T2 Biosystems, Inc.
Q1 2024 Earnings Call Transcript

Published: 6 May 2024

[Operator:]

Greetings. Welcome to the T2 Biosystems, Inc. First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Philip Taylor. You may begin.

[Philip Taylor:]

Thank you, operator. I would 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 April 1, 2024, 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 first quarter 2024 results call. I will start with an update on our NASDAQ compliance plan and our capital plans and then discuss our first quarter progress across our three corporate priorities. Before turning the call over to John Sprague, our Chief Financial Officer, who will review our financial results and outlook for 2024. I will then provide closing remarks and open the call for questions and answers. On March 12, 2024, we announced that the NASDAQ Hearings Panel had granted our request for continued listing on the NASDAQ stock market, subject to the company demonstrating compliance with NASDAQ's market value of listed securities or market value requirement as set forth in NASDAQ Listing rule 5550(b)(2) the rule on or before May 20, 2024. The rule requires that the company maintain a closing market value of at least $35 million for a minimum of 10 consecutive business days. As I outlined in our recent investor update call, an important part of our NASDAQ compliance plan included the conversion of debt to equity. In April 2024, the company converted $15 million of its term loan with entities affiliated with CRG Servicing LLC, or CRG, our lender into T2 Biosystems equity. Today, the company announced the conversion of an additional $15 million of its term loan with CRG for a total debt-to-equity conversion of $30 million in the past 30 days, which we believe significantly improves the probability of meeting the NASDAQ listing requirements. In the past 12 months, we have reduced our debt and associated quarterly interest payments by approximately 80%. Earlier today, we filed an S-1 registration statement that included our plan to raise up to $10 million in capital through the issuance of new securities. We believe the company is at an inflection point, transforming from an internally focused research and development company to an externally focused commercial company. And this capital is necessary for general working capital and to help us achieve our goals, including increasing our sepsis product sales, launching the T2Lyme Panel and advancing the T2Resistance Panel. Simultaneously, we intend to reduce operating costs, reduce inventory and increase production volumes. Today, we are applying our technology to sepsis, lyme disease and bioterrorism. These three areas share the need for rapid pathogen detection and faster targeted antimicrobial treatment. Our core opportunity, sepsis, continues to impose an enormous human and economic toll. Sepsis is the leading cause of death in U.S. hospital, claiming the lives of 270,000 Americans annually, with an additional 80,000 who die in hospice each year. Sepsis also represents the leading expense of U.S. hospitalization, costing our health care system an estimated $62 billion annually. Lastly, Sepsis is the leading cause of 30-day U.S. hospital readmission with 19% of sepsis survivors rehospitalized within 30 days and 40% within 90 days. Rapid detection of sepsis causing pathogens is crucial as mortality risk increases by up to 8% for each hour of delayed targeted antimicrobial treatment. As we have discussed, T2 Biosystems has developed and commercialized the only FDA-cleared products able to detect sepsis causing pathogens directly from blood in just 3 to 5 hours without the need to wait days for a positive blood culture. Competitive products like those marketed by Bomeru BD and Accelerate, first require a positive blood culture, which can take days. So when those competitors claim that they can produce species identification or antibiotic susceptibility or AST results in 1 to 3 hours. It is after they wait 1 to 5 days for a positive blood culture. And when blood culture produces false negative results due to lack of sensitivity or inhibition due to prior antimicrobial treatment, those culture dependent technologies provide little to no value. A meta-analysis of 14 controlled studies published in a peer-reviewed medical journal compared T2 Biosystems' sepsis test to blood culture-based diagnostics and showed that T2 Biosystems products provided faster time to detection. For example, species identification, 77 hours faster. Faster targeted therapy. For example, patients testing positive with T2 Biosystems receiving targeted antimicrobial therapy 42 hours faster. And finally, reduced length of stay. For example, 5 fewer days in the ICU and 4.8 fewer days in the hospital. Thanks to strong efforts of our team during the first quarter of 2024, we made considerable progress across our three corporate priorities

[John Sprague:]

Thank you, John. First quarter 2024 revenues were $2.1 million, all from sepsis product sales, a 25% increase compared to the prior year period and sequential growth of 23% compared to the fourth quarter of 2023 led by T2Candida and T2Resistance sales. First quarter 2024 cost of product revenue was $4.2 million, a 5% increase compared to the prior year period, driven by sales volume. Research and development expenses were $3.7 million, a 17% decrease compared to the prior year period, driven by decreased BARDA contract activities. Selling, general and administrative expenses were $6.7 million, an 8% decrease compared to the prior year period, driven by decreased headcount. The first quarter 2024 net loss was $13.5 million, $2.66 per share compared to a first quarter 2023 net loss of $18 million, $131.77 per share. Cash and cash equivalents were $6.2 million as of the end of the first quarter of 2024, and we raised $2.2 million in net proceeds from ATM sales in the quarter. The CRG debt conversion has reduced our debt and interest expense by almost 80% compared to a year ago. We continue to expect total sepsis 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 from T2Biothreat or T2Lyme tests. Thank you, and back to John Sperzel for closing remarks.

[John Sperzel:]

It's an extremely exciting time for the company as we've been taking measures to significantly reduce our debt, strengthen our balance sheet and position the company for sustained growth. We are nearing four catalysts that we expect to be growth drivers, one, the T2Lyme Panel, which we may launch sooner than anticipated via partnership, two, the T2Biothreat Panel, which we are pursuing initial sales to government agencies and have engaged a U.S. government expert. Three, the T2Candida Panel to include pediatric testing, which is pending FDA 510(k) clearance and four, the U.S. T2Resistance Panel, which we expect to submit for FDA 510(k) clearance during the third quarter of 2024. With that, I'd like to turn the call back to the operator to open the line for questions. Operator?

[Operator:]

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] The first question comes from Kyle Mikson with Canaccord. Please proceed.

[Kyle Mikson:]

Hey, guys. Thanks for the questions. Congrats on a good quarter. So the [indiscernible] was strong. You said I think that benefited from the FDA expansion in February of this year. John, can you just talk a little bit more about like the quantitative impact from that expansion that the panel this quarter? And then what exit rates look like in March, maybe and what we could - how we should think about the contribution going forward?

[John Sperzel:]

So I'll ask John Sprague to talk about the second part, but I'll certainly take the first part, Kyle. We're excited to get the FDA clearance to add acinetobacter to our T2Bacteria Panel. That adds a 6 target. Those 6 targets now take our coverage to approximately 75% of what is typically seen in a bacterial bloodstream infection. So while sometimes we get blowback about we only detect 6 targets, those 6 targets comprise the overwhelming majority of bacterial bloodstream infections. And adding that 6 target added approximately 5% additional coverage. And it's the 10th most common bacterial pathogen seen in the ICU. It has a mortality rate between 35% and 45%. So it's an important one to add, and it is certainly drawn on demand, and we expect to continue to.

[Kyle Mikson:]

Okay. Was there anything else you guys want to add to that? Or is that the bulk of the answer?

[John Sperzel:]

John, I think...

[John Sprague:]

I would say that covers it.

[Kyle Mikson:]

Sounds good. Maybe, guys, the cost reduction measures that you were talking about that, I guess, have been started recently or they kind of see what they're ongoing. When does that become more tangible like I guess? It's a little bit hard to kind of understand given the revenue base has shifted year-over-year and things like that. So the burns a little bit, it could be misleading. But when does that kind of flow through into the P&L? And when could - I think specific to gross margin for that to what positive would be interesting too. How are you thinking about that kind of near term?

[John Sperzel:]

I think you'll see improvements on a sequential quarterly basis. Our guide is between $10 million and $11 million. As John and I both mentioned, that does not include any sales of T2Biothreat or T2Lyme. And it ramps up from Q1 to Q2 to Q3 to Q4. So we'll get better overhead absorption, and that will drive improved cost as well as the measures that we're taking internally to control costs, reduce inventory, improve product gross margins.

[Kyle Mikson:]

Got you. And maybe just expand on that note, just expand on the kind of the aspect of the Lyme panel being now just like an LDT by the time being, that higher margin given it doesn't have to use the T2Dx instrument. So does that kind of act as like a benefit kind of going forward to? Or is it not too material? Is it hard to - challenging to understand like how real that really does that benefit really could be on margins?

[John Sperzel:]

Well, we think the Lyme opportunity is a substantial opportunity. Today, there are a 3.4 million Lyme tests performed. Our understanding from our market research is that PCR type test, which, by the way, the ones that are out there in the market are not very sensitive at all continue to grow. And so we think the opportunity for a high-quality molecular diagnostic test that can detect Lyme in the first 30 days could have significant market appeal, command a premium price. The reason we're launching it initially as a lab-developed test, and we're certainly not ruling out a future FDA 510(k) submission is because we can get to market faster, we can address what we believe will be important throughput requirements by testing off instrument, and we don't need the cost associated with the cartridge. So we think we can get higher throughput and we can command a better product contribution margin. And as I said in the prepared remarks, there's a good chance we launched ahead of schedule through an LDT partner.

[Kyle Mikson:]

Got you. And then did you discuss the FDA approval pathway for that for the Lyme panel, I guess? Like has that changed since the business update, I think it was like in March?

[John Sperzel:]

It hasn't changed from our perspective. Certainly, the FDA came out with their ruling on LDTs, which we don't think has any near-term impact related to our strategy to launch initially as an LDT. We have a perfect track record with the FDA. Every time we've made an FDA 510(k) submission, we have received clearance. We're not going to jeopardize that. We already have FDA breakthrough device designation for the T2Lyme Panel. We think launching as an LDT is going to help us collect data. And at the time we decide to pursue FDA 510(k) clearance will be ready.

[Kyle Mikson:]

Okay. Let me ask another one before I hop off. The - just BARDA hasn't been in the model for a couple of quarters. Is there any like global research opportunities or programs that you - that are in the pipeline or the works that you're aware of? Is there any interest among various countries and governments to sort of do some more research and temps that could benefit Q2 possibly, but could that be a tailwind over time?

[John Sperzel:]

Absolutely. So we've talked publicly about Candida Auris. And every time we talk to a customer almost without exception about our T2Candida Panel. We are asked about the addition of Canada Auris, including at the ECCMID conference in our booth regularly over the last week or so. And so we think we're on the right track in adding Canada Auris to our T2Candida Panel. The test itself has FDA breakthrough device designation. And that's an area where we think there will be funding to help us get that over the goal line of sort of non-dilutive grant based type funding. There may also be that type of funding for adding additional targets on a tick-borne panel. That's something we're also exploring in the early stages.

[Kyle Mikson:]

Got you. Okay. That makes sense over there. Thanks, appreciate it.

[Operator:]

We have no further questions in queue. I will now turn the call over to John Sperzel for closing remarks.

[John Sperzel:]

Thank you very much for joining our Q1 earnings call. We appreciate your support, and we look forward to updating you next quarter. Have a great afternoon.

[Operator:]

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.+