Q2 2023 Accelerate Diagnostics Inc Earnings Call
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Good day and welcome to the accelerate Diagnostics, Inc. 2023, Q2 results conference call.
Today, all participants will be in a listen only mode.
After todays presentation, there will be an opportunity to ask questions. During the second. Please note. This event is being recorded I would now like to turn the conference over to Laura Pierson of accelerate diagnostics. 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 of the Securities Act at 1933 and section 21 E and 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 31, 2022, and other reports we file with the SEC.
<unk>.
It is my pleasure to introduce the company's president and CEO Jack <unk>.
Thank you Laura good afternoon, and welcome to our second quarter earnings call today's call will focus on our second quarter results and include several updates on our strategic priorities My commentary will focus on our top three strategic priorities.
First I would like to review our innovation advancements with our next generation susceptibility platform wave.
Our second priority is to continue to grow market share through our becton Dickinson partnership with Pheno and our sample preparation instrument arc.
And finally, continuing to build financial strength, which I'll touch on closing out our debt restructuring transaction and reducing our cash burn.
Before I discuss these important strategic priorities further I'd like to hand, it over to our Chief Financial Officer, David patients to review, our preliminary second quarter financial results David.
Net sales were approximately $2 9 million in the second quarter and $5 7 million year to date. This compares to approximately $3 nine and $6 8 million for the same periods in 2020 to.
The decrease in revenues were driven by a few large capital deals in the prior period, which did not repeat in the current quarter.
Cost of goods sold or $2 1 million and $3 9 million year to date, resulting in a gross margin of 27% for the quarter and 32% year to date. This compares to cost of goods sold of $2 8 million and $4 9 million and gross margins of 28% for the prior period.
Yeah.
The decline in cost of goods sold was driven by fewer pheno capital instruments as discussed.
As well as a reduction in equity based compensation.
Selling general and administrative expenses for the quarter were $7 6 million and $17 7 million year to date.
This compares to $11 5 million and $22 2 million for the prior period.
SG&A expenses, excluding noncash stock based compensation were $6 3 million for the quarter and $16 5 million year to date, this compared to $8 3 million and $16 5 million for the prior period.
The decrease in SG&A expenses for the current quarter were due to lower employee related expenses, while year to date figures included non reoccurring debt restructuring related transaction expenses research and development expense for the quarter was $5 8 million and $12 8 million year to date this compared to <unk>.
Seven 6 million and $13 6 million for the prior periods.
R&D expenses, excluding noncash stock based compensation was $5 6 million and $11 9 million year to date. This compares to 7.0 million and $12 7 million for the prior period. The decrease in R&D expenses was primarily driven by reductions in consulting spend.
Our wave program continues to advance through development.
Our GAAP net loss was 26 million for the quarter and 42.8 million year to date, resulting in a net loss per share of $2 and 36 months and $4 and 11% respectively.
Please note on July 11th we affected a 10 for one reverse stock split of the company's outstanding shares of common stock all shares and per share amounts have been retroactively adjusted for all periods presented to reflect the reverse stock split.
Our non operating expenses for the quarter were approximately $13 4 million, which included several notable noncash related expenses for our debt restructuring transaction.
Our net loss from operations, excluding noncash stock based compensation expense was $10 9 million for the quarter and $26 4 million year to date.
Net cash used was $15 2 million for the quarter and $28 9 million year to date, excluding cash flows from financing.
Notable drivers of increased cash burn for the quarter and year to date were professional and legal fees related to our debt restructuring transactions, we anticipate our quarterly burn to reduce in the third quarter and thereafter, we ended the quarter with cash and equivalents of $30 7 million.
Now back to you Jack.
Thanks, David now turning to our strategic priorities delivering innovation with our wave platform growing market share through our partnership with BD and finally building our financial strength.
First I will review the importance of our innovation with our next generation susceptibility platform wave.
Best understand our overall market opportunity, it's important to understand the total available testing market way.
Wave will be performing antibiotics susceptibility testing on positive blood cultures, or PBC and isolated colonies or sometimes referred to as isolates.
Positive blood cultures, which are taken directly from our PVC bottle or approximately 5% to 8% of any given labs testing volume.
While P. B C samples are lower volume. These samples are arguably the most critical samples in microbiology, because they provide actionable results for the patients who are in critical condition due to a blood stream infection.
Isolates on the other hand can be both high acuity and low acuity samples and represent nearly all other antibiotics susceptibility testing within the lab isolates or micro organisms, which come from any sample and are separated or isolated from clinical samples such as respiratory.
Gee I urine just to name a few.
Annually. There are over 130 susceptibility tests performed from isolated colonies and over 7 million tests from PBC samples globally.
Leveraging our deep experience in rapid susceptibility testing, we worked with customers to develop our next generation platform wave to build on our PBC testing menu and include the much higher volume segment of isolate testing on a single platform.
The wave system will offer a comprehensive test menu covering all susceptibility samples catering to diverse hospital antibiotic formularies and incorporating a central features to optimize workflow across laboratories with full random access for continuous sample loading wave scalability.
<unk> addresses the needs of various health care settings from small community hospitals to large academic centers and reference labs.
Speed is paramount and susceptibility testing and wave Swift results will establish a new standard for turnaround time empowering clinicians to respond within the same shift.
Moreover, waves competitive cost of goods sold ensures it will compete effectively with incumbent platforms aligning with existing lab budgets.
Over the past year, we have continued to validate waves critical product specifications with key clinical and lab stakeholders prospective customers confirmed our platform approach rapid turnaround times enable same shipped results and our planned extensive menu addresses formulary.
<unk>.
Our Gram negative PBC algorithms are near completion, we are running 1000 wave cards, a week on our fleet of Alpha a S. T modules with more than 100 million images taken to date to support algorithm development performance is meeting our expectations.
Our algorithms comprehend not only growth metrics of micro organisms, but also morphological contributions to each drug response enabled by our proprietary dynamic holographic imaging. This approach enables early and real time identification of resistant clones.
Which ensures both accurate and timely susceptibility test reporting.
We achieved this with our technology's ability to focus on a single cell morphology in real time.
These exciting program developments confirm waves ability to deliver comprehensive susceptibility testing in microbiology labs.
Our recent progress with the wave program reinforces our commitment to providing preclinical study readouts by year end followed closely by the initiation of clinical studies for subsequent FDA submissions.
Now turning to our second strategic priority, which is to continue to grow market share through our becton Dickinson partnership.
We continue to track our progress through two key metrics commercial reach which is tracked by the number of new sales opportunities into the funnel and sales effectiveness, which is measured by funnel progression and velocity to eventual close.
The U S. Commercial teams continued to integrate as evidenced by the growth of the combined portfolios new opportunities.
S. Commercial reach continues to be a strength with consistent growth of new opportunities coming into the funnel.
After just seven months into the partnership being launched we are pleased with the progress of the BD commercial team's ability to position fino within the breath of the combined bloodstream infection portfolio.
Additionally, in the second quarter, we saw more opportunities advance further in the sales funnel sales velocity is notably increasing with a couple of account closes in less than 90 days of the opportunity being created we're encouraged to see BD strong relationships being leveraged.
In the quick wins for the partnership.
The 13 newly contracted Pheno was for the quarter was our strongest quarter since 2021, and we continue to expect to deliver incremental quarterly placement growth.
As mentioned in our prior quarter earnings calls our EMEA commercial effort is more complicated given tender driven markets, which has led to a delay we continue to work collectively to rollout a simplified contract, which will allow BD to represent the full product portfolio in tenders. This approach.
It should improve both contracting and adoption rates as it will allow us to win not only new tender opportunities, but also be added to existing tenders. We remain enthusiastic about our automated arc system, which rapidly cleans up PBC samples to enable direct multi talk micra.
Oh identification to eliminate the overnight culture step we are currently seeing growing interest in the EMEA market through our BD partnership further in the U S. We are poised to initiate clinical trials in the short term to ensure a class II 500 10-K system is launched.
Next year in.
In summary, the BD partnership is progressing and we remain encouraged by the strong sales metrics and improved closes in the quarter. We expect this momentum to translate into increased placements and future revenues as we continued to bring new customers live.
Lastly, on our financial strength, we announced the closing of our debt restructuring late in the second quarter, which allowed us to extend our convertible debt maturities out three and a half years it simplified our capital structure and brought in new capital.
Moving forward as discussed in our prior quarter, we are focusing on improving operational efficiency and further reducing cash burn.
I would now be happy to answer questions from our analysts and should others on the call have any questions not addressed we would welcome you to send these questions or request a follow up meeting to investors at a X Dx dot com. Thank you.
Okay.
Thank you we will now begin the question and answer session and today's first question comes from Alex Nowak with Craig Hallum. Please proceed.
Hey, good afternoon, everyone. This is common Chamberlain answer Alex Thanks for taking my question.
First off can you give us the latest update on the pathway for arc approval.
I'm, assuming that the de Novo 500 10-K, but.
I'm getting off that what are some studies need to run with us as well.
Yes, Hi, Conor Thanks for the question sure sure thing so.
We are well underway with our planning for <unk>.
Clinical trial for arc in the U S. The clinical trial Hasnt started yet.
But we're in the process of identifying the sites, we have a clinical trial partner in place to help us manage that clinical trial as well. In addition, just over the past couple of weeks I've reviewed the clinical trial design as well and that we're ready to move forward with so things are coming into place.
Fairly rapidly with everything.
Everything we need to do to basically embark on a clinical trial, we expect the clinical trial to be.
Frankly pretty straightforward given given what we're what we're actually going to be.
Doing the clinical study on <unk>, which is a downstream aldi and ER and then were still looking to submit a successful clinical study.
And then a successful submission to the FDA by year end and.
Fully a rapid approval shortly thereafter.
Awesome very helpful.
Hmm.
What is what's the pathway for wave approval, what clinical studies, we need on that and do you have any timeline on that as well.
Yes, so sure so on wave.
As we mentioned in our prepared remarks.
We're making really good progress in many in many areas with regard to wave.
As we get closer to a clinical trial.
Trial <unk>.
First thing I would mention is we're first going to be proceeding forward with a preclinical study or trial ahead of that.
Just to confirm the results that we're seeing right now in the studies that we're doing relative to algorithm development. That's happening. The preclinical study we expect to happen before the end of the year be complete with that we will be then we also have again a partner already secured to help Manny.
<unk>, our clinical study and we expect that clinical study to start sharp shortly thereafter, the preclinical study so the clinical trial I should say, we will start shortly thereafter.
Likely in Q1 of 'twenty four is what were shooting for it will be a gram negative focused positive blood culture study and then we'll be preparing.
In parallel.
For our submission on positive blood culture Gram positive and then also isolates.
As a reminder, this system will for wave will do really is set to do isolates as well as positive blood culture and will be rapidly seeking to get approval.
For all of those type of combinations.
Excellent and then just one more can you give us an update on the competitive environment for these rapid Mike or these rapid microbiology systems.
You broke up a little bit there, but I think you said the competitive arena is that what youre talking about.
Just an update on the competitive environment for these rapid microbiology systems.
Sure that's what I thought you said sure no problem, so I mean, where were at right now.
Nearly embedded with BD and our partnership is going very well selling our complete bloodstream infection solution from end to end and that continues to go very well and the solution that we have with fino continues.
<unk> continues to resonate in the market rapid.
Positive a rapid identification with ASM.
S T only as well as our not launched in the U S of course, but in Europe and that continues to resonate very well.
Yes, we as we expected emerging competitors are coming.
We've seen them in Europe , a bit not so much in the U S. Just because of clearance timelines and we're very confident in our menu. We're very confident in the 80 plus studies that we already have published on fino the confidence that our current customers haven't fino.
So while I think competition overall was a very good thing for any market actually.
It will make us better make us stronger and in essence, I think we're well well suited especially with our partnership with BD to compete with the emerging competitors.
Awesome got it.
Well, that's all I got thanks for taking my questions guys. Thanks.
Thanks Connor.
The next question is from Andrew Brachman with William Blair You May go ahead.
Hey, everyone. This is Justin on for Andrew Thanks for taking our questions.
First question on the BD partnership just wondering what the status is and cross training of the sales team there and.
And how the synergies in Belgium, there is translating into some reductions in operating expenses and if those are tracking to your thoughts on the sorry the partnership.
Perfect.
Take the first end of that and let David take the second part of the question around <unk>.
Cash burn reductions and so forth so.
First of all let me touch first on the U S. We are fully trained we fully trained the entire U S organization within BD in.
Just a reminder, I mean becton Dickinson is one of the largest microbiology and diagnostic companies in the world. So they have a lot of sales reps a lot of marketing regions et cetera. So it's it's a comprehensive organization.
We've had a very successful trainings in the U S.
Have all the marketing materials in.
In their hands, we have ongoing training as well so we've done.
Initial training and then we're doing ongoing training on a regular basis out in the field.
We have also online learning sessions, as well and overall going very well in Europe .
<unk> taken a bit longer and it's just really because of the nature of Europe with the many countries.
There are many different languages.
Et cetera et cetera, So we've been training in Europe , and we're about complete in the initial training in Europe for most all of the countries in the wave one cycle that will be focused on and Thats complete.
We also plan to do ongoing follow up training and all of those countries as well.
As we come up to speed and start start ramping up our efforts.
But overall again I think the training has been going very well not only for fino anarch, but also the over arching strategy for BD, which is their bloodstream infection strategy that really focuses on a comprehensive solution for bloodstream infections across the.
The continuum of care from sample collection through.
Through blood culture through identification and then ultimately rapid susceptibility with Pheno. So all of that's coming together as well thats new for the BD sales team as well as Benno and I got to say we're really.
Really happy with.
While it's taken a while to get it off the ground, we're really starting to see great activity as I mentioned in some of the remarks I mean, we've got really good activity going on we definitely need to put more closes on the board, but we.
We had the best quarter, we've had in quite a long time in Q2, and we look look for better quarters moving forward and then your second part of the question on the <unk>.
How is this doing relative to cash burn I'll turn it over to.
To David for that one.
And as it relates to the cash burn and the reductions thereof, and SG&A about this time last year, when we announced a restructuring of our commercial organization in the United States to reflect the selling strategy, we're going to implement with BD and so with that it would be a focused effort and the accelerate commercial organization to support the.
Commercial reach that BD brings and to have accelerate bring on in commercial and selling effectiveness to bring opportunities further and further into the funnel to close and so with that we had a restructuring back in August of 2022, and with that those numbers were a bit muddied in the first quarter of this year due to SG&A related.
Expenses to the debt restructuring transaction the debt restructuring transaction did close in the second quarter, but the accounting for those fees related to professional and legal fees of the debt restructuring went into debt and equity issuance costs and so year to date figures reflect legal and professional services from our transaction, but the second quarter.
Figures are more a cleaned if you will to give you a further run rate and then a noncash stock adjusted basis of that SG&A spend and so looking at the second quarter number is a cleaner way to look at it and then understanding that these expenses are one time non reoccurring to the transaction give you kind of a fall.
Looking number that we're looking to operationally.
Improve on a go forward basis, and so with that taking a step back.
Having the transaction behind us and furthering the wave development program allows us to lower our spend with third parties and so moving forward, we anticipate our cash burn to materially come down over just the next quarter or the.
The rest of the year as well as into 2024.
Understood appreciate the color there.
And second question, we've been hearing a lot from our competitors on on turnover.
Absent hospitals in terms of staffing.
Just wondering.
Is there any derivative impact you guys and.
The conversations Youre, having with lab directors, there or you are not really exposed to that as much.
Yes, so a great point and the answer is yes, we see this we see that as well theres an incredible amount of turnover.
<unk> COVID-19 within healthcare in general and definitely in the laboratories.
At both both the staffing level.
<unk>.
The microbiologist and the other lab technicians, it's there and it's also at the management and senior management level and so that is challenging for sure. It's definitely something that it slows down go lives. We've had a couple of go lives that did not go live in the quarter.
Because of.
Management change.
And the key champions that were part of.
Part of the fino or accelerate implementation with us in BD.
Change, but those are those are still going to be on track. Its just delayed because of a new microbiology manager or lab director.
Being being replaced or leaving.
So we're seeing that turnover I have I do expect it to settle down I mean, thats, what typically happens and I expect it to get back to more normal.
But it's something that we continue to address.
In some cases it does create new opportunities for us as you know lab directors move from site to site and their proponents of rapid susceptibility.
And fino in BD et cetera. Those are also positive examples to where this where change within the laboratory can be good and we've seen some of that as well where we've seen change in new directors come in that that really know the value of rapid susceptibility in and fino.
We immediately have a sales opportunity overnight. So I think it goes both ways, but it is definitely something that we.
We continue to address on a daily basis out in the field.
Understood.
Last question for US just on the reintroduction of our when that eventually comes to the U S market, how impactful do you think they should be.
Eventually driving momentum with BD.
Once this occurs.
I mean, we're very bullish on the value proposition for arc.
So as becton Dickinson and as well as.
No. Other people that are focused in the multi sector. I mean, I'd say just a reminder of what Ark is arc addresses a real unmet medical need within microbiology there.
There are about.
There is.
I mean over 10000 multi platforms place globally in laboratories today it was.
Great.
Great Advancement in technology in microbiology for a number of reasons, it's very cost effective to run multi.
It's a it's a very very wide range menu that multi produces.
Fairly easy to use.
Good results and.
And so it's a it's well planted in microbiology, but one of the drawbacks. It's been a real drawback from from day. One is if you want to run.
Do you want to run a rapid identification off of Mali.
It's just not possible in the current state without doing something different because today multi identification is run through our first performing an isolated colony and and then spotting spotting multi from there.
What arc does is arc automate that entire process in two steps in about one hour and allows you to then plate plagued a multi platform and get your result in the same shift.
So when we came on the market in the U S.
We saw immediate interest uptake.
We had significant number of evaluation signed up and.
And Thats only while the as we've talked I mean were going back and getting a a class two.
Our class II claim from the FDA, Indiana that will that will actually be that that will be a favorable feature to have a favorable claim to have a valid more of a validated platform out in the market the.
The unfortunate thing it just takes time to go through the clinical trials as I mentioned earlier here and then ultimately through FDA clearance, but we are very excited about this and we believe it's going to be a good alternative for customers globally.
Two really that are seeking a rapid identification off of multi.
Understood. Thanks for taking our questions.
This concludes our question and answer session I would now like to turn the conference back over to Mr. Jack Phillips for any closing remarks.
Yes.
Thanks, I appreciate it Chris.
So just a couple of things from my side in closing first of all thanks for dialing into our Q2 earnings call. It is greatly appreciated.
Just a couple of things to highlight as we think about our strategic imperatives that we've highlighted today.
First of all our next generation platform wave.
<unk> continues to.
We continue to make really good progress and hit our milestones on this platform.
It is a platform that will open up a much much larger market within microbiology it will be the platform that will perform.
Isolates.
Which as I mentioned is over 100 million tests globally, and that's going to be very important and a very important segment for us to address things continue to go very well with wave in and as I mentioned, we will not only have whey isolates on the platform will also have positive blood on a single platform.
Random access scalable. So this platform will fit in community hospitals, but also reference labs and regional regional labs as well as academic centers. So it is truly a scalable platform that is so important.
As you look at as you look at the entire health system, So more to come there and we finally, we continue to see very good quality performance on our initial studies that we've been going through.
Over 100 million images taken now.
Off of our 15 Alpha units that are running day and night in our laboratory here in Tucson.
And then the second thing I would say with our partnership with Becton Dickinson and our commercial effectiveness.
As I mentioned very large.
Very large microbiology company in BD.
They are a terrific partner.
And we've got it it's taken us awhile to get through training to get reps comfortable and confident in selling our rapid identification and susceptibility. We're getting there every day is a better day out in the field and in the market.
Our reach continues to grow and that means new accounts coming in the funnel continues to grow.
Our sales effectiveness is also improving our ability to actually bring fino into the overall bloodstream infection portfolio with BD.
That we are getting much much better at that as well and as a result, what we're seeing is we're really starting to advanced sales opportunities quicker.
And where we are in labs with their BD shops within within the hospital, we're advancing these opportunities much much quicker.
No.
This is work in progress that we continue to make progress on every day and we expect to see again continued good success. There and then the last thing I'd mention is <unk>.
Our financial strength as a company.
It's something David and I focus on frequently everyday.
Now have debt restructuring behind us, we're focused on reducing our burn rate.
We're focused on preserving cash everywhere, we can and then obviously revenues will will take care of that as well as we continue to increase revenues and drop margin to the bottom line.
So with that.
More to come and I appreciate you tuning into the Q2 earnings call today and again should you have any further on questions. Please contact us at <unk> Dot com and we're happy to schedule schedule follow on meeting. Thank you very much.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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