T2 Biosystems, Inc.
Q1 2022 Earnings Call Transcript

Published: 5 May 2022

[Operator:]

Good day, ladies and gentlemen, and welcome to the T2 Biosystems First Quarter 2022 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Malcolm MacLeod. Sir, the floor is yours.

[Malcolm MacLeod:]

Thank you, operator. I would like to remind everyone that comments made by management today and answers to questions will include forward-looking statements. These 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 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 23, 2022, 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 all for joining our first quarter 2022 earnings conference call. Today, I will review the company's performance in the first quarter and provide details on the progress we're making on our 3 corporate priorities. I will then turn the call over to our Chief Financial Officer, John Sprague, who will review our first quarter financial results before I make some closing remarks and we open the call for questions and answers. First, I would like to address today's announcement related to our NASDAQ listing. Today, we received a letter from the NASDAQ stock market, informing the company that its shares of common stock have failed to comply with the $1 minimum bid price required for continued listing on the NASDAQ global market under NASDAQ Listing Rule 5450(a)(1). And as a result, the company's shares are subject to delisting. The letter further stated that the company may appeal the NASDAQ staff delisting determination to a NASDAQ listing qualifications hearing talent. The company has filed an appeal and hearing requests to the NASDAQ staff's determination, which will stay the delisting of the company's shares of common stock from the NASDAQ Global Market pending the panel's decision. The NASDAQ staff has informed the company that the delisting action has been stayed pending a final written decision by the panel and the hearing date has been set for June 2, 2022. While there can be no assurance that the panel will grant the company's request for continued listing, the company intends to present a plan to regain compliance to the panel that includes a discussion of the events that it believes will enable it to regain compliance in this timeframe and the commitment to affect a reverse stock split if necessary. During the first quarter, the T2 Biosystems team generated total revenue of $7.2 million, including product revenue of $3.8 million and R&D revenue of $3.4 million. We entered into contracts for 15 T2Dx Instruments during the first quarter, including 11 in the United States and 4 internationally, all of which will be used for Sepsis. We continue to make progress on our three corporate priorities

[John Sprague:]

Thank you, John. Total revenue for the first quarter of 2022 was $7.2 million, an increase of 4% compared to the prior year period, driven by increased T2Dx instrument sales in BARDA contract activities, offset by decreased COVID-19 test panel sales. Product revenue was $3.8 million, a decrease of 17% compared to the prior year period. Research contribution revenues were $3.4 million, an increase of 47% compared to the prior year period. Product costs for the first quarter of 2022 were $6.2 million, an increase of $400,000 compared to the prior year period, driven by increased T2Dx instrument sales and offset by decreased COVID-19 test panel sales. Research and development expenses were $6.7 million, an increase of $2 million, driven by increased part contract activities. Selling, general and administrative expenses were $9.2 million, an increase of $3 million, driven by increased commercial and medical affairs headcount. Net loss for the first quarter of 2022 was $16.5 million or $0.10 per share compared to a net loss of $10.7 million, $0.07 per share for the prior year period. Cash, marketable securities and restricted cash were $20.5 million as of March 31, 2022. We have used the ATM facility minimally in 2022. Through March 31, we sold 3.5 million shares for net proceeds of $1.4 million. CRG has extended the interest-only period and loan maturity to December 31, 2023, and we are in compliance with the remaining loan agreement covenants. We continue to expect full year 2022 revenue of $28 million to $31 million, including product revenue of $16 million to $17 million and research contribution revenues of $12 million to $14 million. We continue to 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 are pleased with the progress across our three corporate priorities during the first quarter, and we're encouraged by the financial results we're generating following the expansion of our commercial and medical affairs teams. Under new commercial leadership, our expanded sales force is increasing the installed base of T2Dx Instruments globally while focusing on increasing adoption and utilization of our sepsis products. Our medical affairs team will work closely with our sales team to increase awareness of our sepsis products through KOL engagement as well as the generation of additional clinical and economic evidence to reinforce the value proposition of our products. Expansion of our international distribution network is ongoing, capture the global demand for our culture independent diagnostics. We have improved our manufacturing efficiency and continue to make investments to scale the business and improve product gross margins. Finally, we continue to successfully complete the milestones associated with the BARDA product development contract. This advances us towards two FDA regulatory submissions we expect to make in 2022 and drives the next generation of culture independent products to rapidly detect bloodstream infections and antibiotic resistant genes. Our recent accomplishments have created business momentum early in 2022, and we're extremely excited about the future of 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:]

[Operator Instructions] Your first question for today is coming from Ben Haynor with Alliance Global Partners. Ben your line is live.

[Benjamin Haynor:]

Good afternoon gentlemen thanks for taking the questions. First off for me, just congrats on filing for the breakthrough designation on T2 and the T2 Biothreat panel. But I'm curious about T2Lyme. Do you have an idea of what a Lyme trial could look like being that the current test out there are not considered particularly accurate?

[John Sperzel:]

Ben, thanks for your comments on the quarter. We think that success with the breakthrough device submission would facilitate those kinds of discussions with the agency. As you probably know, there are an awful lot of submissions in queue, and we're hopeful that a successful breakthrough device submission will advance the cause much faster than otherwise.

[Benjamin Haynor:]

Okay. And that makes sense. And then on the positive arm for T2 Biothreat, it doesn't sound like that's scheduled. I mean is that something that you're just kind of beholding to whatever the labs that are able to do these types of testing are able to schedule it or how does that work on the positive arm?

[John Sperzel:]

It's a single site Ben it is 100% contrive samples, and there are multiple T2Dx instruments at that site. So we do believe that, that's a pretty straightforward positive arm of the study, and we anticipate that it will be completed prior to the T2Resistance clinical trial.

[Benjamin Haynor:]

Okay. That's fair enough. And then lastly for me, on the placements, you mentioned higher test panel pricing and volume commitments. Can you share maybe how those differ from the more traditional sales or contracts that you've had in terms of is the pricing ex percent higher or the volume commitments? How do those -- how are those impacted by the agreements that you're signing these days?

[John Sperzel:]

Ben, I'm going to ask Brett Giffin to take that question, our Chief Commercial Officer. He's here with us.

[Benjamin Haynor:]

Hi Brett.

[Brett Giffin:]

Hi so yes, I mean, with the placements and as John mentioned, and as we said, coming into the beginning of the year, we anticipated that it made sense from an acceleration standpoint to rely more heavily on placements. And we certainly still offer capital options, although 90% of the time in the U.S. plus, it's been placements. So obviously, we're accelerating the sales cycle with that greatly, a clear benefit. So in answer to your question, yes we certainly get a - I'd say, a rather substantial uptick on the price front in exchange for that. I mean, keep in mind, a capital sale of the instruments $100,000. So those - obviously, the rates that we put on there certainly are more significant. And what it does also as part of that we also tie volume expectations to that so that when we do those with an account, they - obviously, they're signing up for increased pricing, but at the same time also signing up for volume commitments that then we monitor against a contract that we put in place with them so.

[Benjamin Haynor:]

Okay that makes sense. Thanks for the color there. I'll leave it at that. Thanks for taking the questions gentlemen. Congrats on the progress.

[Brett Giffin:]

Thank you, Ben.

[John Sperzel:]

Thanks Benefit.

[Operator:]

Your next question for today is coming from Steve Brozak with WBB. Steve, your line is live.

[Stephen Brozak:]

Hi John, and thanks for the update, of course. And I want to dive into a couple of questions to see the landscape as we're looking at it right now. On the first part, I know that this may initially be anecdotal, but you had -- during I guess at the JPMorgan week. You had discussed or your group had discussed around the increased prevalence of watching COVID patients who are also now dealing with sepsis? Can you give us any insight and again, I know it's anecdotal, but can you give us any insight into what you're seeing there and what the clinicians are presenting back to you along those lines? And I do have one question here, and you may not know the answer to it. Are you seeing anything that might play in the underserved community that may draw even more attention to this particular question or phenomenon. And I've got another question after that? Thank you.

[John Sperzel:]

Sure, thank you, Steve. Early on in the COVID pandemic, there was data first coming out of China, then in the U.S. and then other countries as the virus spread around the world that up to 30% of critically ill hospitalized COVID patients would go on to develop sepsis [indiscernible] infection and sepsis. And that data has been pretty consistent from early 2020 through today's date. And we've had clinicians present on that, one of whom said a third of the patients that came into as ICU with COVID became septic. So this is something that has been happening for the last couple of years, and we would anticipate it continuing to happen because these critically ill COVID patients are very susceptible and very vulnerable to bloodstream infections and sepsis. In terms of the underserved communities, Sepsis Alliance has put out a lot of data on the impact of sepsis in the underserved, and particularly the Latino and African-American communities, and it's pretty much across the board a factor of two higher - so there is a disproportionate impact of sepsis in the underserved, and we're trying to do something about that.

[Stephen Brozak:]

Okay. And that actually leads me to my next question because obviously, the one thing the T2's technology is something that is standardizes a treatment protocol and puts you on a level playing field for those clinicians and rapidly addresses the critical time that you need to treat sepsis. How would that play into the greater adoption for those "underserved" hospital systems and for those patients who are disadvantaged - and how would you model that into the future as far as being able to assist or deal with that? And I may have one more follow-up after that, please? Thank you.

[John Sperzel:]

Well, I would go back to the comment that Ben asked Brett about our commercial strategy and one of the shifts that we've made from a capital sale to a placement program. Obviously, one of the obstacles to whether they're critical access hospitals or hospitals that serve underserved communities is access to capital. And so by minimizing the requirement on the capital side to get access to our technology, we opened the doors for many more institutions to get access to our products. And we strongly believe that our products can identify these pathogens much faster, lead to faster targeted therapy, and there's significant data out there that shows we can identify these pathogens faster. We can achieve targeted therapy faster. We can deescalate enteric protocols or broad spectrum antibiotics faster. So - we are looking at all kinds of opportunities to try to accelerate the commercialization in these underserved communities.

[Stephen Brozak:]

Great. And one last item on a more application note, and I'll hop back in the queue. Obviously, in going over the last years with the press releases, Qs and Ks, I've noticed a significant decrease in terms of expenses, being able to go out there and cut overhead. I would ask you in terms of what your plans are into the future as far as being able to both cut costs, but also equally important, what can you tell us about the ability to ramp up on manufacturing given the configuration that you've got right now? And let me hop back in the queue after that. Thank you.

[John Sperzel:]

Well, one of the blessings that impacted us with respect to COVID is it required us to dramatically scale our manufacturing capabilities. In the past, we've talked about a sevenfold increase in manufacturing output both for our consumables and our instruments. Typically, companies like ours go through growth pains over a more extended period of time, and we ramped that up within a couple of quarters to those levels. So having gone through that process once very dramatically gives us a lot more confidence that we can do it again, and again and again, we spend a lot of time strengthening our supply chain. It's actually been very, very helpful in the current environment because we were a bit ahead of that. And we obviously intend to sell, as we sit here today, twice as many instruments as we sold last year globally. And so, we're continuing to scale our operations. And if we have the opportunity to double that again with some support, whether its government support or other to go after these underserved communities, we would absolutely get behind that.

[Stephen Brozak:]

Great, again, thanks for the translation and the updates and congrats on the quarter.

[John Sperzel:]

Thank you, Steve.

[John Sprague:]

Thanks, Steve.

[Operator:]

There are no further questions in queue. I would like to turn the floor back over to John Sperzel for any closing remarks.

[John Sperzel:]

Thank you very much for joining our first quarter 2022 earnings call. We appreciate your support, and we look forward to updating you next quarter. Have a great day.

[Operator:]

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.