T2 Biosystems, Inc.
Q2 2023 Earnings Call Transcript

Published: 7 Aug 2023

[Operator:]

Greetings. Welcome to T2 Biosystems, Inc. Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal prestation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Trip Taylor, Investor Relations at T2 Biosystems. You may begin.

[Philip Trip 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 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, 2023, 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 second quarter 2023 earnings and business update call. Today, I'll start by discussing our performance, including the key achievements we have made across our three corporate priorities. I'll then turn the call over to John Sprague, our Chief Financial Officer, who will review our second quarter financial results and our outlook for 2023 before I provide closing remarks, and we open the call for questions and answers. The T2 Biosystems team has recently achieved a number of key milestones. During the second quarter, we received record quarterly sepsis test panel orders. We received the second largest sepsis driven T2Dx instrument order in company history. We filed a 510(k) submission with the FDA for the T2Biothreat panel. We applied for FDA breakthrough device designation for a Candida auris diagnostic test, and we received breakthrough device designation from the FDA last month. We established a clinical collaboration on the T2Bacteria Panel with Vanderbilt University Medical Center. We strengthened our balance sheet by raising capital and by converting a portion of the CRG debt to equity. We believe that each of these milestones represents important progress toward driving increased adoption and utilization of our sepsis products, expanding our market opportunity and providing flexibility to pursue our growth and development initiatives. Our recent accomplishments contribute toward advancing our mission to fundamentally change the way medicine is practiced through transformative culture independent diagnostics that improve the lives of patients around the world. When it comes to sepsis, our main area of focus, we believe drastic changes are needed. There are an estimated 11 million sepsis-related deaths worldwide each year, more than all cancers combined. Sepsis is the number one cost of U.S. hospitalization, costing our health care system an estimated $62 billion annually. Sepsis is the number one cause of death in U.S. hospitals, causing the death of 270,000 Americans annually and 80,000 more die each year in hospice. And sepsis is the number one cause of 30-day rehospitalization in the U.S., causing 19% of sepsis survivors to be rehospitalized within 30 days and 40% to be rehospitalized within 90 days. Current treatment methods are failing patients, payers and providers. As a reminder, T2 Biosystems has the only FDA-cleared products able to detect sepsis causing pathogens directly from blood in just 3 to 5 hours. We believe our products have a significant competitive time to result advantage as our competitors continue to rely on positive blood culture results that can take one to five days and longer for fungal infections, resulting in delayed targeted antimicrobial therapy. Data shows that the risk of death can increase by up to 8% for each hour of delayed targeted antimicrobial therapy. As we advance our mission, we're focused on three corporate priorities

[John Sprague:]

Thank you, John. Second quarter 2023 revenues were $2 million, a 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. Sepsis test panel sales were $1.3 million, 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, a 52% decrease compared to the prior year period, driven by decreased BARDA contract activities. Selling, general and administrative expenses were $6.3 million, 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, $0.08 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 30, 2023. In the second quarter, we raised $18.5 million net through the ATM facility, and we have raised an additional $10.9 million net through the facility in the third quarter. In June 2023, CRG 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 T2Resistance Panel will occur in 2024, and we expect total 2023 sepsis and related product revenues of $9.5 million to $10.5 million, representing growth of 13% to 25% compared to 2022. We expect second half sepsis in 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 Sperzel for closing remarks.

[John Sperzel:]

Thank you, John. We achieved key milestones across our three corporate priorities during the second quarter of 2023. Commercially, we received record quarterly sepsis test panel orders and received the second largest sepsis driven T2Dx 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 T2Resistance Panel, the T2Lyme 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 health care. We believe that applying our patented technology to these three areas

[Operator:]

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] First question today is coming from Ben Haynor from AGP. Ben, your line is live.

[Benjamin Haynor:]

Good afternoon, gentlemen. Thanks for taking the questions. First off for me, on the Vanderbilt collaboration, did I hear you correctly that they already have a protocol established for that study? And then it sounds like maybe they already have some data if I heard that -- if I got that right, you mentioned the 37 hours faster. Is that correct?

[John Sperzel:]

Ben, there is a protocol for the Vanderbilt study. The 37 hour 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.

[Benjamin Haynor:]

Yeah. Okay. And is there -- 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 could come out of that collaboration?

[John Sperzel:]

On Vanderbilt not yet. We're obviously pretty excited about it. And once we have a line of sight, we'll share that.

[Benjamin Haynor:]

Okay. And then obviously, the clinical data library continues to fill. Is there anything that you see out there really validating that could wind up in a clinical data on the library or is there anything -- I guess another way to asking it, is there anything that you feel like is missing that would really push potential customers over the edge to [indiscernible]?

[John Sperzel:]

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, faster 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 were done at 14 independent studies, and the results were very consistent with our clinical trial and all the studies that we've seen out in the fields.

[Benjamin Haynor:]

Okay. Got it. And then on the gross margin, I know you've had some issues there with raw material availability and other things. What can that look like as you get some of these things figured out on a marginal basis what is the gross marginal, gross margin look like as you get this figured out.

[John Sperzel:]

John Sprague, can you take that?

[John Sprague:]

Yeah. So Ben, our contribution margins that sales less direct labor and direct materials are in the 70% to 80% range for these tests. And our overhead, as we've recently reduced with the restructuring in May will be steady going forward. We haven't disclosed that level of granularity. But I think if you strip out the material challenges we had in the first quarter, you're going to see the margins quickly turning to positive in the future.

[Benjamin Haynor:]

Okay. Got it. And then lastly for me. You mentioned the preferred converting to common, I think in the current quarter, do you run into any share comp limitations on that front or how does that occur?

[John Sperzel:]

So when we look at the debt that CRG held prior to the convert, it was approximately $50 million, approximately $10 million was converted into equity. A portion of that was in common stock, a portion of that is in preferred stock. The preferred will convert to common subject to stockholder approval at the stockholder meeting on September 12.

[Benjamin Haynor:]

Okay. And then that presumably would take place post reverse split or at the same time? If a reverse split is approved, the caveat necessary.

[John Sperzel:]

That's all subject to stockholder approval.

[Benjamin Haynor:]

Okay. Got it. Thanks for taking the questions, guys. That's it for me.

[John Sperzel:]

Thank you, Ben.

[Operator:]

Thank you. [Operator Instructions] And there were no other questions from the lines at this time. I would now like to hand the call back to John Sperzel for closing remarks.

[John Sperzel:]

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.

[Operator:]

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