Accelerate Diagnostics Q2 2024 Earnings Call Transcript

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August 8, 2024

There are 5 speakers on the call.

Operator

Good day, and welcome to the Accelerate Diagnostics Incorporated Second Quarter 20 24 Results Conference Call. All participants will be in a listen only mode. After today's presentation, there will be a question and answer session with covering analysts. Please note this event is being recorded. I would now like to turn the conference over to Ms.

Operator

Laura Pierson of Accelerate Diagnostics. Please go ahead.

Speaker 1

Before we begin, it is important to share that information presented during this call may contain forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward looking statements include projections, statements about our future and those that are not historical facts. All forward looking statements that are made during this conference call are subject to risks, uncertainties and other factors that could cause our actual results to differ materially. These are discussed in greater detail in our annual report on Form 10 ks for the year ended December 31, 2023 and other reports we file with the SEC. It is my pleasure to now introduce the company's President and CEO, Jack Phillips.

Speaker 2

Thank you, Laura. Good afternoon. Today, I would like to provide exciting updates on our WAVE program, including the preclinical trial results, commercial readiness progress and meaningful incremental funding to further deliver strategic milestones. I will then pass the call to David Patience, our CFO, to summarize our financial results for the quarter before opening up the call to take questions from our analysts. As a reminder, Accelerate is uniquely positioned to disrupt the microbiology susceptibility testing market with our 2nd generation antimicrobial susceptibility system, WAVE.

Speaker 2

WAVE addresses the entire AST market, including both positive blood culture and traditional isolated colony testing. The combined global AST market is estimated at $2,000,000,000 By processing all AST testing on the same instrument with a cost structure competitive to the market leaders in traditional automated isolated colony testing, customers will have the opportunity to consolidate all testing on a single AST platform. Further, Wave's product differentiators include same shift results in 4.5 hours on average, a lab friendly workflow which does not require sample preparation instruments, a scalable platform to meet the testing needs of all lab segments, while delivering a significantly improved cost structure to return higher platform margins and incremental cash flow generation. Moving to our preclinical trial. We are pleased to announce our preclinical trial was a success measured by several meaningful endpoints.

Speaker 2

1st and foremost is the clinical performance, which included a data set of 15 70 unique bug drug combinations tested on the WAVE platform compared to the reference method brought micro dilution. Our overall performance is measured by essential agreement and categorical agreement, both of which were approximately 95% across 20 antibiotics. It's important to note the study included an equal number of fresh and contrived samples, resulting in excellent concordance between prospective patient samples and site selected challenged stock samples. Our strong performance was achieved with an unprecedented time to result of 4.5 hours on average, delivering true same shift susceptibility results to clinicians, which is not achieved by any emerging AST platforms today. Beyond a strong data readout and time to result performance, the trial measured assay reportability, system reliability, ease of use and laboratory workflow.

Speaker 2

A remarkable 99% of wave runs reported a minimum inhibitory concentration result. There were no major hardware failures that required a service engineer to visit the labs and assay reliability was excellent. After a few hours of operator training, lab technicians ran all specimen testing during the preclinical trial. Operators were pleased with the simple pre analytical workflow, the ease of use, intuitive interface and random access capabilities. In conclusion, the preclinical trial was a great success, which gives us confidence we have both the right product design to take to a clinical trial and in turn commercialize.

Speaker 2

We are now ready to start the clinical trial, which includes 4 external sites. WAVE systems have been installed in all sites and all necessary gram negative test kits have been manufactured. The start of the clinical trial is imminent. As previously outlined in prior earnings calls, our 3 step strategic roadmap to maximize Wave's commercial impact includes initially leveraging our position in the PBC market with existing customers in the U. S.

Speaker 2

And EMEA, followed by expanding into the isolate susceptibility testing market by offering new assays to increase customer engagement and wallet share. And thirdly, by applying our holographic imaging technology to other areas of diagnostic testing. First, by launching Wave with the appropriate regulatory clearances and converting our existing customers already implementing rapid susceptibility testing provides a commercial platform for strong initial uptick, while also reducing overall cash needs of the business and sets the company on a path to cash flow positivity. We now have approximately 75 percent of our U. S.

Speaker 2

Customer base signed to longer term contracts ahead of the WAVE commercial launch. Secondly, by launching an incremental menu for gram positive PBC as well as subsequent isolate assays, we provide microbiology labs with a comprehensive diagnostic solution for all susceptibility testing. We estimate by expanding into the isolate testing, we can grow our existing customer annuities by 3 to 4 times by offering comprehensive PBC and isolate assays on the same Wave platform. This growth in revenue is coupled with a very attractive margin contribution given Wave's low cost structure compared to emerging PBC and traditional isolate competitors. We continue to concurrently develop our gram positive PBC assay as well as have demonstrated our ability to produce susceptibility testing on isolate samples.

Speaker 2

Finally, we also see WAVE capable of completing other microbiology assays such as yeast and anaerobes, along with antibiotic development opportunities with pharma, which could expand WAVE's addressable market even further. We continue to focus on delivering Wave's strategic roadmap to ensure we maximize the benefits of Wave's holographic imaging technology to improve patient outcomes, grow market share while expanding customer wallet share, and finally, further expand our addressable market. To this end, and now with our strong preclinical trial results, we have decided to focus on achieving further critical wave operational and development milestones. We believe this focus will drive more value for all Accelerate stakeholders ahead of signing a strategic partner. We are excited to announce we worked with our existing lenders to bring in additional capital to fund the company through 2025.

Speaker 2

The financing also allows us to focus on delivering an FDA cleared WAVE system and gram negative PBC menu, along with developing incremental assays to further demonstrate WAVE's capabilities. We feel this strategy will now ensure we have the cash runway to deliver these important value inflecting program milestones and in turn further demonstrate an increased value for our Wave system with strategic partners. I will now turn the call over to David to discuss the Q2 twenty twenty four financial results. David?

Speaker 3

Thank you, Jack, and good afternoon, everyone. Net sales were approximately $3,000,000 for the quarter, which compares to approximately 2,900,000 dollars for the same period in the prior year. This increase was driven by a low double digit growth in reoccurring consumable net sales. Gross margin was approximately 23% for the quarter, which compares to approximately 27% for the same period in the prior year. Overall decline in gross margin was driven by product mix.

Speaker 3

Selling, general and administrative expenses were approximately 5,400,000 dollars for the quarter, which compares to $7,600,000 in the same period in the prior year. SG and A expenses for the quarter include employee related expenses. Research and development expenses were $3,900,000 for the quarter which compares to $5,800,000 for the same period in the prior year. R and D expenses for the quarter include approximately $200,000 in non cash stock based compensation. The overall decline in R and D expenses is a result of lower third party development expenses for our WAVE program.

Speaker 3

Our net loss for the quarter was approximately $11,600,000 resulting in a net loss per share of $0.50 Cash used for the quarter was approximately $8,700,000 net of financing. Our cash used for the quarter includes notable one time and non recurring payments of approximately $1,500,000 for both the repayment of our outstanding 2.5% convertible notes as well as a payment to a key wave development partner. As discussed on previous calls, we are focused on driving significant reductions in operating expenses and cash burn in the coming quarters. In summary, by continuing to drive these significant reductions in cash burn, coupled with the new funds raised, provides us the runway to continue delivering these critical WAVE program milestones through the end of 2025. At this time, we are happy to open the call and take questions from our covering analysts.

Operator

We will now begin the question and answer session. And the first question will come from Mr. Andrew Brackmann with William Blair. Please go ahead.

Speaker 3

Hi, guys. Good afternoon. Thanks for taking

Speaker 4

the questions. Maybe just on the preclinical trial results, certainly look exciting. But Jack, as you sort of think about pioneering and advancing the rapid ASP fields, what levels of essential agreement and categorical agreement do you think are likely needed to drive the inflection and sort of uptake? I guess, in other words, as we move to the full clinical trial here, what results should we be looking for as you define success? Thanks.

Speaker 2

Hi, Andrew. Again, thanks for the question. So, yes, as I mentioned in my prepared comments, first of all, the preclinical trial was a really big success for the company. It was a big milestone and it's paving the way for us to start an effective clinical trial here in the next coming weeks. And so specific to your question around clinical performance, I mean that in really most any diagnostic platform, that's really table stakes.

Speaker 2

And so in microbiology and rapid AST testing, there's really 2 key parameters that you mentioned, EA and CA are the 2 key factors that will be data that's submitted to the FDA. The FDA requires performance above 89.9% for approval. And so, where we're at right now, as we stated in our we just released a press release on the preclinical trial and we shared some of the data of the 15.70 bug drug combinations that we produced on fresh samples and contrived samples. And the performance is very solid, in the mid-90s and that is that's really where we need to be. And again, this has given us great confidence to complete a successful clinical trial as a result of that.

Speaker 4

Perfect. And then if I could just switch gears here, the comments on sort of now focusing on achieving the milestones before working with the strategic partner. Guess, can you maybe just give a little bit more color around what led to that decision? And I guess, as you sort of think about these preclinical trial results, how might that further any conversations with these partners moving forward? Thanks.

Speaker 2

Yes. So, we've obviously have a lot of interest from strategic partners for what we're doing with Wave, because it's unique, it's in a class all by itself. We've been able to demonstrate workflow, system reliability, time to result is really unmatched at 4.5 hours on average. And now with the building up to this, now we just completed the preclinical study, which delivered the results that I spoke about. And so, as we're going through our strategic planning, it became very clear to us that time is on our side if we're able to secure funding, which we are able to do.

Speaker 2

That funding, David may speak to it, but it will get us through 25. It will set us up to comfortably conduct the clinical trial to submit to the FDA, and then ultimately get FDA clearance for WAVE and PBC gram negative panel. And so, as we went through the process and thinking about our options, this we believe is absolutely the best path forward for us right now because of the confidence that we have in the platform, the solution and the data that we're seeing off the preclinical. And in the end, ultimately, we believe it's absolutely the best way to maximize value for all stakeholders. And so moving forward, we will continue to work with strategic partners to meet with strategic partners.

Speaker 2

I had meetings at ADLM last week. We have meetings coming up to share the data that we generate and we'll be doing that with the strategic partners as well.

Speaker 4

Perfect. And then, David, maybe one for you, just on the cash balance in lieu of this raise. My pro form a math gets you somewhere on that low to mid-twenty million dollars range for cash balance. Can you maybe just sort of help bridge us and get comfortable to your target of funding through 2025? Thanks.

Speaker 3

Perfect. Yes. Thank you for the question, Andrew. So yes, it's on a net proceeds basis, it's in the mid-twenty $5,000,000 on a pro form a. But we're really excited to prove out in our recent quarters that we've driven significant cost cutting initiatives while also delivering key strategic milestones for the WAVE program and continuing to preserve our customer base.

Speaker 3

Starting with the Q2, if you look at our cash burn, after adjusting net of financing and excluding the repayment of our 2.5% notes and a non recurring payment with the Wave development partner, we burned about $7,000,000 And then quarter over quarter, looking at our 2nd quarter R and D cash expenses, we were down 20%, while delivering a very key program milestone with the preclinical. We also are ready to go with the clinical trial, as Jack discussed, pre purchased all of our clinical trial materials, which is included in the 2nd quarter number. So really excited that we are delivering milestones within the R and D team with Wave, but also able to bring down the cost 20% quarter over quarter. Within SG and A, we were able to bring that down quarter over quarter by about 5% on a cash basis. But we also implemented further significant cost cutting measures during the Q2, which is going to further reduce our SG and A expenses moving forward.

Speaker 3

Our overall goal is to get to a target of operating cash burn of about $5,000,000 and we're on our way to get there. We're really excited about that, as we've looked at strategic cost cutting initiatives with a focused priority on the WAVE milestones. Additionally, to bridge into the 2025 timeframe and through 2025, we do have contractual obligations from other folks for cash inflows with our on market product portfolio partnership.

Speaker 4

Perfect. Thanks, guys. Okay.

Speaker 2

Thank you, Andrew.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Mr. Jack Phillips for any closing remarks. Please go ahead, sir.

Speaker 2

Thank you, and thanks for everybody joining into the call today. As I close out, just a reminder, I mean, we're on a very, very exciting journey here at Accelerate with the Wave platform and the next generation solution for rapid susceptibility to get patients on optimal antibiotic therapy quickly. Sepsis continues to impact 49,000,000 people globally each year. Estimated deaths are about 11,000,000, 1,300,000 are attributed to bacterial antimicrobial resistance. So, this is a real world healthcare issue that still has not been addressed.

Speaker 2

And with WAVE, with rapid susceptibility testing, we have an opportunity to do just that. I want to thank our employees. We've been working day and night to continue to hit our milestones in advance way forward. We're very appreciative and thankful that we're able to move forward with new funding that will fund us through 2025. The preclinical trial success was a tremendous milestone for the company that gives us great confidence to start the clinical trial.

Speaker 2

And then finally, with all of this, we're excited to identify a future strategic partner for WAVE and ultimately maximize value for axDx stakeholders across the board. So with that, thank you very much and have a wonderful day.

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Earnings Conference Call
Accelerate Diagnostics Q2 2024
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