Q4 2023 T2 Biosystems Inc Earnings Call
Participants
Trip Taylor; IR; Gilmartin Group
John Sperzel; Chairman & CEO; T2 Biosystems, Inc.
John Sprague; CFO; T2 Biosystems, Inc.
Ben Haynor; Analyst; Alliance Global Partners
Presentation
Operator
Good day, everyone, and welcome to the T2 Biosystems preliminary fourth quarter and full year 2023 Results Conference Call. (Operator Instructions) It is now my pleasure to turn the floor over to your host, Tripp 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 requirement, 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 spread, 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 2020 23, we received the letter from NASDAQ informing us that we had failed to comply with the market value of listed securities or MVL. as 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 CAD35 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 the 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 11th, 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 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 will 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, Texas continues to exact an enormous human and economic toll such as is the number one cause of death in US 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 healthcare system, an estimated $62 billion annually.
Finally, sepsis is the number one cause of 30 day US 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 treatments. T2 Biosystems has the only FDA-cleared products able to detect sepsis, causing pathogens directly from blood in three to five 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 T2 Dx 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 T2 Dx Instruments in the US 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 T2 biothreat panel and the T2 Lyme panel. We believe each of these products represents an opportunity to increase test utilization among existing customers and to attract new customers. The expanded T2Bacteria Panel to include the detection of as needed backed by money 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 T2 biothreat panel in September 2023, which we developed in collaboration with the U.S. government for Varda, we shifted our focus to commercialization, giving the ongoing wars in Europe and the Middle East as the global population is an increased risk of exposure to bioterrorism. The T2 biothreat 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 Allyes. Given our advances with the T2 Lyme panel, we intend to commercialize a laboratory developed test version of the T2 Lyme panel in 2024. Accordingly, we're exploring potential partners to capitalize and 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 reentered 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 T2 Resistance 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. A study will aid in exploring whether combined diagnostic testing and provide more targeted antimicrobial therapy, strengthen stewardship and improve outcomes.
And we look forward to providing an update once available at ID Week 2023. In October, our team presented new clinical data urging early detection data for the T2 Resistance 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 in 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 backorder. I'm pleased to announce that we cleared all backorders for the T2Bacteria Panel and the T2Candida panel in December 2023. And we cleared all backorders for the T2 Resistance 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 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 continued 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 pipeline reminder, we are applying our proprietary direct from blood technology to three areas, sepsis, bioterrorism and Lyme disease, which all share a critical need for rapid pathogen detection and targeted antimicrobial treatments. We've made significant advancements across our new product pipeline, which is focused on expanding the test menu on the FDA cleared T2Dx instrument.
During 2023, we filed three FDA submissions and we have already received two FDA 510(k) clearances. First, we submitted a five 10 K premarket notification to the FDA for the T2 biothreat panel, and we announced receipt of FDA five 10 K clearance in September 2023. As a reminder, the T2 biothreat panel is a direct from blood molecular diagnostic test that runs on the FDA-cleared T2Dx Instruments and simultaneously detect six biothreat pathogens, including organisms that cause anthrax tularemia Flanders million doses. Isis these pathogens have been identified as threats by the CDC. And if not treated, promptly can have mortality rates of 40% to 90%.
Our clinical evaluation of the T2 biothreat panel demonstrated positive percent agreement for sensitivity of 100% for all targets except France to sell it to Laurence's, which was 94.3%, and demonstrated negative percent agreement or specificity for all six targets of 100%.
Second, we submitted a five 10 K premarket notification to the FDA for the expanded T2Bacteria Panel to include detection have asked me to back to Beaumont, and we announced receipt of FDA five 10 K clearance earlier this week. As a reminder, the T2Bacteria Panel is the only FDA-cleared diagnostic test able to detect sepsis, causing bacterial pathogens directly from blood in just three to five hours without the need to wait days for a positive blood culture.
The expanded T2Bacteria Panel now covers approximately 75% of all sepsis causing bacterial pathogens, commonly found in bloodstream infections, including EPCM Staph aureus on ammonia as needed back of Armani, a Pseudomonas aeruginosa E. coli in a large study of nosocomial bloodstream infections as needed, backed by money. It was the 10th most common pathogen and has accrued. I see your mortality rate of 34% to 43%. Due to the emergence of Pan antibiotic resistant as needed. Back to about , the World Health Organization has identified about money eight as the most critically important bacteria that requires improve prevention and therapeutic approaches. S&ed back to resistance to many antibiotics, including carbapenems, highlights the importance of rapid detection and targeted antimicrobial treatment.
Third, in December 2023, we submitted a five 10 K premarket notification to the FDA to expand the use of the FDA-cleared T2Candida panel to include pediatric testing as a reminder, the T2Candida Panel is the only FDA-cleared diagnostic test able to detect sepsis, causing Candida pathogens directly from blood in just three to five hours, again, without the need to wait days for a positive blood culture according to the U.S. Centers for Disease Control and Prevention or CDC, up to 95% of all invasive Candida infections in the US are caused by the five Candida species detected by the T2Candida Panel, including Canada, Albertans, Canada's Tropical, U.S. Canada, perhaps losses, and it accrues CA in Canada and abroad. Candida species are a major contributor to morbidity and mortality in hospitalized children and present a significant burden to the U.S. health care 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.
A 2022 journal of clinical oncology study conducted at them Venoco's Zoo hospital in Rome, Italy founded pediatric patients suspected of fungal bloodstream infections that were tested with the T2Candida Panel received species identification results 121.8 hours faster than compared to blood culture.
Looking forward to 2024, we expect continued advances in our pipeline following my comments on pediatric testing as part of our commitment to expand the clinical utility of our sepsis test panels, we expect to receive FDA five 10 K clearance to expand the use of the T2Candida panel to include pediatric testing. We also plan to submit a five 10 K premarket notification to the FDA to expand the use of the FDA-cleared T2Bacteria Panel for pediatric testing.
In addition, we have three new tests in our pipeline, including the UST2 Resistance Panel, the T2 Lyme panel and the Candida auris test. Each of these new test panels or test is designed to run on our FDA-cleared T2Dx Instrument and each of these three previously received FDA breakthrough device designation, which will provide for a prioritized FDA review upon submission. The T2 Resistance Panel is a direct from blood molecular diagnostic tests designed to simultaneously detect 13 antibiotic resistance genes known to cause antibiotic resistant infections in just three to five hours without the need to wait days for a positive blood culture.
We believe the T2 Resistance Panel will be a very important addition to our expanding test menu as we expect it to be the first direct from blood culture, independent antimicrobial resistance test that can drive increased adoption of our platform. We have completed all external testing in the T2 Resistance Panel U.S. clinical trial. We are now focused on internal stability and shelf life testing. And we accept expect to submit a five 10 K premarket notification to the FDA in the third quarter of 2020 for the T2 Lyme panel is a direct from blood molecular diagnostic test designed to detect Verallia the dirt, right, the bacteria, that's the major cause of Lyme disease in the US. There's a critical need for new Lyme disease diagnostics with an estimated 476,000 cases annually.
Lyme disease is by far the leading vector-borne disease in America. The current diagnostic process, a two tiered antibody test algorithm originally developed in 1994 for disease surveillance as a standalone diagnostic test relies on the presence of antibodies and can only be used to accurately four to six weeks after infection. Early diagnosis of Lyme disease is critical. If left untreated, debilitating disease can spread throughout the body and become much harder to eradicate as we announced earlier this month, we've been selected as a Phase two winner in the YX. diagnostic price and will receive $265,000 to help accelerate the development of our T2 Lyme panel for the early detection of Lyme disease.
We appreciate the support from the line innovation accelerator or line X from the U.S. Department of Health and Human Services and the Stephen and Alexandra Cohen foundation. As I mentioned earlier, we're advancing the T2 Lyme panel toward commercialization and planned the initial U.S. launch as a laboratory developed test or LDT. We're in discussion with potential laboratory partners, and we're exploring the potential to obtain non-dilutive grant based funding to advance the T2 Lyme panel Candida auris test is a direct from blood molecular diagnostic test designed to detect it or a species in just three to five hours without the need to wait days for a positive blood culture. We believe the addition of the Candida auris test will strengthen our value proposition and lead to increased adoption of our platform.
Candida auris is a resistant fungal pathogen that has a mortality rate up to 60% and is recognized as a serious global health threat by the CDC and World Health Organization. CDC estimates the costs associated with U.S. fungal diseases are as high as $48 billion 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.
With that, I'll now turn the call over to John Sprgue to provide a detailed update of our fourth quarter financial results and our financial outlook for 2024.
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 backorders. We resolve the product production back orders in January 2020 for 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 reduce 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 Mark D. two biothreat 42 line panels. Thank you, and back to John's Basel three closing remarks.
John Sperzel
e 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 five, 10 K clearances for the expanded T2Bacteria Panel to include the detection of U.S. meter back about money or the T2 biothreat panel at the pending FDA clearance to expand the T2Candida panel to include pediatric testing. Additionally, three of our products in our pipeline have received FDA breakthrough device designation, including the UST2 Resistance Panel, the T2 Lyme 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?
Question and Answer Session
Operator
(Operator Instructions) Ben Haynor, Alliance Global, your line is live.
Ben Haynor
Good afternoon, gentlemen. Thanks for taking the questions. Can you hear me okay.
We can then clear and excellent. Paul.
First off, just on the on the backlog. You know, it sounds like most of it was cleared by the end of the year, but the T2 Resistance and clear until January, how much was the backlog at the end of the year, and you know, kind of how much, but how many months would that have represented when to do resistance?
John Sperzel
About $70,000 was the backlog on future resistance 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
Hope S, I don't expect any backlog issues, 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 T2 bio threat, that's been clear for a little while now what Canada needs to chip before neither one of those organizations or entities that you mentioned you might see sort of the first order and once you sort of get the first order, do do a lot of a lot of folks follow suit for a lot of entities follow suit, what's the right way to think about them?
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 has panel, and we believe we have unique performance. The specificity is 100%. I mean zero false positive across our clinical evaluation. And the sensitivity was 100% on five of the six 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. Then we're in the process of that right now, and we look forward to reporting sales results on the T2Bacteria panel in the future and how soon might that future be?
We're working on it as we speak, but.
Ben Haynor
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 shouldn't necessitate why systems the then these distributors think about when you win when signing up?
John Sperzel
Sure, Ben. So I think as we've discussed in the past, Subsys doesn't discriminate big hospital, small hospital. While developed country less developed country, it can impact patients in every single corner of the world and 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 partnership. 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 for adjacent products in the subsea 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 John if you will, and we train them on our products and we support them from a medical affairs span 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 a suite of Acthar, Beaumont, FDA, 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 or adoption in the House potential accounts out there that are kind of just waiting on this addition to the panel or how big a deal as it has been that it's probably only a handful of percent of the the bloodstream infections, sepsis cases, the burn of the beam.
John Sperzel
The important aspect of asking about the Beaumont is one of the Escape pathogens. It's BA. and Escape and the U.S. Again, pathogens are the ones that typically do not respond to broad-spectrum empiric therapy. So if a patient is on Broadspectrum antimicrobials and they have one of the tests are one of the targets that our T2Bacteria Panel generally not going to receive on. And that's why we focused on those allow me to back to itself, adds about 5% more coverage on our test panels. So with six 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%, the well covered by broad-spectrum antibiotics and blood culture companies going to have those will take the other six.
Okay.
Ben Haynor
That's helpful. And then lastly, for me, just kind of a housekeeping question for for shares outstanding. Post the CRG. conversion of the existing share preferred shares that they had, where does the share count stand today or or post the conversion?
John Sperzel
John Sprague, you want to take that?
John Sprague
Yes. So Ben, we ended the year relative to go back to three because that's what we've disclosed. And the share count hasn't changed much since then, but we had that the key three suffer with me for a second.
John Sperzel
Sure, it should be about $4.85 million.
Ben Haynor
Okay. So basically just the small amount of APM sales and the conversion is the way to think about it.
John Sperzel
You have crept.
Ben Haynor
Okay, great. Well, that's all I had for now, gentlemen. Thanks for taking the questions.
John Sperzel
Thank you, Ben.
John Sprague
Thank you.
Operator
Thank you. There are no further questions in the queue. I will now hand the conference back to John's Purcell, 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. And 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.
