory methods, which can lead to inappropriate treatment.

CDC estimates the costs associated with U S bundled diseases in general are as highest $48 billion annually and has called on public health professionals to help lower the burden of bundled disease by continuing to raise awareness of the life threatening benefits sorry lifesaving benefits of early detection.

And proper treatment.

As a reminder, we currently market and sell the <unk> candidate panel the only FDA cleared diagnostic test able to detect sepsis, causing fungal pathogens directly from blood and just three to five hours without the need to wait days for a positive blood culture.

The TQ Candida panel runs on the FDA cleared <unk> Dx instrument and simultaneously detects five candidates species, including Candida Albicans, Canada Tropic callous.

Kind of perhaps <unk>, Canada, <unk> and Canada good Brian .

Rapid detection of these pathogens as well as Candida Auris is essential to getting infected patients on targeted antifungal therapy and improving patient outcomes.

Pleased to report that we recently received FDA breakthrough device designation for the Candida Auris test, which provides a greater and more frequent access to the FDA and may accelerate our path to FDA clearance.

The Acinetobacter <unk> test as a direct from blood molecular diagnostic test designed to run on the FDA clearance of <unk> Dx instrument and detect acinetobacter Bahmani ang in just three to five hours without the need to wait days for a positive blood culture.

We plan to add the acinetobacter Bahmani, a test to our FDA cleared <unk> bacteria panel to expand our pathogen detection capabilities the.

The addition of Acinetobacter Bahmani I will increase the detection capabilities of the bacteria panel to approximately 75% of all sepsis, causing bacterial infections, commonly found in blood culture.

<unk> can cause bloodstream infections, especially in critically ill patients, which range from benign transit bacteremia the septic shock.

And has been reported to have accrued ICU mortality rate of 34% to 43%.

Acinetobacter infections rarely occur outside of health care settings in the United States and can disproportionately impact those with weakened immune systems chronic lung disease or diabetes.

Acinetobacter can be resistant to many antibiotics, including carbo <unk>, highlighting the importance of rapid detection and targeted antimicrobial treatment.

We believe that we have sufficient data to file an FDA submission for five 10-K clearance and we plan to file that during the second half of 2023.

The tissue line panel as a direct from blood molecular diagnostic test designed to run on the FDA cleared <unk> Dx instrument and detect <unk> door prime the bacteria that is the major cause of Lyme disease in the U S.

The tissue line panel is intended to test individuals' with signs and symptoms of Lyme disease and aid in the diagnosis of early Lyme disease and.

And we believe it will provide a significant advantage over the currently recommended serological testing that requires the presence of antibiotics, which can take the body four to six weeks to create post infection.

In 2022, our tissue line panel was named a winner in the line innovation accelerator for our Wimax a partnership between the U S Department of health and human services, and the Stephen and Alexander Colon Foundation, the largest public private partnership for Lyme disease. The plans to award up to a total of $9 million the future Award.

Winters.

We also received FDA breakthrough device designation for the T. Two line panel, which allows for a prioritize review process upon submission to the FDA.

We have completed the early assay development for the <unk> panel and we established a preliminary level of detection of two <unk> per ml.

We believe we plan to initiate commercialization of the <unk> panel as a laboratory developed test and subsequently commenced a U S clinical trial to support submission for five 10-K clearance.

Looking ahead at longer term products.

We are developing a next generation instrument and a comprehensive sepsis test panel.

The next generation instrument is designed to increase the number of Detections from a single whole blood samples.

The comprehensive test Subsys test panel as a direct from blood test panel designed to detect greater than 95% of all bloodstream infections caused by bacterial and candida species and antibiotic resistance genes identified as directed by the CDC and a single test with a time to result of approximately three hours.

The next generation instrument and comprehensive Subsys test panel have been funded under our contract with BARDA.

With that I'll now turn it over to John Sprague to provide a detailed update of our second quarter financial results and our updated financial outlook for 2023 John .

Thank you John .

Second quarter, 2023 revenues were $2 million and 67% decrease compared to the prior year period, driven by a $3 4 million reduction in BARDA research contribution revenues and lower COVID-19 test sales.

<unk> test panel sales were $1 3 million a.

A 7% increase compared to the second quarter of 2022.

Second quarter 2023 cost of product revenues were $4 9 million, a 4% decrease compared to the prior year period, driven by lower COVID-19 test sales.

Research and development expenses were $3 9 million.

52% decrease compared to the prior year period, driven by decreased BARDA contract activities, selling general and administrative expenses were $6 3 million a.

A 20% decrease compared to the prior year period, driven by decreased medical affairs spending.

In May 2023, we initiated a workforce reduction of nearly 30% across production research and selling general and administrative groups that will reduce our future expenses.

The second quarter 2023, net loss was $6 $3 million eight per share compared to a second quarter 2022, net loss of $18 million $5 10 per share.

Cash and cash equivalents were $16 $1 million as of June 32023 in the second quarter, we raised $18 $5 million net through the ATM facility and we have raised an additional $10 9 billion net through the facility in the third quarter.

In June 2023, CRT converted 10 million approximately 20% of its outstanding debt to common and preferred stock strengthening our balance sheet and improving our cash flows.

The preferred stock will convert to common stock in the third quarter of 2023 subject to shareholder approval.

We now believe the U S launch of the <unk> resistance panel will occur in 2024, and we expect total 2023 sepsis and related product revenues of $9 five to $10 5 million.

Representing growth of 13% to 25% compared to 2022.

We expect second half sepsis and related product revenue to be skewed to the fourth quarter. We anticipate no revenue from BARDA. During the second half of 2023, Thank you and back to John's personal for closing remarks.

Thank you John we achieved key milestones across our three corporate priorities during the second quarter of 2023.

Commercially we received record quarterly Subsys test panel orders and received the second largest substance driven <unk> Dx instrument order in company history.

Operationally, we significantly improved our cost structure and strengthened our balance sheet.

Implemented a plan to eliminate the product back order.

And we are executing a plan to regain compliance with the NASDAQ listing requirements.

Scientifically we advanced a number of new product initiatives that have all received FDA breakthrough device designation, including the teacher resistance panel, the <unk> panel and the Candida Auris test.

We view this as recognition from one of the most stringent regulatory agencies in the world that our products have a unique ability to positively impact healthcare.

We believe that applying our patented technology to these three areas Subsys bioterrorism, and Lyme disease, which represent multibillion dollar market opportunities presents a significant opportunity to create shareholder value.

I'd like to turn the call back to the operator to open the line for questions operator.

Thank you at this time, we will be conducting a question and answer session.

If you would like to ask a question. Please press star one on your telephone keypad.

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Once again, please press star one if you wish to ask a question at this time.

One moment, while we poll for questions.

And once again Thats star one if you wish to ask a question at this time.

First question today is coming from Ben Hayner from AGP.

Your line is live.

Good afternoon, gentlemen, thanks for taking the questions.

First off for me on the Vanderbilt collaboration.

Thank you you correctly that they already have a protocol established for that study and then.

It sounds it sounds like maybe they already have and then if I heard that if I caught that right.

You mentioned 37, our SaaS or is that correct.

Ben There is a protocol for the Vanderbilt study to be 37, our.

Faster than blood culture based method was based on a study at Butler Hospital.

So those were two separate things both of them very favorable and positive.

Yes, okay.

And just I know, it's always hard to gauge when.

Data might be published or a study might be published on this but do you have a sense of.

How quickly things can come out of that collaboration.

On Vanderbilt not yet.

We're obviously pretty excited about it and once we have a line of sight, we'll share that.

Okay, and then obviously the clinical data library continues to build.

Is there anything that you see out there.

It all really validating that could wind up in the clinical data library or is there anything I guess another way of asking it.

Is there anything that you feel like im missing that would really push potential customers over the edge.

Two adults institutions.

The three common denominators that we see in clinical studies that we participate in or done independently by investigators are faster time to pathogen detection.

<unk> time to targeted therapy and reduced length of stay in the hospital or ICU, we saw that in a peer reviewed journal where.

Meta analysis, we've done 14 independent studies.

The results were very consistent with our clinical trial in all the studies that we've seen out in the fields.

Okay got it and then on the.

On the gross margin.

You've had some some issues there with raw material availability.

Thanks.

<unk>.

What can that look like as you get some of these things figured out on a marginal basis.

What was the gross margin gross margin look like.

As you get this figured out.

John spread can you take that.

Yes, so Ben our contribution margins Thats.

Net sales less direct labor indirect materials are in the 70% to 80% range for these tests.

And our overhead as we've recently reduced with the with the restructuring in May.

We will be steady going forward, we havent disclose at that level of granularity, but I think if you strip out the material challenges we had in the first quarter youre going to see the margins quick.

Quickly turning to positive.

In the.

In the future.

Okay got it.

Lastly for me you mentioned the preferred converting to common I think in the current quarter.

Do you run into any share count.

Limitations on.

On that front or how does that occur.

So when we look at the debt.

<unk> held.

Prior to the convert it was approximately $50 million approximately $10 million was converted into equity or portion of that was in common stock a portion of that is in preferred stock the preferred.

<unk> will convert to common subject to stockholder approval at the stockholder meeting on September 12.

Okay.

And then presumably would take place.

Post reverse split or at the same time.

If a reverse split is true.

All of the caveats necessary.

That's all subject to stockholder approval.

Okay.

Well, thanks for taking the questions guys. That's.

That's it for me Thank you Ben.

Thank you Ben.

Thank you once again, if there are any other questions. Please press star one on your phone at this time.

Please hold while we poll for questions.

And there were no other questions from the lines at this time I would now like to hand, the call back to John <unk> for closing remarks.

Thank you all very much for joining our second quarter 2023 earnings call. We look forward to updating you as we progress with the business.

Have a great night.

Thank you. This does conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.