T2 Biosystems Q1 2024 Earnings Call Transcript

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May 6, 2024

There are 5 speakers on the call.

Operator

Greetings. Welcome to the T2 Biosystems Inc. 1st 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

Please note this conference is being recorded. I will now turn the conference over to your host, Philip Taylor. You may begin.

Speaker 1

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 ks 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.

Speaker 1

With that, I would like to turn the call over to Chairman and CEO, John Sperzel. John?

Speaker 2

Thank you for joining our Q1 2024 results call. I will start with an update on our NASDAQ compliance plan and our capital plans, and then discuss our Q1 progress across our 3 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(2) the rule on or before May 20, 2024.

Speaker 2

The rule requires that the company maintain a closing market value of at least $35,000,000 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 $15,000,000 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 $15,000,000 of its term loan with CRG for a total debt to equity conversion of $30,000,000 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%.

Speaker 2

Earlier today, we filed an S-one registration statement that included our plan to raise up to $10,000,000 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.

Speaker 2

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 tool. 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.

Speaker 2

Sepsis also represents the leading expense of U. S. Hospitalization, costing our healthcare system an estimated $62,000,000,000 annually. Lastly, sepsis is the leading cause of 30 day U. S.

Speaker 2

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 Bielmerieux, 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.

Speaker 2

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 Q1 of 2024, we made considerable progress across our 3 corporate priorities, accelerating our sales, enhancing our operations and advancing our pipeline. Starting with our 1st corporate priority, accelerating our sales.

Speaker 2

In the Q1 of 2024, our team achieved sepsis product revenue of $2,100,000 representing growth of 25% compared to the prior year period. Our team also achieved sequential quarterly growth of 23% compared to the Q4 of 2023. The growth in the Q1 was led by sales of our T2Candida Panel globally and sales of our T2Resistance Panel internationally. We added 8 T2Dx instrument contracts, continuing to grow our installed base, with 5 sold in international markets and 3 in the U. S.

Speaker 2

Market. We're seeing strong momentum in the U. S. Market, including 4 hospital go lives during the Q1 from prior account closes. We're focused on growing revenue in our current U.

Speaker 2

S. Hospital accounts through improved focus and coordination between medical affairs, sales and field applications. The strong global performance of T2Bacteria Panel during the quarter is also encouraging. As we gained FDA clearance in February of this year to expand T2Bacteria Panel to include the detection of Acinetobacter baumannii, we expect even further utilization of the T2Bacteria Panel moving forward. During the quarter, we further expanded our international distribution network in the Middle East by signing a new distribution agreement in Qatar, which includes the T2Dx instrument, the T2Bacteria Panel, the T2Candida Panel and the T2Resistance Panel.

Speaker 2

Qatar's National Sepsis Program is a collaboration between the Ministry of Public Health and Leading Medical Centers that guides the national sepsis prevention efforts in the country. Qatar's strong focus on sepsis care is demonstrated by sepsis mortality rates among the best in the world and a regular national sepsis symposium. The introduction of the T2Dx instrument and sepsis panels into Qatar will allow rapid detection of sepsis causing pathogens and antibiotic resistance genes in hours instead of days, enabling clinicians to achieve faster targeted therapy. We expect to continue to expand into new geographies and broaden our international distribution network throughout 2024. We also extended our existing multi year capital equipment supplier agreement with Vizient, the largest group purchasing organization in the United States until March 31, 2025.

Speaker 2

This extension ensures that members continue to have access to the benefit from contracted pricing for our T2Dx instrument, T2Bacteria Panel and T2Candida Panel. This move emphasizes the demand among hospitals for more efficient rapid diagnostics that enable faster targeted therapy. It also highlights the significant value proposition our products offer to patients suspected of sepsis. Generating compelling clinical data that demonstrates the value of our technology is a core part of our strategy. During the Q1 of 2024, we announced the publication of the strongest evidence to date in support of the T2Resistance Panel in a real world hospital setting.

Speaker 2

Published in the Journal of Clinical Microbiology, the study highlights high accuracy for the T2Resistance Panel, faster detection times and the impact of faster test results on clinical innovations based on T2 sepsis test results. This compelling data not only strengthens our position in CE Mark adopting countries where the T2Resistance Panel is already available, but also sets the stage for our entry into the U. S. Market. New data was also presented at ECCMID 2024 showing improved patient outcomes with the T2Candida Panel compared to blood culture based diagnostics and the ability for the T2Bacteria Panel to detect persistent staph aureus infections better than blood culture.

Speaker 2

Finally, to advance our commercial opportunities for the T2 Biothreat Panel, we've entered into an agreement with Doctor. Robin Robinson to serve as a strategic advisor. Doctor. Robinson has significant experience and expertise leading U. S.

Speaker 2

Government entities in the areas of medical countermeasures and biodefense, including serving as Director of the Biomedical Advanced Research and Development Authority or BARDA and the Deputy Assistant Secretary in the Office of the Assistant Secretary of Preparedness and Response or ASPR within the U. S. Department of Health and Human Services. We believe Doctor. Robinson's vast network across multiple U.

Speaker 2

S. Government agencies, including CDC, ASPR, BARDA, Department of Defense and National Institutes of Health, coupled with his expertise in medical countermeasures and biodefense will be invaluable as we pursue government contracts to procure the T2 Biothreat Panel and protect our nation from the consequences of deliberate or accidental exposure to biothreats. It's important to note that T2 Biothreat Panel sales are not in our current 2024 revenue guidance. So potential sales during 2024 represent upside to that guidance. Moving to our 2nd corporate priority, enhancing our operations.

Speaker 2

We're committed to improving the profitability of the business. This requires continued product sales growth, reduced operating costs and improved costs to product revenue, all of which we are prioritizing. We're pleased to have eliminated the product back order and we've been working to reduce inventory levels as an operational priority. We're driving improvements in manufacturing efficiency as we scale production and we're working to improve product gross margins. From an operating expense perspective, we will continue to balance investing appropriately in commercial and development resources to support future growth, while being prudent with expenses to preserve cash.

Speaker 2

Moving to our 3rd priority, advancing our pipeline. We have 3 tests in our pipeline, including the U. S. T2Resistance Panel, the T2Lyme Panel and the Candida auris test, each of which has received breakthrough device designation from the U. S.

Speaker 2

Food and Drug Administration. These three tests or test panels share a critical requirement for rapid pathogen detection and targeted antimicrobial treatment. The T2Resistance Panel is a direct from blood molecular diagnostic test that runs on the FDA cleared T2Dx instrument and simultaneously detects 13 antibiotic resistance genes in just 3 to 5 hours without the need to wait days for a positive blood culture. We believe the T2Resistance Panel will be a significant catalyst to drive broader adoption of our T2Dx instrument and our T2Bacteria Panel. As I mentioned earlier, in March, we issued a press release to announce the results of a new study that was published in the Journal of Clinical Microbiology, highlighting the performance and clinical benefits of the T2Resistance Panel.

Speaker 2

The prospective study included 59 patients at 2 sites and intended to determine the clinical sensitivity, time to detection and clinical impact of the tissue resistance panel compared to blood culture and conventional microbiology methods. Highlights included high accuracy. The teacher resistance panel demonstrated clinical sensitivity of 94.7% and specificity adjudicated of 97.4%. This is consistent with the clinical performance of our 2 FDA cleared sepsis test panels, the T2Bacteria Panel and the T2Candida Panel. Rapid turnaround time.

Speaker 2

The T2Resistance Panel results were available on average in 4.4 hours compared to 58.3 hours with blood culture based methods. The teacher resistance panel provided a 92% improvement in time to result compared to blood culture based diagnostics. That is 4.4 hours versus 2.2 days. And finally, clinical impact. There were 49 clinical interventions in 24 of the 59 patients, resulting in 17 antibiotic escalations and 32 discontinuations of unnecessary antibiotics.

Speaker 2

The use of the T2Resistance Panel led to a change in antibiotic therapy for 41% of the patients in this study, as those patients were on the wrong or unnecessary antibiotics. These results demonstrated the strongest clinical impact of the T2Resistance Panel to date in a real world hospital setting. We believe this performance data demonstrates the enormous potential of this unique and highly differentiated product to reduce cost, improve patient outcomes and reduce the threat of antibiotic resistance. We expect this to be a catalyst for greater adoption of the teacher resistance panels in countries where we currently market under CE Mark. We also believe the international experience with direct from blood detection of antibiotic resistance genes is an important precursor to our launch in the U.

Speaker 2

S. Market. As a reminder, we plan to submit a 510 premarket notification to the U. S. Food and Drug Administration or FDA during the Q3 of 2024.

Speaker 2

And we've previously received breakthrough device designation from the FDA, which will provide for a prioritized FDA review upon submission. The T2Lyme Panel is a direct from blood molecular diagnostic test designed for the early detection of Borrelia burgdorferi, the bacterium that causes Lyme disease in the United States. Lyme disease is a leading vector borne disease in America with an estimated 3,400,000 tests performed each year. The current diagnostic process is a 2 tiered antibody test algorithm that relies on the presence of antibodies and can only be used accurately 4 to 8 weeks after infection. If left untreated, the bacteria may spread throughout the body, become much harder to eradicate and treat effectively.

Speaker 2

Although early symptoms of Lyme disease are similar to the flu, Borrelia burgdorferi infections can lead to chronic debilitating disease. To address this critical unmet need, we have developed an extremely sensitive diagnostic test for the detection of early Lyme disease with an analytical sensitivity that is in line with our FDA cleared sepsis tests. We believe our test will detect Lyme disease within the first 30 days of infection compared to antibody tests that can take 30 to 60 days after infection. As I've mentioned previously, we plan to launch our T2Lyme Panel as a laboratory developed test or LDT during the Q3 of 2024. And we believe there are numerous potential advantages of launching this panel in this format, including faster time to market, higher test throughput and stronger product contribution margins.

Speaker 2

Importantly, in an LDT format, we can run the test without the T2Dx instrument, which can provide the potential to process hundreds of line tests per day. This is because the individual components of our underlying technology can be leveraged to process a higher volume of samples. Given the LDT format does not require the T2Dx instrument or the costs associated with a cartridge, we expect to realize strong product contribution margins. Our market research confirms that reference laboratories often charge greater than $2.50 for 2 tiered antibody Lyme tests and greater than $2.50 for PCR Lyme tests. Our ultimate objective is to provide early Lyme disease results to major U.

Speaker 2

S. Reference laboratories. We believe we can utilize their strong retail networks to collect patient samples, which would allow us to provide testing to Lyme patients across the country. These samples would then be sent to our LDD partner to perform the T2Lyme Panel in their lab. As I mentioned with T2BioThreat, it is important to note that T2Lyme Panel sales are also not in our current 2024 revenue guidance.

Speaker 2

So any potential sales during 2024 represent upside to that guidance. Our Candida auris test is a direct from blood molecular diagnostic test designed to detect Candida auris species in just 3 to 5 hours without the need to wait days for a positive blood culture. We believe the addition of a Candida auris test will strengthen the value proposition of our T2Candida panel and lead to increased adoption. Candida auris is a multi drug resistant fungal pathogen that has a mortality rate up to 60% and is recognized as a serious global health threat by the CDC and the World Health Organization. The CDC estimates the costs associated with U.

Speaker 2

S. Fungal diseases are as high as $48,000,000,000 annually and has called on public health professionals to help lower the burden of fungal disease by continuing to raise awareness of the life saving benefits of early detection and proper treatment. Candida species are a major contributor to morbidity and mortality in hospitalized children and present a significant burden to the U. S. Healthcare system with a mean increased hospital length of stay of 21 days and an estimated $92,000 in excess hospital costs for children with invasive candidiasis.

Speaker 2

A 2022 Journal of Clinical Microbiology study conducted at Bambino Gesu Hospital in Rome, Italy found that pediatric patients suspected of fungal bloodstream infections that were tested with the T2Candida Panel received species identification results 121.8 hours faster compared to blood culture based diagnostics. Finally, we're also pursuing claims of our FDA cleared T2Candida Panel and T2Bacteria Panel to include pediatric testing. In December 2023, we submitted a 510 premarket notification to the FDA to expand the use of the T2Candida Panel to include pediatric testing. And we expect to submit a 510 premarket notification to the FDA to expand the use of the T2Bacteria Panel to include pediatric testing during 2024. With that, I'll now turn the call over to John Sprague to provide a detailed update our Q1 financial results.

Speaker 2

John?

Speaker 3

Thank you, John. Q1 2024 revenues were $2,100,000 all from sepsis product sales, a 25% increase compared to the prior year period and sequential growth of 23% compared to the Q4 of 2023 led by T2 Canada and T2Resistance sales. 1st quarter 20 24 cost of product revenue was $4,200,000 a 5% increase compared to the prior year period driven by sales volume. Research and development expenses were $3,700,000 a 17% decrease compared to the prior year period driven by decreased BARDA contract activities. Selling, general and administrative expenses were $6,700,000 an 8% decrease compared to the prior year period driven by decreased headcount.

Speaker 3

The Q1 2024 net loss was $13,500,000 $2.66 per share compared to our Q1 2023 net loss of $18,000,000 $131.77 per share. Cash and cash equivalents were $6,200,000 as of the end of the Q1 2024 and we raised $2,200,000 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% 64% to $10,000,000 to $11,000,000 in 20.24 over 2023 and this target excludes any potential sales from T2 BioThreat or T2Lyme tests. Thank you and back to John Sperzel for closing remarks.

Speaker 2

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 4 catalysts that we expect to be growth drivers. 1, the T2Lyme Panel, which we may launch sooner than anticipated via a partnership. 2, the T2BioThreat Panel, which we are pursuing initial sales to government agencies and have engaged a U. S.

Speaker 2

Government expert 3, the T2Candida Panel to include pediatric testing, which is pending FDA 510 clearance and 4, the U. S. T2Resistance Panel, which we expect to submit for FDA 510 clearance during the Q3 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 The first question comes from Kyle Nixon with Canaccord. Please proceed.

Speaker 4

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

Speaker 2

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.

Speaker 2

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% 45%. So it's an important one to add, and it is certainly drawn on demand and we expect to continue to.

Speaker 4

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

Speaker 2

answer?

Speaker 3

I would say that covers it.

Speaker 4

Sounds good. Maybe guys the cost reduction measures that you were talking about that I guess have been started recently or they kind of seem what they're ongoing. When does that become more tangible, 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 burn is a little bit.

Speaker 4

It could be misleading, but when does that kind of flow through into the P and L? And when could I think specifically gross margin for that to flip positive would be interesting too. How are you thinking about that kind of near term?

Speaker 2

I think you'll see improvements on a sequential quarterly basis. Our guide is between $10,000,000 $11,000,000 As John and I both mentioned, that does not include any sales of T2 BioThreat 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 costs as well as the measures that we're taking internally to control costs, reduce inventory, improve product gross margins.

Speaker 4

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 for 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 too? Or is it not super material? It's hard to challenging to understand like how real that really benefit that benefit really could be on margins?

Speaker 2

Well, we think the Lyme opportunity is a substantial opportunity. Today, there are 3,400,000 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 1st 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 submission is because we can get to market faster.

Speaker 2

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 launch ahead of schedule through an LDT partner.

Speaker 4

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?

Speaker 2

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 submission, we have received clearance. We're not going to jeopardize that.

Speaker 2

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 clearance, we'll be ready.

Speaker 4

Okay. Let me ask another one before I hop off. 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 in the works that you're aware of? Is there any interest among various countries and governments to sort of do some more research and services and that could benefit T2 possibly?

Speaker 4

Could that be a tailwind over time?

Speaker 2

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 Candida 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 candida auris to our T2Candida panel. The test itself has FDA breakthrough device designation.

Speaker 2

And that's an area where we think there will be funding to help us get that over the goal line, 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.

Speaker 4

Got you. Okay. That makes sense. I'll leave it there. Thanks guys.

Speaker 4

Appreciate it.

Speaker 2

Thank you, Kyle.

Speaker 3

Thanks, Hal.

Operator

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

Speaker 2

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.

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