Good day and thank you for standing by. Welcome to the Talis First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions].

Without further ado, I would like to welcome your first speaker for today, Miss Emily Fawcett, from SVP Corporate Communications and Investor Relations. Ma'am, the floor is yours..

Good afternoon, and thank you for participating in today's conference call. Joining me we have Brian Coe, our Chief Executive Officer and Roger Moody, our Chief Financial Officer. Earlier today, Talis released financial results and business progress for the quarter ended March 31, 2021.

A copy of that press release can be accessed on the Investors page of our website at talisbio.com. Before we get started, I would like to remind you that management will make statements during this call that are forward-looking statements within the meaning of the federal securities laws.

These statements involve material risks, and uncertainties that could cause actual results, or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Forward-looking Statements in the press release that we issued today.

For a more complete list and description, please see the risk factors section of the company's 10-K filed with the SEC on March 30, 2021. And in its other filings with the Securities and Exchange Commission, except as required by law.

Talis Biomedical disclaim any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time sensitive information, and is accurate only as of this live broadcast on May 11, 2021.

With that, I'd like to turn the call over to Brian Coe, Talis's Chief Executive Officer.

Brian?.

Thank you, Emily, and welcome everyone to our first earnings call, as a public company. This is an important milestone for Talis. Before we get started, I would like to take a moment to recognize the Talis team's relentless dedication to join the global efforts to fight against infectious disease, to our long-standing investors.

Thank you for the belief and support you have put into our company over the years. I would also like to welcome our new shareholders. We appreciate the confidence and trust you have put into our organization.

During today's call, I will start with a brief overview of Talis Biomedical, followed by a review of our strategic initiatives and future growth opportunities. Roger will then walk you through our first quarter financial results. Our belief is that diagnostic testing will increasingly transition to the point of care.

And that Talis is well positioned to be one of a small number of companies that will serve these large global distributed diagnostic testing markets at scale. What is driving this transition? Clinically for many diseases, especially infectious diseases, timely diagnostic testing has the potential to improve medical care.

For example, if one has a bacterial infection, it is self-evident that it is better to know sooner if an antibiotic is necessary, and if so, which one should be prescribed. With timely information, doctors can avoid empiric treatment or delay in care.

Beyond the standard clinical drivers, the COVID pandemic has brought the need for point of care testing to the forefront of people's mind, in our view, accelerating this transformation. Additionally, in many markets, bringing testing to the point of care also shifts the economics to care providers, incentivizing adoption.

To meet the needs at the point of care diagnostic market, we designed the Talis One to deliver sensitive and specific diagnostic testing on a platform that has a rapid time to result, is easy to use, fits within the economic constraints of the markets we serve, and can be manufactured at a scale is clinically and commercially relevant.

While a variety of technologies are commercially available, we believe that few, if any, sufficiently meet the needs of healthcare providers due to limitations with either specificity and sensitivity, time to result, or the ability to ramp up production to meet demand. In this context, our business model is simple.

We plan to provide diagnostic testing that is known to be of clinical benefit on a platform that meets the needs of care providers, while moving the economics from centralized to decentralized, where appropriate. Financially, the initial multibillion dollar respiratory sexual health and women's health markets we plan to serve exists today.

And at scale, our platform offers attractive gross margins for the company. Based on the opportunity ahead, we successfully brought the company public last quarter, raising approximately $232.5 million in net proceeds.

We look forward to leveraging this momentum and capital to execute our business goals and continue innovating as a leader in the transformation of point of care testing.

For those of you who are new to our story, I would like to take a few minutes to walk you through why we believe we are uniquely aimed to address the enormous market opportunity ahead of us, beginning with the design of the Talis One system.

Our integrated platform includes a compact instrument, a single use test cartridge, and software, including a central cloud database. We believe that we can meet healthcare providers needs and outpace competitors at the point of care specifically, based on our unique confluence of five critical capabilities.

The first is high sensitivity and specificity with the single use cartridge design that fully integrates sample preparation to extract the nucleic acids. The second is rapid turnaround time of less than 30 minutes to generate an actionable test result while the patient is in the office.

The third is ease of use for untrained operators that requires less than two minutes of hands-on time to run a test. The fourth is extensible menu to run multiple infectious disease tests, increasing the clinical relevance and value for customers. And finally, favorable economics with scale and low-cost manufacturing.

From an execution perspective, what lies ahead in the near term is to first obtain authorization and drive commercialization of our COVID-19 tests in the United States. Second, build scalable manufacturing capability and a sales organization in preparation for commercial launch.

And third, expand Talis One test to additional respiratory infections as well as women's health and sexually transmitted infections. The first test on the Talis One menu that we plan to bring to market is our COVID-19 assay.

As we previously announced, our regulatory pathway includes a clinical validation study in a point of care environment, for an emergency use authorization, or EUA for our Talis One COVID-19 test. We are on target to submit an EUA application for this to test the second quarter of this year.

I'd like to take a moment to discuss our perspective on the market dynamics around COVID-19 testing. While volume is currently trending down from levels experienced earlier this year, testing volumes continue to remain high with approximately 1 million tests being conducted each day in the United States alone.

Our belief is that as the market contracts, we will continue to see demand preferentially for high quality point of care testing relative to Central adoption. We have established a commercial team that is well positioned to promote our platform across the wide spectrum of the COVID testing market.

And we continue to believe that Talis One will play an important role in ongoing testing. Turning to our operational and commercial activities to support our anticipated launch of our COVID-19 test. We have invested in automated cartridge manufacturing lines capable of producing 1 million cartridges per month.

We will continue efforts to drive operational efficiencies and manufacturing capabilities to further support economies of scale and lower manufacturing costs. Additionally, during the first quarter, we signed leases for new offices in Redwood City, California and Chicago, Illinois to support our rapid growth and development.

Both will include on site labs and office space for all functional groups, enabling us to further build out our team and capabilities in these locations.

Switching to our final objective to broaden our test menu to meet the needs of customers and expand our addressable market, we continue to develop Influenza A and B tests to combine with our COVID-19 tests in order to create and commercialize an upper respiratory panel on a single cartridge.

We are also investing in the development of tests for infections related to sexual and women's health starting with a test for chlamydia and gonorrhea, followed by a broader STI panel, and then expanding to tests including bacterial vaginosis, urinary tract infection and herpes simplex virus.

Finally, we are excited to welcome Jeri Hilleman to our Board of Directors as the Chair of our Audit Committee. Jeri's wealth of experience as a public company leader and guidance will be instrumental as we continue to scale our business in preparation for the commercial launch of Talis One.

As we look ahead, I am proud of the exceptional progress our team continues to make. I'm confident that we are poised for future growth as we collectively continue to execute and deliver. With that, I will now turn the call over to Roger for more details on our financials..

Thanks, Brian. This afternoon, I will summarize Talis's first quarter 2021 financial results. We were pleased to recognize $7 million in revenue in the first quarter based on achievement of milestones associated with our RADx contract with the NIH. However, we do not expect to recognize the remaining RADx contract revenue before Q3. Turning to expenses.

First quarter total operating expenses were $67.5 million, an increase of nearly $60 million as compared to the first quarter of last year. This increase was driven by investments in both R&D and SG&A as we prepare for commercialization of the Talis One.

Most of this expense, approximately $60 million was R&D, where we invested in manufacturing scale up, taking delivery of the first of our automated test cartridge assembly lines, pre commercial production, including instruments and test cartridge materials, and expansion of our team.

Among these elements, the associated R&D expenses were $28.6 million in manufacturing scale up; $14 million and $5.9 million in Talis One instruments and cartridges respectively, and $3.3 million related to personnel working on our manufacturing scale up and test menu expansion.

It's worth noting that most of our investments in automated cartridge manufacturing lines, and all of our investments in inventory are being expensed to R&D prior to FDA authorization, after which most of these expenses will be treated as capital expenditures or inventory.

SG&A expenses for the first quarter of this year were $7.3 million, an increase of approximately $5 million over last year's first quarter. The change was primarily driven by increases in building our commercial team, including sales, marketing and customer support.

Net loss was $60.5 million for the first quarter of 2021 compared to $7.4 million for the same period in 2020. We completed our IPO in February, generating net proceeds of $232.5 million. With these funds, we are in a strong cash position to move the business forward, ending the first quarter with $348 million in unrestricted cash.

In addition, we had restricted cash of $34.7 million to secure instrument material purchases with our contract manufacturer. In summary, we are pleased to have the capital and execute aggressively on our plans. And we look forward to recording our continued progress. Now I'll turn the call back over to Brian for closing remarks..

Thank you, Roger. A transformational shift in diagnostic testing to the point of care is underway with the promise to deliver actionable test results in a more timely manner, thereby improving medical care.

Success and serving the large market that we referenced today will require a combination of accuracy, speed, ease of use, menu accessibility and low cost. We believe that Talis is well positioned to deliver on this in the near term with a promising pipeline for future growth. I will now turn it over to the operator for questions..

Thank you, sir. [Operator Instructions]. Our first question comes from the line of Tycho Peterson from JP Morgan. Your line is open..

Hey, good afternoon. I guess we'll start with the COVID timeline since those have moved around a little bit. I know your kind of committing to the second quarter submission here. Can you just talk a little bit about how you think about customer mix? I think the kind of pre deal model had been about 50% hospital, 30% urgent care, 10% physician office.

So how do you think about that dynamic in terms of where we are in the testing continuum? I think you talked about $25 to $35 in pricing for COVID.

I'm curious if you think that's still hold? And then how do you think about standalone versus syndromic in terms of the mix, as you do roll it out?.

Tycho thank you for the questions. So, the first, I think your first question was really about the mix of customers, hospitals, urgent care centers, and then into specialty and primary care.

As we look at the market, I think, and as we've thought about it historically, our first target is to go to hospitals, and their affiliated urgent care centers, a little more aggregator of testing and demand.

And then to move over into urgent care and then finally, into specialty care, particularly this ladder as we get closer to the launch of our chlamydia and gonorrhea product. So, it's very hard for us to kind of give you a ratio, and we haven't really got into that specifically.

And one would expect, though that will change as we move through this progression that we've outlined historically. So, some initial work in hospitals, followed by a really strong effort in the urgent care community and that on to specialty and primary care.

With respect to pricing, Roger, I don't know if you have any comments there?.

Yeah, no, we're going to make sure we price to the market. We haven't seen a large change, at least in pricing of the certainly there's been no reimbursement changes recently that we've seen. So, we don't see in kind of changing or evolution in the market, but we'll keep watching it. And if necessary, we certainly will meet the market needs.

[Multiple speakers].

Next, yeah, just I think you've previously said you thought about 17% standalone COVID and 22% or so of syndromic.

Is that still kind of your assumption?.

Well, I think you know, initially is, it'll entirely be just COVID testing until we get a COVID plus flu. And then our view is that increasing proportions over time, we'll move over to the COVID plus flu combination, depending and it's going to be hard for us to predict to specific ratios, one can recognize that there is a flu season.

So, it probably will increase - our expectation would be that it should increase during the flu season, and then perhaps have some seasonality to it in the spring and summer quarters..

And then the question of the competitive dynamics.

Bing got preapproved for a committee gonorrhea a PCR test the other day, thermos seems to be doing pretty well with Mason and focusing on the new build out, can you just talk on in the point of care channel, how you're thinking about competitive dynamics beyond obviously COVID here near term, but as we think about women's health in particular?.

So, I think, you know, as we as we've alluded to previously, these are enormous markets Tycho, is very difficult for us to comment on specific companies, but we never we don't believe that we have never had an expectation that we will be alone in serving these enormous markets.

What we can say is that, first of all, we feel will be very competitive than them for the reasons we've outlined in that. We believe the quality of our results will be high. We have a rapid time for result.

We'll be able to produce it scale, which is very important, because that makes that's relevant in the marketplace and the platform, it's easy to use. The last piece, which I think I'll touch on a little bit more is that we have a platform capable of multiclassing.

And we have embedded sample prep, and we believe, against many competitors, this gives us an extensibility into a broader menu, that might not be available to a lot of people who attempt to enter this market..

Okay, last one for me, just on margins. At the time of the IPO, you laid out the path to the 70% margin. I know you talked about I think reaching at a million cartridge promotes capacity now and automation was kind of a key part.

Is that still on deck for kind of mid-year to incorporate the automation on the manufacturing side?.

Yeah, so maybe, Roger, since it's a margin question, I'll let you handle that one..

Sure. So, we are on track to bring up our automated launch. And we've begun doing so, we expect to continue to bring those lines up to meet demand throughout the second half. So that's on plan.

And long term, we do think that our margin profile is attractive as a razor-razor blade business where over time a majority of the margins will be driven by the cartridge consumable. And we expect that we will be among the industry leaders in terms of margins once we've scaled up..

Okay, thank you..

Thank you, Tycho..

Our next question comes from the line of Derek de Bruyne from Bank of America, your line is open..

Derek, if you're there, we can't hear you..

Hi, this is Ivy on for Derek.

Can you hear me?.

Oh, Ivy. Yes, we can hear you now. Thank you..

Hi, thank you for taking the question.

Wanted to see if you have any updates for the regulatory approval timeline, since you're still saying the submission is on track in 2Q, but there's certain priority shifts within FDA, so just wanted to see if there's an update there?.

Ivy, we don't have any update at this time beyond what we said publicly, which is we are on track to submit in Q2. It's also would be difficult for us to comment specifically on FDA regulatory timelines beyond what's publicly..

Got it. But after the hypothetically, after approval, how soon can you ship the product out to the customers, I'm just trying to get at if there's any change to the product revenues for the rest of the year..

We feel we'll be in a position to ship product in a very timely manner following an approval. We certainly spend in quite an effort on commercial preparedness. And it's already commented as well, we have a commercial team in place. And we feel very much ready to go on. All right..

Got it. Thank you.

And the last one is, appreciate the color on OpEx so far, but wanted to see if you could talk a bit more about range for the - to the OpEx for the full year?.

Roger, could you handle that? Roger?.

Yeah. Hi. Sorry about that. We're not providing guidance at the moment. But what I would look at is the manufacturing scale up that we have stated is in aggregate over $100 million. So, expecting that to wrap up sometime in the third quarter and then from there, we'll normalize to an operating burn rate that excludes that.

If you go back to our 10-K, we speak a little bit to how much that scale up is. And I think you can subtract that from what we posted in our first quarter. We do expect to continue to scale up our sales force a bit more than we already have. But we're not providing specific guidance on the numbers here. Let's see..

Great. Appreciate the color guys..

Our next question comes from the line of Steven Mah from Piper Sandler. Your line is open..

Okay, great. Thanks, operator. And thanks, guys for taking the questions..

Pleasure. Thank you, Steve..

So, a question on your combination test. So, the KOLs we talked to, obviously, the flu season, this past flu season was nonexistent. But the KOLs, we talked to say there will be some type of flu season.

Could you comment on the timing of the combination tests if you think you're going to be able to get it out in time for the upcoming flu season?.

Yeah, I believe we've previously guided to a submission in time for next year's flu season. And as we sit here today, we believe we're on track with that..

Okay, great..

Yes..

Okay. All right. So, no changes on to the timing. All right, that's good..

We're not providing any change to [Indiscernible] point. Yeah, that's correct..

Okay, great. And then a question on the sales force build-out.

Is that built out completely or has that been dialed back given the COVID or SARS-Cov-2 delay?.

We actually have continued along with our plans to build out our sales team. And we actually feel like we're in really good shape. And we're really excited about the team we've been able to recruit. So, that's move forward..

Okay, got it.

And then a question for Roger, did I hear you right, Roger, where you said, there's not going to be any grant revenue in the second quarter? And it'll be pushed out to Q3?.

Yeah, that's correct. As you saw, we recognize and achieved milestones in the first quarter. And wanted to just update that the second quarter milestones, we don't expect to achieve or recognize revenue in the second quarter, but we'd expect to and hope to do so in the third quarter..

Okay, got it. And then my last question is, I know you guys have had previously said there was a plan to go ex-U.S. Can you maybe update us on the timing? And if there's been any changes to those plans, in terms of geographies? Thank you..

Steve, it's a great question. Appreciate it. So, we are and continue to look at opportunities ex-U.S. There's nothing we can speak to publicly yet at this time. But it's as a company, this is an area of real interest to us. And, we'll be looking closely at opportunities there..

Great, thank you..

Thank you so much..

Our last question comes from the line of Mark Massaro from BTIG. Your line is open..

Taking the questions.

My first one is, can you just walk us through your expectation of your tests ability to detect emerging variants of COVID as they emerge? And or even of the known variants today, can you walk us through your testability to pick those up?.

So, Mark, well I can't provide specific detail. What I can tell you is, this is an area that we very closely monitor. We have a bioinformatics team and we look very closely at our assay's performance against variance. And also, as part of RADx, this is something where they're giving us some additional guidance as well, and we'll do over time.

And I believe this is also did mentioned previously, but we do have two target assays. So, we feel we're performed well against variances as we sit here today..

That's great.

And can you remind us if you're willing to divulge the expected number of people you expect to have in the field? And for folks that are new to Talis, might be helpful to maybe flush out the go to market strategy?.

Yes, so on the go to market strategy. We have to from a sales perspective, we have a very talented and terrific Chief Commercial Officer, Rob Kelley. And then we have Head of Enterprise Sales and an enterprise sales team.

These are people who go after larger institutional accounts, as well as territory sales team that go after - that will go after the closing elements of those institutional sales, as well as, accounts like urgent care centers or specialty care, et cetera.

So, I don't believe we're giving guidance to this specific number of sales people we have in the field at any given time. Roger, you could tell me if there is guidance out there. But we're building up a set what - I'm sorry, Roger, go ahead..

Yeah, no, we're not providing specific guidance, but I think what we're probably going is that we're going to have a sizable commercial team. We, in fact, we already do, ready for launch, and one that we think is sufficient for the market that we're for center..

And then I think the last piece if your question Mark, which we also appreciate your asking is, we're going to start by targeting hospitals and hospital systems and their affiliate urgent care centers, and then move fairly quickly into targeting urgent care chain and urgent care centers, and then into specialty and primary care this ladder, particularly as we get closer to the watch of our chlamydia and gonorrhea product..

Okay, that's great. And then a quick one for Roger, so understood that you're not expecting grant revenue in Q2.

Is there any reason to believe that maybe the dollars shift out in our model, maybe by a quarter? Or do you think that the sum of all the dollars can still be realized just a little bit later this year?.

Well, we're not providing any specific revenue guidance, I would just say that we don't expect it in this quarter. If you go look at, I think the overall grant was about $25 million since we've already recognized a large portion of that. And so, the remainder, you can make the assumptions in your models, when you think that might be.

But it's not a - the overall program is not expected to be a long-term program. This is about finishing our last couple of milestones..

Okay, and then my final question, I mean, Brian, most of the people we talked to basically believe that COVID testing is endemic, and that we will be testing for it, for the foreseeable future.

Even if the volumes are down from peak, that they'll probably remain elevated, so can you just walk us through, are we on the same page? And this is like an endemic disease indication? And how do you think that COVID testing will basically be done with flu testing? Do you believe it's largely going to be low plex doing both at the same time? Or do you see a market where standalone flu testing and standalone COVID testing are done alongside of each other?.

So, thanks for the questions, Mark. So first, we all have our crystal balls on COVID. And this is just my opinion, and not obviously, we'll see how this plays out. But my belief and our belief is that, it will be like you said endemic and that there'll be a level of COVID that continues for the at least for the next few years to come.

And that we'll see testing increasingly shift in to high quality tests that can be delivered in distributed diagnostic testing locations like urgent care centers, just because it's inherently better for the patient and for care providers to have an answer more rapidly, and so they can act on it.

And that also, testing will shift more towards tests that don't require confirmatory testing or higher quality testing. So, while that COVID testing will, we hope for all our sakes, the rate of COVID will continue to come down. We see this shift in the market towards the customers we'll serve.

From a COVID - with respect to COVID plus flu and versus COVID alone, first of all, flu in principle should be seasonal. So generally speaking, with traditional flu testing, it goes up and down in volume, depending on what part of the year you're in. The second is what we believe should happen.

And, we'll see what happens in practice is that COVID plus flu will be preferentially used in symptomatic individuals. And COVID alone would be for people who are at risk or concerned about exposure, or perhaps vulnerable people. So, I think there's a real role for both COVID and COVID plus flu.

And, we'll see the both, and obviously, we'll see how this evolves as the year progresses..

Okay, that's it for me. Thank you..

Hey, thank you so much, Mark. Appreciate it..

That wraps up the Q&A session. I will now turn the call over back to Mr. Brian Coe, Chief Executive Officer and co-Founder for closing remarks..

So, I'll just end by saying, I'd like to thank you for your time and interest in Talis and we look forward to speaking with you again..

Thank you again for participating. This concludes today's conference call. You may now disconnect..