Q3 2024 Accelerate Diagnostics Inc Earnings Call

America's Postal Service

Speaker Change: Good day and welcome to the Accelerate Diagnostics, Inc. 3rd Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Speaker Change: Today's remarks will be followed by a question and answer session with Covering Analyst. And please note that this event is being recorded. I would now like to turn the conference over to Laura Pierson. Please go ahead.

Laura Pierson: Before we begin, it is important to share that information presented during this call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

Laura Pierson: Forward-looking statements include projections, statements about our future, and those that are not historical facts.

Laura Pierson: All forward looking statements that are made during this conference call are subject to risk, uncertainties, and other factors that could cause our actual results to differ materially.

Laura Pierson: These are discussed in greater detail in our annual report on Form 10-K for the year ending September 31, 2023 and other reports we file with the SEC.

Speaker Change: It is my pleasure to now introduce the company's President and CEO, Jack Phillips.

Jack Phillips: Thank you, Laura. Good afternoon, everyone, and welcome to our third quarter earnings call. We're excited to share some significant milestones from this past quarter, which underscores our commitment to advancing innovation, growing our market leadership, and securing long-term financial stability.

Jack Phillips: Beginning with an update on WAVE, we're pleased to report that our clinical trial for the WAVE system and gram-negative testing menu is on track with external site enrollments meeting our expectations.

Jack Phillips: The trial's clinical performance at all four external laboratories meets our expectations thus far. In addition, the WAVE systems are demonstrating strong reliability and laboratorians like the ease of use and workflow.

Jack Phillips: We anticipate submitting to the FDA in Q1 of 2025 with a review timeline of approximately nine months. The promising progress here reinforces our belief in WAVE's potential to significantly improve patient outcomes by enabling timely, accurate diagnostics.

Jack Phillips: Another major achievement this quarter was obtaining FDA 510k clearance for our Accelerate Arc system, including the blood culture kit.

Jack Phillips: This automated platform designed for use with Bruker's MALDI Biotyper CA system brings us a step closer to reducing diagnostic turnaround times in clinical settings.

Jack Phillips: The AHRQ system's streamlined workflow for microbial identification from positive blood cultures means clinicians can receive critical diagnostic information faster, which is especially vital for conditions like sepsis.

Jack Phillips: This, along with our future wave rapid susceptibility testing, supports our mission to enhance antimicrobial stewardship by accelerating appropriate therapy decisions.

Now turning to our commercial progress.

Jack Phillips: We also made strides in executing our commercial strategy, which focuses on three core pillars strengthening our leadership and rapid positive blood culture AST market disrupting the isolate susceptibility testing landscape and broadening our reach beyond the US and EMEA markets

Jack Phillips: During the quarter, we continued to sign contract extensions with U.S. customers, resulting in a significant number of committed customer contracts through the anticipated WAVE commercial launch.

Jack Phillips: Throughout customer discussions on WAVE, a focal point of conversations has been centered around rapid identification and AST workflows.

Jack Phillips: As a reminder, PHENO is an integrated identification and AST test, while WAVE is designed to be open to any identification method the lab uses for PBC samples.

Jack Phillips: Labs today utilize a wide range of systems for PBC identification, which primarily fall into two categories. One, multi-identification, or two, syndromic molecular PBC identification.

Jack Phillips: By moving our current customers to WAVE, we are creating an actionable market opportunity for rapid PBC identification adoption by assisting our current labs with their conversion to WAVE.

Jack Phillips: For the market segment already using MALDI, as we discussed in the past, the advantages for labs using MALDI for PBC-ID includes a broader menu, ease of use, and it is low cost once the MALDI system has been adopted by the lab.

Jack Phillips: That said, a major drawback of using MALDI for PBC-ID is that the process is mainly overnight unless the lab moved forward with adopting a rapid method, which are manual workflows and can create inconsistent and varying results between laboratory technicians

preparing these PBC samples.

Jack Phillips: With the recent 510K approval for AHRQ, labs now have a fully automated system to rapidly prepare PBC samples for ID at a cost-effective price point compared to existing syndromic molecular options.

Jack Phillips: We view the timing of the arc clearance as fortuitous given we now have a great opportunity to provide labs with cost-effective and automated sample preparation for rapid PBCID when looking to convert to WAVE.

Jack Phillips: Customers are excited about the opportunity to produce multi results rapidly by integrating Arc into their workflow with Wave.

Jack Phillips: The other portion of the PBCID market, Syndromic Molecular Platforms, is another large opportunity to pair with Wave Rapid AST.

Jack Phillips: Some customers already have a molecular platform on site which is used for other syndromic testing or have already validated running RapidPBC ID and see value in their decision.

Jack Phillips: Regardless, the lab has a low lift to bring on WAVE to complement their rapid ID workflow.

Jack Phillips: The second part of our commercial strategy is centered on the isolate susceptibility market, which further differentiates way from emerging competitors.

Jack Phillips: As we develop the future menu for WAVE, our ongoing dialogue with customers confirms

the demand for a unified AST platform.

which will consolidate lab testing volumes on a single platform.

Jack Phillips: rather than forcing labs to utilize multiple platforms for various specimens.

Jack Phillips: As a reminder, the Isolate Susceptibility Testing Market is approximately a $1 billion market and is ripe for innovation given aging legacy platforms on the market today.

Jack Phillips: The Wave platform is positioned to meet this demand by delivering a complete AST solution.

Jack Phillips: In addition to platform consolidation, customers desire same-shift reporting for all AST samples, which WAVE delivers.

Jack Phillips: And thirdly, in the future, we will be looking to bring WAVE to new markets and secondly, explore applications of our proprietary holographic imaging technology and other diagnostic fields.

Jack Phillips: These efforts further our goal to provide innovative and impactful diagnostic solutions globally.

Jack Phillips: In summary, we are highly encouraged by our progress in the clinical trial to date, as well as our commercial efforts, including the launch of AHRQ and the growing market interest in WAVE among both existing and new customers.

Jack Phillips: Our achievements in this quarter underscore our strategic priorities and reinforce our commitment to innovation and market leadership.

Jack Phillips: We're energized by the progress and look forward to building on this momentum in the coming quarters. Now I'd like to hand it over to David Patience, our CFO, who will take you through our financial performance for Q3.

Thank you, Jack, and good afternoon, everyone.

David Patience: Net sales were approximately $3 million for the quarter, which compares to approximately $3.3 million for the same period in the prior year.

David Patience: While we did see a decrease in overall net sales period over period, which was driven by lower instrument sales in the current quarter, net sales from consumable-related products increased high single digits compared to the same period in the prior year.

David Patience: Gross margin was approximately 29% for the quarter, which compares to approximately 3% in the same period in the prior year. Our increase in gross margin in the quarter was driven by both product mix as well as an inventory write-down in the prior period.

David Patience: Selling, general, and administrative expenses were approximately $5.6 million for the quarter, which compares to $7.8 million in the same period in the prior year.

David Patience: SG&A expenses for the quarter include approximately $1 million in non-cast stock-based compensation.

David Patience: The overall decline in SG&E expenses is the result of lower employee-related expenses.

David Patience: Research and development expenses were $3.8 million for the quarter, which compares to $7 million for the same period in the prior year. R&D expenses for the quarter includes approximately $200,000 in non-cash stock-based compensation.

David Patience: The overall decline in R&D expenses is a result of lower third-party related development expenses for our WAVE program.

David Patience: Our net loss for the quarter was approximately $14.6 million resulting in a loss per share of $0.59.

David Patience: Cash used for the quarter was approximately $5.5 million, net of financing activity.

David Patience: Our financing in the quarter includes proceeds from our note issuance, a refundable R&D tax offset, as well as proceeds from warrant exercises.

David Patience: As previously discussed, our cash burn target is approximately $5 million per quarter.

David Patience: With this burn rate and our current cash balance, we anticipate having sufficient operating cash through year-end 2025, assuming we receive contingent contractual payments related to our on-market third-party product partnership.

David Patience: In summary, we are pleased to deliver a strong reduction in cash use for the quarter while continuing to deliver on our key wave milestones.

Speaker Change: At this time, we are happy to open the call to take any questions from our covering analysts.

Speaker Change: Thank you and we will now begin the question and answer session with the covering analyst and our first question today will come from Andrew Brackman with William Blair. Please go ahead.

Speaker Change: Hi guys, this is Kate on for Andrew. Thank you so much for taking the questions. The first one for me may be just on wave

Speaker Change: Assuming all goes to plan on the clinical trial and approval, can you talk to us about how you're thinking about the steps required to convert your current pheno installed base over to WAVE? Specifically, does this happen quickly or what does that look like from a transition standpoint? Thanks.

Yeah. Hi, Kate. Thanks for the question.

Speaker Change: Yes, as I mentioned in my prepared comments, the WAVE clinical trial continues to go as planned. Enrollment is

Speaker Change: is on track and looking good. While we can't speak to the performance of the data because we're in the clinical trial, it is meeting our expectations and consistent with the preclinical study that we conducted ahead of the clinical trial.

Speaker Change: and customers are giving us, the clinical trial sites are giving us really good feedback on ease of use and workflow.

Speaker Change: To your question, we are very active in the market today with our current customers and with new prospective customers.

Speaker Change: around WAVE. We've had a plan in place for quite a while to continue to secure our longtime loyal customers the long-term contracts. We've done that.

Speaker Change: and how we'll look to transition those existing Pheno customers to Wave in the future when it's obviously on market and FDA approved.

Speaker Change: So, I would say that effort's ongoing. It's been ongoing a while and it will continue into 2025.

Speaker Change: until we have a successful launch of WAVE. Things are going well and we expect fully to convert the majority of our existing Fino customers to WAVE once we launch.

Speaker Change: Okay, great. Thanks. And then on AHRQ, I just wanted to ask one more. I recognize approval came just over a month ago, but can you talk about the commercial roadmap there and how we should be thinking about that ramping into revenue for 2025 and beyond? Thanks.

Speaker Change: Yeah, absolutely. So, yeah, we're excited about the launch of AHRQ. It really was a great submission, went very smoothly through the FDA. It was about a six-month process and we're really happy to be on market and FDA approved with 510K for AHRQ.

Speaker Change: As we get into the market now and we're, you know, launching the product with our partner BD

Speaker Change: It's still too early to provide guidance, forward-looking guidance regarding financial contributions that AHRQ will have. But I will say this, we fully trained the sales force.

Speaker Change: We have marketing plans in place. We've already started to work our funnels for AHRQ.

Speaker Change: And there's a lot of really good interest in the market. Customer receptivity is high.

and the value of ARC to really automate Maldi.

turn MALDI into a rapid...

Speaker Change: is something that's resonating quite well. So things are going well. The Salesforce is very excited about getting out and positioning Arc and early days it's very positive.

Speaker Change: That's really helpful, thanks. And then if I could just squeeze in one more for David, could you maybe just talk to us about expected cash usage moving forward a little more? I recognize there's still a couple months left in 2024, but any more color on how we should be thinking about 2025 would be helpful. Thanks.

Perfect. Thank you, Kate, for the question.

David Patience: Just focusing on the current quarter, we delivered a strong reduction in cash used for the quarter both year over year.

David Patience: and quarter over quarter, you know, while delivering on our strategic priorities with, as Jack

Uh...

David Patience: outlined in the prepared remarks is securing our current customer base and bringing them to WAVE and additionally by delivering strategic milestones with our WAVE program.

Speaker Change: And so, you know, where we are today, we continue to focus on $5 million a quarter on a go-forward basis. As Jack mentioned, this does not include financial contributions from AHRQ, just given it's a little early, you know, in the launch for us to include those in our cash burn forecast.

Speaker Change: And then cash used for the quarter, you know, I just wanted to point out we did have strong working capital gains Additionally, and we're proud to show that our cash used

Speaker Change: from operations with down over two million quarter over quarter so moving forward you know our care for cash is a critical component to our strategy while we deliver on these key value inflecting milestones.

Speaker Change: And so, you know, we see a $5 million per quarter use of cash on a go-forward basis. And with that, you know, we are focused on that every single day and delivering on that.

Okay, great. Thanks. That's all for me.

Speaker Change: And this will conclude our question and answer session. I'd like to turn the conference back over to Jack Phillips for any closing remarks.

Jack Phillips: All right, thanks Kate, William, Blair for the questions today. As we close out in summary, we are very pleased by the momentum we're building across our innovation pipeline here at Accelerate, starting with

the progress of the WAVE clinical trial to date.

and also the FDA 510K clearance of the AHRQ system.

Jack Phillips: Additionally, as I mentioned, our commercial efforts are happening and progressing very nicely and we fully expect to maintain our market leadership and rapid AST while always exercising discipline around financial management to enable our future runway.

Jack Phillips: I do want to take the opportunity to thank our employees here at Accelerate for their tremendous commitment to moving innovation forward and also to our customers who rely on us every single day to assist them in delivering life-saving diagnostics for those patients with serious infections.

Jack Phillips: I want to thank you all for joining the call today. Have a great day.

Speaker Change: The conference is now concluded. Thank you for attending today's presentation and you may now disconnect your lines at this time.