T2 Biosystems, Inc.
Q4 2021 Earnings Call Transcript

Published: 17 Feb 2022

[Operator:]

Hello, and welcome to the T2 Biosystems Fourth Quarter and Full Year 2021 Earnings Call and Webcast. . As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Philip Taylor, Investor Relations. Please go ahead.

[Philip Taylor:]

Thank you, operator. I'd like to remind everyone that comments made by management today and answers to questions will include forward-looking statements. Those include statements related to T2 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 the actual results to differ materially from those expressed or implied by these statements, including the risks and uncertainties described in T2 Biosystems' annual report on Form 10-K filed with the SEC on March 31, 2021, 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 Sperzel. John?

[John Sperzel:]

Thank you for joining our Fourth Quarter and Full Year 2021 Earnings Conference Call. Today, I will highlight the company's strong performance in 2021, provide details on the progress across our 3 corporate priorities and share our 2022 priorities. I will then turn the call over to John Sprague, our Chief Financial Officer, who will review our fourth quarter and full year 2021 financial results and share our 2022 financial guidance before I make some closing remarks and we open the call to questions and answers. In 2021, the T2 Biosystems' team generated total revenue of $28.1 million, including product revenue of $16.6 million, representing growth of 55% and 43%, respectively, compared to the prior year. We entered into contracts for 32 T2Dx Instruments in 2021, including contracts for 17 instruments during the fourth quarter, which exceeded the expectations we set at the beginning of the year. We have made considerable progress across our 3 corporate priorities

[John Sprague:]

Thank you, John. Total revenue for the fourth quarter of 2021 was $7 million, a decrease of 10% compared to the prior year period, driven by increased sepsis panel test sales and BARDA contract activities, offset by decreased COVID-19 test panel sales. Product revenue was $4 million, a decrease of 31% compared to the prior year period. Research and contribution revenues were $3 million, an increase of 52% compared to the prior year period. Product costs for the fourth quarter of 2021 were $5.4 million, a decrease of $2.1 million compared to the prior year period, driven by decreased COVID-19 test panel sales and manufacturing cost efficiency initiatives. Research and development expenses were $5.4 million, an increase of $1.6 million, driven by increased BARDA contract activity. Selling, general and administrative expenses were $6.5 million, an increase of $1.7 million, driven by increased commercial and medical affairs head count. Net loss for the fourth quarter of 2021 was $12.1 million, $0.07 per share, compared to a net loss of $9.9 million, $0.07 per share, for the prior year period. Cash, marketable securities and restricted cash were $33.8 million as of December 31, 2021. We did not use the ATM facility in the third or fourth quarter of 2021, and we have used it minimally in 2022. CRG has extended the interest-only period and loan maturity to December 31, 2023, and we are in compliance with the remaining covenants of the loan agreement. Total revenue for 2021 was $28.1 million, an increase of 55% compared to the prior year, driven by increased sepsis test panel sales and BARDA contract activities, offset by decreased COVID-19 test panel sales. Product revenue was $16.6 million, an increase of 43% compared to the prior year. Research and contribution revenue was $11.4 million, an increase of 77% compared to the prior year. Product costs for 2021 were $20.7 million, a decrease of $600,000 compared to the prior year, driven by decreased COVID-19 test panel sales in manufacturing cost efficiency initiatives. Research and development expenses were $21.8 million, an increase of $5.7 million, driven by increased BARDA contract activity. Selling, general and administrative expenses were $28.5 million, an increase of $6.4 million, driven by increased commercial and medical affairs head count. Net loss for 2021 was $49.2 million, $0.31 per share, compared to a net loss of $46.8 million, $0.39 per share for the prior year. As we previously disclosed, we are not in compliance with NASDAQ's $1 listing requirement. We plan to regain compliance by executing on our operating plans and organically drive our share priced to compliance, and we currently have no plans for a reverse stock split. We expect full year 2022 total revenue of $28 million to $31 million, including product revenue of $16 million to $17 million and research and contribution revenues of $12 million to $14 million. We expect to close 60 to 70 T2Dx Instrument contracts in 2022 and COVID-19 revenue to decrease from $9.5 million to $3.5 million. Thank you, and back to John Sperzel for closing remarks.

[John Sperzel:]

Thank you, John. We made meaningful progress across the business during 2021, and as expressed in our financial outlook, we're confident in our ability to build on this momentum. As we look ahead in 2022, we believe there are numerous catalysts to create value for stakeholders, including plans to double our T2Dx Instrument placements and sepsis test revenue compared to last year; expand our international distribution network; build a world-class scientific advisory board and increased awareness of our sepsis products through key opinion leader engagement; generate additional evidence to support the clinical and economic value of our products; complete the U.S. clinical trials for the T2Resistance Panel and T2Biothreat Panel; and file submissions with the FDA and advance the next-generation instrument and comprehensive sepsis panel under the BARDA contract. We're off to a great start in 2022 with strong demand for our T2Dx Instrument and test panels. We've entered into 8 instrument contracts in the U.S. in the first 6 weeks of the year, and our team has a strong sales funnel. We're extremely excited about the future for T2 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?

[Operator:]

. Our first question today is coming from Kyle Mikson from Canaccord Genuity.

[Kyle Mikson:]

Congrats on the quarter and the year and the guidance. So I wanted to just focus on the guidance first. The 60 to 70 placements, I think that would be the highest in the company's history, I believe. Basically, except -- it implies you're going to see this fourth quarter level to persist throughout 2022. Just wondering what gives you the confidence that those placements will be more than double '21 levels? And if you could tell us what the pacing of the instrument placements that are kind of baked into the guidance, and then the rough mix of like U.S. versus OUS, that would be good.

[John Sperzel:]

Sure. I'll start that, Kyle. And Brett Giffin, our Chief Commercial Officer, is on the call, who may want to weigh on this as well. We expect the pacing to be about 48% front half, 52% back half and similarly, distributed within each half quarter-by-quarter. So kind of 48% of the 48% Q1, 52% of the 48% Q2 and so on and so forth. Our confidence level was driven by a number of things. First, it is a substantially larger sales team than we had in the past, and that's something I'm sure Brett will want to comment on as well as the rider we're putting around the sales process, the forecasting process and funnel management process as well as the fact that we have significantly expanded internationally, and we expect to continue to do that. On top of that, we see COVID being more under control, both outside the U.S. and within the U.S. during 2022, and that creates more opportunity for our sales team to get into more accounts. So Brett, would you like to add anything to that?

[Brett Giffin:]

Yes. Sure, John. Thank you. As John mentioned, the sales funnel is quite strong, both in the U.S. as well as internationally. And I think in the U.S. specifically, as was mentioned, we embarked on an aggressive headcount addition sort of in the latter part of 2021, which now has carried us early into 2022. And I think in the hiring of that, we've been -- I think we've been very diligent about, a, the types of people we're bringing in, folks that have a significant amount of experience, being able to work multiple departments in addition to the laboratory. We've doubled down on that quite a bit, as John mentioned, through some very extensive and very in-depth sales process. We've engaged in a program called Force Management that we've trained the team down to very -- a serious amount of rigor around qualifying accounts, developing champions and accounts, forecasting accuracy, all of that. And what's -- and on top of that, we've been very aggressive in the targeting effort again in the U.S., where A lot of our team is targeting not -- we're certainly continuing to work a lot of the larger institutions, but we've added to that a significant amount of focus on medium and even some smaller

[Operator:]

Ladies and gentlemen, please standby. We're expecting some technical difficulty. Please carry on. Hello, speakers, I believe we're having some technical difficulty with Mr. Giffin's line. So I just have him muted on my end to stop that noise.

[John Sperzel:]

Sure. Kyle, would you like a follow-up question?

[Operator:]

Our next question is actually coming from Mark Massaro from BTIG.

[Mark Massaro:]

John, can you hear me okay?

[John Sperzel:]

Sure can.

[Mark Massaro:]

Yes. So I wanted to ask if you guys could maybe help me parse out how much -- I totally saw your COVID guidance for the year, down $6 million to $3.5 million. And so you did a nice job of laying things out. I guess, my question is, what are you assuming for sepsis product revenue for 2022? I'm coming up with something around $8 million to $10 million or so, which is like growth of 60% to 80%. I guess that all depends on the AUPs of your instruments. And so that kind of piggybacks on Kyle's question about mix of systems, OUS, U.S. Anyway, is my $8 million to $10 million in the right ballpark? And what do you think it will take to help drive that utilization, which really marks an acceleration compared to 2021.

[John Sperzel:]

So we think that our sepsis test revenue, just the test revenue will grow from $5.1 million, which is where we ended 2021 to $10.2 million in 2022. So that's where we talk about doubling our sepsis test you may not have been able to hear some of Brett's comments, but in terms of the mix of the instruments in our guide, we expect them to be even in terms of within the United States and outside the United States.

[Mark Massaro:]

Okay. Understood. And then what are you guys seeing with respect to hospital access? I've recently, in the last 2 weeks or so, have heard some positive things from some other players in the space. But I would love to hear like what the hospital lab access looks like now here in mid-February compared to like the end of December.

[John Sperzel:]

We think it's very good. In fact, it was even good for our team in December. We have had pretty good access since the second half of 2021. So we thought last year that we'd start to see access opening up around July. And it was a couple of months later than that, but we've had good access through the back half, and we've had excellent access through the early part of '22. That's also part of what gives us confidence that greater access means greater sales opportunities and with the rigor that Brett has put into the sales team that gives us confidence overall in the instrument number. And as I said earlier in the prepared remarks, we're off to a good start. We already have 8 contracts side in the U.S. in the first 6 weeks and expect a lot more before the end of the quarter.

[Brett Giffin:]

This is Brett, by the way. I'm sorry. I think I'm back. Apologies for my volume problem there before. So yes. Thanks, John. So -- yes.

[Mark Massaro:]

No worries, Brett. Yes, I was just wanted -- my third question is on the sales territories, I think you said 20 up from 2. Are all those sales territories filled? And then have these folks been trained? And like what is your expectation on -- sometimes it takes one or two quarters for people to ramp. How should we think about the new reps contributing to the top line?

[Brett Giffin:]

Sure. John, I'm happy to take that one, if you'd like me to.

[John Sperzel:]

Sure, Brett.

[Brett Giffin:]

Yes. So actually, very -- it's been a very positive picture. So to answer specifically, we have the 20 territories. We currently have -- we currently have 7 team that are filled as of the 17th this week, and we have aggressive recruiting activities, which we expect to get the other 3 in place here relatively quickly. So -- and to your question about the training, what we've -- we do a combination of things. Clearly, we obviously significant time with folks right in the beginning. And from a product and technology training perspective. But then what we did additionally, as I was mentioning earlier, again, apologies, hopefully, you could hear me talking about it. But we invested in a program called Force Management. That's very much a sales qualification, very metric-driven a very detailed program that gives us a common language that we speak all through the management ranks and the sales team in terms of qualifying opportunities, their stage, likelihood of closes, all of that. So we've trained the team on that. And to your last part of it, I think -- yes, I mean, I think the general expectation is that it takes some amount of time for a salesperson in a territory to impact. However, what I'm really pleased to report, we've seen. And I think part of this has been through some of this enhanced targeting we've done with a wider array of hospitals, but we've had some really fantastic closes early in the year and been done by people who started as late as sort of in the August, September, even in the October time frame. So we're finding that we're having success with people that normally, where you would assume a couple of quarters are having success really quick with like within a quarter, which is very encouraging.

[Operator:]

Our next question is coming from Ben Haynor from Alliance Global Partners. .

[Benjamin Haynor:]

Congrats on the progress. Just first off for me, on the regulatory front, you've got the two trials kicked off, and you say that you're on track to file with the FDA this year. Particularly with the T2Biothreat, that seems like something that could go relatively quickly and be filed relatively soon. Am I kind of correct in that thinking, or is there any more color that you can provide in terms of when these might be before the agency?

[John Sperzel:]

Ben, you're absolutely right to think about it that way. Fortunately, these pathogens don't exist out in the open generally. And so we're dealing with contrive samples that are being prepared and tested in a BSL-3 lab. So that part of it goes pretty quickly and the negative samples are being done in one site that also can go quickly. So I think it's fair to think about it happening faster, obviously, than Q2 resistance and a pretty straightforward clinical trial.

[Benjamin Haynor:]

I mean, is that something that we should expect maybe the first half, or I mean, any more color that you can provide there?

[John Sperzel:]

I think it's generally risky to start putting timeline when we have just started the clinical trial, Ben, but what we could absolutely plan to do is provide an update at the appropriate time. I will say that, that is a product that is not going to go into the hands of our sales team. That product, obviously, is limited to the U.S. government, and it would likely be sold to one or more government entities directly. So we're going to keep our sales team focused on our sepsis products, keeping focused on the hospital market, both in the U.S. and international.

[Benjamin Haynor:]

Yes. Okay. And so -- and then that kind of flows into my next question. It seems like, obviously, that would be something that could be in U.S. strategic national stockpile. I think your shelf life is around 12 months. So I presume that would be recurring orders every year or even more often, should you guys get that across the finish line successfully. Are there -- am I correct in that? And then are there maybe examples of other sorts of products or tests that you can point to and say, this could look similar to test, XYZ out there?

[John Sperzel:]

I'm aware that there are single test for anthrax, for example, that are part of the National Strategic Stockpile. This would be the first ever multi-target direct-from-blood biothreat pathogen system. It would certainly be a goal to have it to be part of the national strategic stockpile, but it's a little bit early can have those negotiations until we have a completed product.

[Benjamin Haynor:]

Okay. Fair enough. And then last for me, and maybe I missed this in the technical difficulty. But on the distribution contracts, do any of those have minimums associated with them? And is there -- presumably that those also give you some confidence in the 60 to 70 instrument number?

[John Sperzel:]

Yes. Brett, would you like to take that?

[Brett Giffin:]

Yes, certainly. So yes, so when we enter into an agreement with a distributor in one of the international markets, it's -- those -- first of all, they buy the instruments. So there's -- so it's an investment on their part upfront. And part of that, we agreed to minimum performance requirements that are contained in each of the agreements. And as a matter of fact, we just concluded a program here where some of those had somewhat not been maybe quite as closely police during the sort of the height of the COVID period. We've gone back and pretty much brought all of those back up to level, and in some cases, negotiated a few of them. But yes -- but the simple answer is yes. We have that in all of our agreements, minimum performance requirements as well as, as I said, they buy the instruments and they certainly don't buy them to have them to sort of sit in their warehouse. They're tied directly to either a tender or an anticipated, say, account that they have in mind.

[Benjamin Haynor:]

That makes sense. Very helpful. Great. And looking forward to the Analyst Day.

[Brett Giffin:]

Absolutely.

[Operator:]

The next question today is coming from Steve Brozak from WBB.

[Stephen Brozak:]

Congratulations on the progress in the quarter and the year, of course. I just have one question. The last 2 years, you've obviously had a focus on COVID, which is now transitioning to sepsis. Can you tell us what the clinicians, the facilities are saying as far as what has made it easier for you or not maybe in terms of understanding the T2 systems using it for COVID? And how much advantage do you have now in switching it over to sepsis? And also, not that long ago, there were some presentations that were done showing a significant linkage between COVID and unfortunately, ultimately, folks that wind up in the ICU having sepsis. Whatever you can tell us on that would be greatly appreciated.

[John Sperzel:]

Sure. Thanks, Steve. Brett, I'll start and feel free to add some commentary to it.

[Brett Giffin:]

Sure, sure.

[John Sperzel:]

I think if we start at a high level, Steve, we saw data early on when the pandemic first hit, linking from a clinical perspective, critically ill hospitalized COVID patients with sepsis, somewhere to the degree of 30% -- between 20% and 30%. I recently had a conversation with a key opinion leader, and he said that 1/3, 1 out of every 3 of the patients, admitted to his ICU with COVID ended up becoming septic. So that statistic has been true for the last 2 years. And we see more and more stories where relatively healthy patient comes down with COVID, becomes critical, ends up in the hospital and become septic. So there's a clear link. It's been there. Clinicians understand it. It's been part of the reason that we've been successful selling or placing instruments into U.S. microbiology labs because they're the same ones that are doing the testing, whether it's for COVID or for sepsis. And I would say that while we benefited from COVID, the biggest benefit that we've received is that we've been able to place a significantly larger number of instruments that we might not have been able to place into accounts where we had no prior relationship. They didn't know T2. They didn't know our salespeople. They didn't know anything about our products or services. So it's been a real door opener for the company. And as those accounts get better control in their communities of COVID and we see Coke cases going down we believe that those accounts are going to have more bandwidth to address their sepsis protocols and implement our sepsis test panels. So Brett may want to add something to it. But at a high level, that's what we're seeing.

[Brett Giffin:]

Yes, I think John pretty well said it right. I think, it's actually -- it has created an opportunity for us. And it's -- I think as part of our -- as John mentioned earlier, we've had -- we've really had experienced, I think, quite excellent by comparisons, access to hospitals. And I think that has been a part of it, obviously, with the increased feet on the street and the extra push of doing that. But I think -- I believe our team has gotten more access from that. And as John said, I think the hospitals understand that linkage. And it's the really encouraging element, and we certainly -- we're well drilled with our team. Every conversation we have with them and our entire approach, even if we're in the discussions of COVID because a hospital is, say, stressed because they had a primary supplier that's maybe put them on allocation, they're not getting it, we're able to fill that need, it's created that door opener. But what it's also done is every one of these opportunities that you heard us mention, every one of them is earmarked for -- even if COVID is involved, they're all earmarked for and the accounts have all sort of agreed or bought into an ultimate move to sepsis. So we're very much doing that on the front-end with earmarking these towards sepsis. And very encouragingly, about 1/3 of the instruments we've already put in so far and we have several more in the pipeline that have a stated interest of implementing sepsis really right out of the gates just at the same time with COVID. So that's been very positive. And we sort of feel like we've carried perhaps some goodwill too, where we've been able to help them institutions that we really have kind of struggled with getting the need for the COVID testing. And we've been able to step in and fill that. And we have -- as John mentioned, we've got fresh instrumentation in there and some footprint. So it's been a positive development. And I think it bodes really well for us going forward with the sepsis business.

[Operator:]

We reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

[John Sperzel:]

Thank you for joining our Fourth Quarter 2021 And Full Year Earnings Call. We look forward to updating you in the future. Have a great day.

[Operator:]

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.