T2 Biosystems, Inc.
Q4 2023 Earnings Call Transcript

Published: 15 Feb 2024

[Operator:]

Good day, everyone. And welcome to the T2 Biosystems Preliminary Fourth Quarter and Full Year 2023 Results Conference Call. At this time, all participants have been placed on a listen-only mode and we will open the floor for your questions and comments after the presentation. It is now pleasure to turn the floor over to your host, Trip Taylor, Investor Relations. Sir, the floor is yours.

[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 fourth quarter and full year 2023 results call. I'll start by discussing our plan to comply with the NASDAQ listing requirements, including the proxy and press release that we are filing today. I will then review our 2023 progress, 2024 objectives across our three corporate priorities. Before turning the call over to John Sprague, our Chief Financial Officer, who will review our financial results and provide our financial outlook for 2024. I will then provide closing remarks, and we'll open the call for questions and answers. As a reminder, for 2023, we received a letter from NASDAQ informing us that we had failed to comply with the market value of listed securities or MVLS of at least $35 million for a period of 30 consecutive business days. Today, we participated in a meeting with the NASDAQ Listing Qualifications Hearing Panel, and we presented a detailed plan to regain compliance with the $35 million MVLS requirement. We expect a response from NASDAQ in the coming weeks. Our NASDAQ compliance plan includes the following steps, which occurred today and which was previously approved by stockholders, included the conversion of 82,422 shares of Series B convertible preferred stock held by our lender, CRG, Servicing LLC, or CRG, into 824,220 shares of T2 Biosystems' common stock. Step two, which is also occurring today includes the filing of a preliminary proxy seeking approval at a special meeting of stockholders to be held on April 11, 2024, to allow CRG to convert up to $15 million or nearly 37% of its term loan into T2 Biosystems' common stock. We expect the issuance of common stock and the cancellation of this portion of the term loan to occur within 10 days of the meeting. Additionally, while not part of our NASDAQ compliance plan, we have numerous business catalysts that we will discuss shortly, which we believe can create value and increase the market value of our listed securities. We believe maintaining our NASDAQ listing is in the best interest of both the company and our stockholders as it maintains liquidity for stockholders, helps attract and retain key employees, broadens our access to capital and better positions the company for potential mergers and acquisitions. Another benefit of our plan is that we are reducing the company's debt burden and thus lowering future interest payment expenses. Now I'll shift gears to discuss our 2023 progress and our 2024 objectives across our three corporate priorities, accelerating our sales, enhancing our operations and advancing our pipeline. Starting with our first corporate priority, accelerating our sales. As a reminder, sepsis continues to exact an enormous human and economic toll. Sepsis is the number one cause of death in U.S. hospitals, claiming the lives of 270,000 Americans annually, plus another 80,000 who die in hospice each year. Sepsis is the number one cost of U.S. hospitalization, costing our health care system an estimated $62 billion annually. Finally, Sepsis is the number one cause of 30-day U.S. hospital readmission, causing 19% of sepsis survivors to be re-hospitalized within 30 days and 40% within 90 days. Rapid detection of sepsis causing pathogens is critical as mortality risk increases by up to 8% for each hour of delayed targeted antimicrobial treatment. T2 Biosystems has the only FDA-cleared products able to detect sepsis causing pathogens directly from blood in 3 to 5 hours without the need to wait days for a positive blood culture. In 2023, the T2 Biosystems team achieved full year total revenue of $7.3 million, including product revenue of $6.7 million and we achieved record T2Bacteria Panel sales in the U.S. market. We added 26 T2Dx instruments to our growing installed base, which is now approaching 200 instruments globally, including 19 in international markets and 7 in the U.S. market. In the fourth quarter of 2023, we achieved sepsis and related product revenue of $1.7 million, representing sequential growth of 13% compared to the third quarter and sales accelerated each month of the quarter. Looking forward to 2024, our objectives include continuing to expand our installed base of T2Dx instruments in the U.S. and international markets and increasing test panel revenue. We plan to increase test panel revenue by selling more products to existing customers, by selling to new customers in existing geographies and by expanding our international distribution network into new countries. During 2024, we expect to commercialize four new test panels or tests, which run on the FDA-cleared T2Dx instrument, including the expanded T2Bacteria Panel, the T2Candida panel with a pediatric indication, the T2Biothreat Panel and the T2Lyme Panel. We believe each of these products represent an opportunity to increase test utilization among existing customers and to attract new customers. The expanded T2Bacteria Panel to include the detection of Acinetobacter baumannii was developed using direct feedback from customers on which bacteria species are most important to identify. We expect this latest FDA clearance to drive increased adoption of our platform as the expanded test panel now covers nearly 75% of all sepsis-causing bacterial pathogens commonly found in bloodstream infections. Rapid detection of these pathogens is essential to getting infected patients on the appropriate antimicrobial therapy and improving clinical outcomes. We're expecting a positive outcome on our FDA submission to expand the use of the T2Candida Panel to include pediatric testing. We believe an expanded claim for our FDA-cleared T2Candida Panel to include pediatric testing will drive increased adoption of our platform as it opens a new pediatric market segment and will allow clinicians to improve outcomes and reduce cost by achieving faster targeted antifungal treatment for their pediatric patients. Following the FDA clearance of the T2Biothreat Panel in September 2023, which we developed in collaboration with the U.S. government or BARDA, we shifted our focus to commercialization. Given the ongoing wars in Europe and the Middle East, the global population is in an increased risk of exposure to bioterrorism. The T2Biothreat [ph] Panel provides unique biothreat targets, and we believe it offers unparalleled sensitivity and specificity, creating multiple opportunities for sales, including to the U.S. Laboratory Response Network, the U.S. Strategic National Stockpile, state or public health labs, other government agencies, international government allies. Given our advances with the T2Lyme Panel, we intend to commercialize a laboratory developed test version of the T2Lyme Panel in 2024. Accordingly, we're exploring potential partners to capitalize on what we believe is a significant opportunity. Internationally, we sell our products through a network of distributors. During 2024, we expect continued expansion of our international distribution network. Today, we announced that we have expanded distribution into the Netherlands, Belgium and Vietnam, and we've re-entered the market in Switzerland through one of our existing distributors. As part of our commercial growth strategy, we prioritized expanding our clinical evidence. We recently announced our collaboration with the NIH funded Antibacterial Resistance Leadership Group, or ARLG to evaluate T2 Biosystems direct from blood diagnostic technology for the detection of ventilator-assisted pneumonia, Specifically, the FDA-cleared T2Bacteria Panel and the T2Resistance Panel will be evaluated for the ability to detect infections in the blood currently missed by conventional methods in a prospective, observational, diagnostic, feasibility study. The study will aid in exploring whether combined diagnostic testing can provide more targeted antimicrobial therapy, strengthen stewardship and improve outcomes, and we look forward to providing an update once available. At IDWeek 2023 in October, our team presented new clinical data encouraging early detection data for the T2Resistance Panel. The poster included data showing rapid detection of antibiotic resistance genes direct from whole blood samples by T2 Magnetic Resonance technology or T2MR. Oral and poster presentations demonstrating speed, accuracy and clinical benefits of the T2Dx instrument and T2 Biosystems sepsis panels were also presented by customers. Real-world performance of our products were highlighted as part of sepsis patient management. We continue to appreciate our customer support, aiding and increasing awareness of both the clinical and economic benefits of our technology. Moving to our second corporate priority, enhancing our operations. Throughout 2023, we made significant progress enhancing our operations. This included strengthening our operations leadership, mitigating raw material issues, improving manufacturing processes and addressing the sepsis test panel back order. I'm pleased to announce that we cleared all back orders for the T2Bacteria Panel and the T2Candida Panel in December 2023, and we cleared all back orders for the T2Resistance Panel in January 2024. During 2023, we made material headcount and operating expense reductions. We strengthened our balance sheet by reducing our debt by $10 million or approximately 20%, extended the interest-only period and maturity date of our term loan to December 31, 2025, and permanently reduced the minimum cash covenant from $5 million to $500,000. Looking forward to 2024 earlier, strengthen our balance sheet following stockholder approval, version [ph] of $15 million or nearly 37% of our term loan with CRG into T2 Biosystems equity. In addition, we expect to reduce inventory levels to positively impact our balance sheet, reduce scrap, to increase efficiency and improve product gross margins, continue to improve on-time delivery of our T2Dx instruments and sepsis test panels and complete the Oracle ERP system cutover. Moving to our third priority, our pipeline. A reminder, we are applying our proprietary direct from blood technology to three areas

[John Sprague:]

Thank you, John. Fourth quarter 2023 revenues were $1.7 million, all from product sales, a 69% decrease compared to the prior year period, driven by lower international T2Dx instrument sales and lower sepsis test sales due to production back orders. We resolved the production back orders in January 2024. Cash and cash equivalents were $15.7 million as of December 31, 2023. In the fourth quarter of 2023, we raised $800,000 in net proceeds from ATM sales. In October 2023, CRG extended the term loan agreement interest-only period and maturity date to December 2025 and reduced the minimum cash covenant from $5 million to $500,000. We expect total sepsis and related product revenues to grow between 49% and 64% to $10 million to $11 million in 2024 over 2023, and this target excludes any potential sales marked T2Biothreat or T2Lyme Panels. Thank you, and back to John Sperzel for closing remarks.

[John Sperzel:]

We made considerable progress across the business during 2023, increasing our global installed base of T2Dx Instruments, generating record sales of our T2Bacteria Panel, strengthening our supply chain and manufacturing operations, advancing multiple new product development initiatives and strengthening our balance sheet. We're very excited by the progress on our new product pipeline, which includes recent FDA 510(k) clearances for the expanded T2Bacteria Panel to include the detection of Acinetobacter baumannii, the T2Biothreat Panel and the pending FDA clearance to expand the T2Candida Panel to include pediatric testing. Additionally, 3 of our products in our pipeline have received FDA breakthrough device designation, including the U.S. T2Resistance Panel, the T2Lyme Panel and the Candida Auris test. We believe we are very well positioned heading into 2024, and we remain focused on accelerating our sales, enhancing our operations and advancing our pipeline. With that, I'd like to turn the call back to the operator to open the line for questions. Operator?

[Operator:]

Certainly. Everyone at this time will be conducting a question-and-answer session. [Operator Instructions] Your first question is coming from Ben Haynor from Alliance Global. Your line is live.

[Ben Haynor:]

Good afternoon, gentlemen. Thanks for taking the questions. Can you hear me okay?

[John Sperzel:]

We can, Ben. All clear.

[Ben Haynor:]

Excellent. All right. First off, just on the backlog, it sounds like most of it was clear by the end of the year, but the T2Resistance didn't clear until January. How much was the backlog at the end of the year? And kind of how much - how many months would that have represented in T2Resistance?

[John Sperzel:]

About $70,000 was the backlog on T2Resistance at the end of the year. As we mentioned, the backlog on T2Candida and T2Bacteria was zero, and it remains that. We have product on the shelf for all three of those test panels.

[Ben Haynor:]

Okay. So...

[John Sprague:]

Don't expect any backlog issues in the - at least in the near term.

[John Sperzel:]

We've put mitigations in place to protect that from happening, including people, resources and processes.

[Ben Haynor:]

Okay. Great. And then on T2Biothreat, that's been clear for a little while now. What kind of needs to tip before one of the organizations or entities that you mentioned you might see sort of the first order? And once you sort of get the first order to do a lot of folks follow suit or a lot of entities follow suit. What's the right way to think about that?

[John Sperzel:]

Well, first thing I would say is just to remind everyone what I said on the scripted remarks, and that is that, we have a really unique product here. We have unique targets on the panel, three of which appear on no one else's panel. And we believe we have a unique performance. The specificity is 100%. That means zero false positive across our clinical evaluation and the sensitivity was 100% on 5 of the 6 targets. So we have unique targets, and we believe we have unparalleled performance. So we believe that makes us very well suited to supply this product to U.S. and other governments, state and local labs. As far as how long it takes to sell the product, Ben, we're in the process of that right now, and we look forward to reporting sales results on the T2Biothreat Panel in the future.

[Ben Haynor:]

And how soon might that future be?

[John Sperzel:]

We're working on it as we speak.

[Ben Haynor:]

Okay. Had to try. Okay. Got it. And then just on the international distribution, you mentioned a handful of countries in the press release this afternoon and kind of how many number of sepsis cases each has on an annual basis. Is there kind of a back of the envelope calculation on if there's x number of sepsis cases in a given geography in a year that should necessitate y systems - these distributors think about when signing up?

[John Sperzel:]

Sure, Ben. So I think as we've discussed in the past, sepsis doesn't discriminate. Big hospitals, small hospital, well-developed country, less developed country, it can impact patients in every single corner of the world and it can impact hospitals in every corner of the world as well. So we continue to believe that every hospital in the world should have one of our instruments and should be using our test panels. That remains our goal. From a distribution standpoint, our go-to-market strategy in the U.S. is to sell directly. We are exploring the potential to accelerate our commercialization through partnerships. And our go-to-market strategy internationally is to partner with generally a single exclusive distributor in a country or in multiple countries. We have some distributors that cover more than one country. And our goal is to continue to support them. Generally speaking, our international distributors sell many more products, many of them sell complementary products or adjacent products in the sepsis space. So they know where to go. They've already established key opinion leaders. They have key reference accounts. So they don't start from a standing start. They start from a jog, if you will, and we train them on our products and we support them from a medical affairs and a service perspective. So we're excited about the four countries that we have just announced expansion into, and we look forward to many more throughout 2024 and beyond.

[Ben Haynor:]

Okay. Got it. And then on Acinetobacter baumannii, congrats on getting that FDA clearance, what is the right way to think about it from a hospital standpoint on what that could do to utilization or adoption. Do you have potential accounts out there that kind of just waiting on this addition to the panel? Or how big a deal is it being that it's probably only a handful of percent of the bloodstream infections subs cases [ph] that are out there?

[John Sperzel:]

The important aspect of Acinetobacter baumannii is one of the escape pathogens. It's the A and escape. And the escape pathogens are the ones that typically do not respond to broad spectrum empiric therapy. So if a patient is on broad spectrum antimicrobials and they have one of the test or one of the targets that's on our T2Bacteria Panel, we're generally not going to respond. And that's why we focused on those. Acinetobacter baumannii itself adds about 5% more coverage on our test panel. So with 6 targets now, we're covering 75% of the bacterial organisms that are typically found in a bloodstream infection. And we think that, that's sufficient for now. The additional 25% they're well covered by broad-spectrum antibiotics and the blood culture companies can have those, we'll take the other 6.

[Ben Haynor:]

Okay. That's helpful. And then lastly for me, just kind of a housekeeping question. For shares outstanding post the CRG conversion of the existing share, preferred shares that they had. Where does the share count stand today or post conversion?

[John Sperzel:]

John Sprague, do you want to take that?

[John Sprague:]

Yes. So Ben, we ended the year - well, go back to Q3 because that's what we've disclosed and the share count hasn't changed much since then. But we had at - the Q3, suffer with me for a second.

[Ben Haynor:]

Sure.

[John Sprague:]

It should be about $4.5 million.

[Ben Haynor:]

Okay. So basically, just the small amount of ATM sales and the conversion is the way to think about it.

[John Sprague:]

Yes, correct.

[Ben Haynor:]

Okay. Great. Well, that's all I had for now, gentlemen. Thanks for taking the questions.

[John Sprague:]

Thank you, Ben.

[John Sperzel:]

Thank you.

[Operator:]

Thank you. There are no further questions in the queue. I will now hand the conference back to John Sperzel, Chairman and CEO, for closing remarks. Please go ahead.

[John Sperzel:]

I'd like to thank you all for joining our Q4 2023 and full year 2023 earnings call. We look forward to updating you as we progress through 2024. Thank you, and have a good night.

[Operator:]

Thank you, everyone. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.