Good day, ladies and gentlemen, and welcome to the Talis Biomedical Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer and instructions will follow at that time.

I would now like to turn the conference over to your host, Emily Faucette, SVP Corporate Communications and Investor Relations. Thank you. Please go ahead..

Good afternoon and thank you for participating in Talis' third quarter conference call. Joining me today are Kim Popovits, our Interim Chief Executive Officer; Roger Moody, our Chief Financial Officer; Doug Liu, our Chief Operating Officer; and Rob Kelly, our Chief Commercial Officer.

Earlier today the company released its financial results and business progress for the quarter ended September 30, 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 titled forward-looking statements in the press release Talis issued today.

For a more complete list and description, please see the company's filings with the SEC including the Risk Factors section of the company's 10-Q filed with the SEC on November 15, 2021 and in its other filings.

Except as required by law, Talis disclaims 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 the live broadcast November 15, 2021.

With that, I would like to turn the call over to Kim..

Thanks Emily. Good afternoon everyone and thank you for joining us. It has been both an honor and pleasure to work with the Talis team these past few months.

Our work together has further strengthened my conviction and the importance of the Talis mission to address the significant and growing demand for access to fast and accurate diagnostic results in the moment of need.

With the recent announcement of our emergency youth authorization for the Talis One COVID-19 test system, we have achieved an important business milestone towards the advancement of health equity and outcomes by delivering accurate infectious disease testing at the point of care.

In addition to the very welcome news of the EUA, I'm also delighted to share that Brian Blaser will be joining Talis as President, Chief Executive Officer and Director effective December 1st.

Brian has more than 25 years of senior leadership experience in the in vitro diagnostics industry, including 17 years at Abbott where he oversaw the company's global diagnostics organization, including its core laboratory, point-of-care, rapid diagnostics and molecular diagnostics businesses.

His experience and track record and leading transformational strategies to launch innovative diagnostic products, drive commercial growth and scale global operations is ideal for the magnitude of our opportunity ahead.

We are confident that Brian is the right person to lead Talis through our next phase of growth in achieving our bold mission and business objectives. Turning now to an update on our business performance, we are pleased to report meaningful progress against our previously outlined initiatives.

Most notably the FDA is granting of the EUA for use of our Talis One COVID-19 test system in a variety of health care settings. This important achievement reflects our team's deep commitment to develop a sample-to-answer diagnostic solution that enables users to offer patients the accuracy of central-laboratory-run results without the weight.

In a clinical study of samples collected and tested in point-of-care settings the Talis One COVID-19 Test System demonstrated 100% concordance with comparator test results including both the positive and negative percent agreements. The Talis One COVID-19 Test System targets two genes ORF-1ab and N to ensure sensitivity and the inclusion of variants.

As a participant in the RADx program, we assessed the impact of 10 distinct COVID-19 variants demonstrating high sensitivity of detection. At the time of this testing in June, the emerging Delta variant was not available for inclusion in the study.

Subsequently, we conducted a separate bioinformatic analysis for the Delta variant as well as testing of in vitro transcript samples to further support our EUA submission. In testing for all these variants, including Delta, no loss in sensitivity or impact on the Talis One COVID-19 Test System's performance was detected.

Importantly, we continue to monitor new COVID variants as they arise in accordance with FDA guidance. With the EUA in hand, we have turned our attention towards the steps required to execute a controlled product rollout of the Talis One system, a platform that is intended to serve customers across multiple infectious diseases over time.

We are pleased that with the COVID assay, our customers can gain experience with the instrument, as we move to clinical testing. Our approach will be measured to ensure we deliver an experience that will drive long-term system adoption.

With this in mind, I will turn the call over to Rob Kelly, our Chief Commercial Officer to provide an update on commercial readiness. Following that, Doug Liu, our Chief Operating Officer will address our manufacturing progress, next steps towards meeting, commercial demand and our pipeline opportunities.

Roger Moody, our Chief Financial Officer will then provide an update on third quarter financials before turning the call back to me for closing remarks.

Rob?.

Thanks, Kim. Over the past several months, the commercial team has been busy assessing and generating demand in this extremely dynamic COVID market, while simultaneously performing a handful of premarketing studies at select prospective customer sites.

Our team is focused on identifying customers who are seeking a highly sensitive rapid molecular point-of-care system to address critical needs in infectious disease testing both now and over time with our planned menu expansion.

We are pleased with the level of interest within our pipeline of potential customers and believe this will translate to long-term adoption of the Talis One system. It is important to note that we are launching both an assay and a new instrument system for the first time under emergency use authorization.

Because of this fact, we have decided to take a phased approach for rolling out the Talis One system. Between now and the end of the year, we will continue to expand our premarketing studies.

This will allow us to gain further user feedback as we continue to establish our workflows and processes with the goal of delivering an exceptional and differentiated customer experience. With this in mind, we plan to initiate a limited rollout of the Talis One system to prospective customers beginning in the first quarter of 2022.

During this initial phase, our focus will be on a small number of sites representative of the customers we are targeting across health care and congregate settings to both evaluate and align our IVD-labeled solution with their needs.

We then plan to move to formal commercial evaluations with an increased number of sites with the goal of converting these sites to Talis One customers. This measured approach allows us to train and continue learning from customers in parallel with our efforts to optimize manufacturing processes to meet anticipated demand.

We believe this approach will serve as a strong foundation to support a broad commercial rollout as well as the pathway to expand longer-term market opportunities in the US and abroad over time. In the meantime, we continue to strengthen our marketing sales and customer success capabilities with a focus on enhancing the customer journey.

Our marketing team continues to create awareness and demand for our Talis One system. Our sales force is split into two groups; enterprise and territory sales.

The enterprise sales team is leading the efforts to drive adoption in a variety of health care and congregate settings such as integrated delivery networks, group purchasing organizations, schools, and the workplace. The territory sales team will primarily call on urgent care centers, smaller hospitals, and physician practices.

Additionally, we are scaling up our service and commercial operations groups to anticipate user needs and create an exceptional experience that we believe will translate into long-term partnerships. With that, I will turn the call over to Doug..

Thanks Rob. Turning to an update on manufacturing, as we previously communicated, we have invested in and installed multiple production lines to produce cartridges at scale. These lines now automate multiple steps that must work in a coordinated fashion.

With these enhanced processes, the cartridges coming off to high-yield lines, will need to be evaluated for performance to ensure quality is maintained. This evaluation will take place over the coming weeks.

In the meantime, our current process will support the expanded premarketing studies in the initial phase of our controlled launch next year that Rob outlined. Along with these important refinements to our cartridge production, we are also expanding instrument production.

We have invested in raw materials to support the manufacturing of 5,000 instruments and have installed workstations and test fixtures to efficiently manufacture. As with cartridges, we are continuing to optimize assembly and testing to maximize efficiency and quality and we'll be increasing output as we ramp our commercialization efforts.

We believe these important near-term investments to optimize cartridge and instrument production will position us to meet higher long-term demand and support the broad menu of infectious disease tests we plan to offer. Transitioning to R&D and our pipeline.

Our objective is to broaden our test menu to address significant unmet need at the point of care. Specifically, during the third quarter, we made important progress completing feasibility of our COVID flu and chlamydia and gonorrhea or CT/NG assays, both of which have progressed into development. We expect to begin external studies in 2022.

Based on previous discussions with the FDA, we plan to pursue an EUA pathway for our COVID flu test and are on track towards a submission next year with the goal of gaining authorization in time for the 2022/2023 COVID flu season. CT/NG will follow a 510(k) pathway and we expect to begin external studies in the third quarter of 2022.

To accelerate the development of assays in our pipeline, we continue to invest in building our R&D team. We have hired a Vice President of Assay R&D who will join us in December. She has more than 20 years of IVD assay development experience with a focus on infectious diseases.

This additional expertise will enable us to work on multiple programs at the same time to include tests that may be either stand-alone products or placed into shared cartridges to create test panels for respiratory diseases, women's health, and sexually transmitted infections.

Our team is growing in both experience and number to execute on our objective to broaden our test menu in large addressable markets worldwide. With that I'll turn the call over to Roger for an update on financials. J. Roger Moody Talis Biomedical Corporation - CFO Thanks Doug.

We did not recognize material grant revenue in the third quarter as our RADx milestones are tied to the EUA and commercialization. We expect to recognize $2 million of remaining milestone revenue from our amended RADx contract between now and the contract termination date at the end of January 2022.

The balance of the third quarter 2021 financials were shaped by investments in launch preparation that are beginning to come to fruition. Operating expenses were $39 million in third quarters of 2021 and 2020. We are nearing completion of our manufacturing scale-up and expense inventory.

And accordingly, R&D expenses in the third quarter were $26 million of which $12 million was related to manufacturing scale-up. Third quarter R&D expenses were down from $36 million in the same period last year and $55 million in the second quarter of this year.

We have expanded our commercial organization to prepare for launch and are now incurring public company expenses. As a result, selling, general and administrative expenses were $13 million in the third quarter of 2021 compared to $3 million in the same period last year. Turning to cash.

As of September 30th, 2021 our cash and cash equivalents were $274 million which we believe adequately meets our near-term capital needs.

We are pleased to begin to see the benefits from our investments including securing EUA for the Talis One COVID-19 Test System, establishing a robust pipeline of potential customers, advancing towards automated consumable manufacturing and having ample components on hand to build instruments.

As Rob and Doug shared with you, we will continue to move forward with a phased rollout to ensure that our initial customers have a great experience while we scale up production. To reiterate our comments from the second quarter call we do not expect any material product revenue this year. With that I'll turn the call back over to Kim. .

Thanks Roger. Our vision to advance health equity and outcomes through accurate infectious disease testing at the point of care originated well before the COVID-19 pandemic.

We designed the Talis One system to deliver sensitive and specific diagnostic testing on a platform that has rapid time to result allows for an on-cartridge extraction and purification to test for difficult pathogens, it's easy to use, fits within the economic constraints of the markets we serve and can be manufactured at scale.

Together these critical capabilities provide a compelling and differentiated value proposition across healthcare stakeholders. I am inspired by our team and the progress made over the past months.

With the recent EUA for our Talis One COVID-19 Test System our experienced executive leadership and Brian Glaser's appointment to CEO we are well positioned to meet the needs of a large and growing respiratory sexual health and women's health point-of-care testing market.

I'll now turn the call over to the operator to open the line for your questions. .

Your next -- your first question rather comes from the line of Tycho Peterson from JPMorgan. Your line is open..

Hey good afternoon. And hey Kim, just two to connect.

I guess on the commercialization strategy can you just talk a little bit are you still prioritizing larger hospital placements before urgent care? And how do you kind of feel about end markets such as some of the urgent clinics? And then the phased rollout you were alluding to is that type of manufacturing process validation you're calling up?.

Yes. Thanks, Tycho. And great to hear your voice. I'm going to hand that off to Rob to start and then maybe Doug could have a couple of comments on the manufacturing piece..

Yes. Hey, Tycho, so let me start by saying, we've been very fortunate to during the time of COVID build an incredible commercial organization that we have today at the company. Most, if not all of the people in the commercial organization have already had commercialization experience in IVD world.

And yet we find ourselves here at Talis launching a product for the first time. So obviously, we want to take a phased approach take it be very careful and thoughtful about that approach. In addition, as I think it was Kim has said it in the script, and I did as well, this is sort of new ground.

We're launching both an instrument and an assay for EUA at the same time. So the commercial team's focus is to provide the best customer experience possible. And as you know, there's a likelihood that if you go to market with a product too quickly, you can do some damage to reputation and we just don't want to do that.

We think we've got a great product here. And so the phased approach is – it works like this. So we – over the last three months, we've been having interactions with – and pre-marketing studies with customer sites in target segments that we think will be very interesting for us in the long-term.

We're going to continue doing that through the remainder of the year and gather as much intelligence as we can on how well the product fits with those market segments and then make those tweaks before we go to our first phase of launch. In Q1, we're going to do that.

And the first phase of launch is five sites, no more than five sites that we're going to offer an evaluation of our product to. We're going to take that feedback. We're going to analyze that and then we're going to move forward once we have a successful completion of those evaluations to the second phase.

The second phase will be larger approximately 35 sites, and then we'll do the same thing. We'll at scale now, look at and see how well we can impact this customer – the customer's satisfaction with the changes we've made from the prior phases and then adding the new learnings from this phase.

When that goes well and we finish those successfully complete those evaluations is when we would continue or consider converting those customers into purchasing customers for reporting patient samples. And so that's what the rollout is going to look like. You had asked about the segment.

So we certainly are interested in the enterprise sales team is still focused on IDNs and GPOs large hospital systems. But as you can imagine, some of those systems have found their current testing methodologies. Some are still looking for others.

But the fact is the team has built an amazing pipeline of opportunities for us and we think that there's – at this time at least there's a lot of demand for our product on the market. The enterprise team is focused again on hospitals, health systems, IDNs, GPOs and congregate settings like schools and workplaces.

And then the territory team continues to be focused on sort of smaller independent urgent care facilities, hospitals and physician offices. But there are certainly areas where they intersect and the teams work well together to go after those targets..

Okay. That's really helpful color. And I guess based on the phased rollout are you willing to make any comments about 2022 at this point? I mean The Street still has you at about $57 billion in revenues..

Yes, Tycho, it's Roger. I'll jump in here. It's a little too early for us to make any guidance on revenue at this point. We want to see how this phase rollout goes as well as the production scale-up that, Doug, can tell you a little bit more about..

Right. So Tycho maybe... .

Go ahead. .

Please. I was just going to ask you to repeat your question, because I wanted to make sure I was answering what you were asking..

No, no that was very helpful on the segment color, and the commercialization strategy. I have a follow-up on the manufacturing side. So you previously talked about scaling to one million test cartridges per month.

Is that still the plan here in the near term?.

So we have purchased production equipment that can get to one million cartridges per month. And as we had previously indicated, we were only installing the first-third of that of those lines. So the first-third has been – that $1 million was broken up into three distinct production lines. So we've installed the first one.

We'll install the second and third lines after gaining more experience through the commercial ramp-up. And assuming that market demand is strong then we'll proceed with bringing the second and third portions of that one million cartridges per month online..

Okay. Last one from me. You previously talked about, going for a 510(k) because the EUA will lapse eventually.

Is that still the plan? And can you talk to time lines there?.

So we're pursuing a COVID flu EUA, and we would like to take that, or we plan to take that forward to a 510(k) as well. But that's going to be after first EUA is achieved for COVID flu. And that would be our initial product going forward to a 510(k)..

Okay. Thank you. I’ll lend over, other jump-in..

Thanks, Tycho..

Your next question comes from the line of Derik De Bruin from Bank of America. Your line is open..

Hey, good afternoon. So, I guess, the first question is you're launching into the tail end of the pandemic in the US, let's hope. And obviously, you've got a very large installed competitive base out there right now.

So how should we think about the overall opportunity now versus, where it was a year ago? I mean, it seems like that the walls have narrowed a bit in terms of what your addressable market is? And also, in your answer to Tycho's question on your phased rollout are you going into systems where you're going to customers where these are brownfield, where there's already an established point-of-care platform there, or are these customers that have never had a point of care system before? That's the first one..

Yeah. So two questions. The first one is the market demand. So as you know, shortly after the peak of COVID, we started to see a decline to the point where everyone thought that this COVID thing had passed then it was gone.

And then the Delta variant came back and now it's spiked, and now it's coming down again, but we're already seeing it go back up again. And everyone, I'm talking to just sees this as an endemic situation in that they need to have the best possible systems and solutions in place not just for the short term but for the long term now.

And so when people did first buy their instruments and consumables for running COVID-19 testing, they took what they could get in many cases. And in other cases, they took what they thought was a good solution. And they found that over time, there's something better, or there's something that's missing and they'd like to see that.

So the majority of the folks we're talking to are I guess you call brownfield where they have something that's just not optimal. In other situations, they have something like antigen testing or they'd like to have confirmatory testing.

And in the third scenario, they still can't get enough cartridges from these high-quality molecular point-of-care systems and they want to have multiple systems just to hedge their bets if there's another spike or something like that. So it is amazing to me still at this point in time that the kind of demand that we have.

And what we see in our pipeline, we're continuing to check in and they continue to represent interested parties. They're not dropping out the rate that you would think if this was really coming to an end. So unfortunately, I think from a viral perspective for health care and all that, but for us it does seem to be a continued strong opportunity..

So, obviously, for customers that are looking to buy a point-of-care system, menu expansion is a big deal. And yes you've talked about fluvid, kind of, the combo test coming on.

And can we talk a little bit about the CT/NG? You said if I heard you correctly, you're doing studies four 510(k) that will be complete in 3Q 2022, does that mean that you would expect potential FDA approval sometime in 2023?.

So in case I didn't hear you correctly, we're going to start the clinical studies, external studies in the second half of 2022. I thought, I heard maybe you saying that we're going to finish it in Q3, but we're looking to start in that period of time. .

Yeah to start with second half. So basically -- yeah.

So then when is potential FDA clearance?.

So it would be the following year..

Got it, okay. And can we talk a little bit, how should we think about -- I mean I know it's a little bit early for next year, but how should we think about cash burn. And you're I think $274 million right now.

Is that enough to get you through 2022? Do you need to raise cash again before exiting the year?.

Yeah, Derik. So as I mentioned, we think that it adequately serves our near-term capital needs. Certainly that would take us out 12 months. We -- if you look at our third quarter, we spent about $39 million and of that $12 million was in manufacturing scale-up. We had a bunch of non-cash items of about $7 million.

So the burn rate was just under $20 million. We are continuing to invest in expanding the team from a menu development perspective as Doug described. We'll continue to make manufacturing investments in driving yield and continued scale-up, but not at the same rate that we have this year.

So we feel good that we've got enough cash on hand for the foreseeable future..

Great. Thank you..

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

Hey guys, this is Vivian on for Mark. Thanks for taking the questions.

So how should we think about the size of your initial commercial funnel just given those efforts to promote the system ahead of the EUA launch? Could you also share with us lab or other settings in addition to hospitals, where you might expect to see adoption in the first year of launch? Thanks..

Yes. Sure. So to start, we do have a pipeline of opportunities that is in the hundreds that we have. Our team has been working in the field now for probably nine months, developing great relationships, understanding what the customer needs are, and where they are, and what segments are the best targets for us.

And they pull these opportunities together from that respect. A little bit more detail on that. There are customer sites who are so interested in the product that they've signed what we call an evaluation to purchase agreement.

And those are the customers who want to get first access to the instruments, get to kick the tires, and when those are successful convert to a contract relationship with us purchase the instrument, et cetera. So in there -- in that particular bucket, we have well over 100 of those agreements. And as you can imagine, it's kind of across the board.

When we look at there are still some health system deals that are very high volume, but the greatest number of opportunities resides; first, in urgent care; secondly, in small and rural hospitals; and then third, in physician offices as we had intended.

And we're -- we obviously have the opportunity to go into other sites schools, workplaces, et cetera. And we're hearing all sorts of interest from different locations, but our overall focus is sustainable growth.

And what we want to do is make sure that we put our instruments in locations that beyond COVID, when our menu is approved that they can continue using that into the -- long time into the future. And so we're focused on that and doing our best to make sure that we identify the right customer sites for the long haul..

Okay. Great.

And if I could just add a follow-up, what is the size of the commercial sales force now for both enterprise and territory sales reps? And how should we think about the sales force build-out there?.

Yes. So, we still are where we had mentioned we would be, which is 32 territory sales reps and eight enterprise sales team members, so 40 total. I think we're just about at that now. And right now we think that's what we need to launch the product and we've been doing a very effective job with that team. At this point, there's no need to change that.

Obviously, when we get some experience under our belt launching our product, we can revisit that and see if anything needs to be tweaked. But at this time, it seems to be proving to be the right-sized team..

Okay. Great. Thanks so much for taking the questions. .

Sure..

There are no further questions at this time. Presenters, please continue..

I just want to say thank you all for joining us today, and we certainly appreciate your interest in Talis. We'll look forward to speaking to you at upcoming events..

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. Have a wonderful day. You may all disconnect..