Good day and thank you for standing by. Welcome to the Talis Biomedical's Business Update 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] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Emily Faucette, SVP Corporate Communications and Investor Relations..

Good afternoon and thank you. Joining me today are Rob Kelley, our Chief Executive Officer; and Roger Moody, our Chief Financial Officer. Earlier today, the company released a business update for the -- and financial results for the quarter ended June 30, 2022.

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 remarks 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 appear in the section entitled 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 on August 2, 2022 and in its other filings.

Except as required by law, Talis disclaims any intention or obligation to update or revise any financial projection or forward-looking statement 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 on August 2, 2022.

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

Thanks Emily. Good afternoon, everyone, and thank you for joining us. During today's call, I will provide an update on manufacturing, changes to our commercialization plan, and the steps that we are taking to position Talis for long-term success. Then I will turn it over to Roger to review our second quarter financial results.

Over the last several months we have made notable progress addressing our challenges to manufacture at scale through modifications to manufacturing processes, quality controls and supply conformance. Specifically, cartridge invalid rates are routinely within the acceptable range and we are now seeing consecutive lots pass our acceptance criteria.

With respect to instruments, we have increased first pass yields to meet our target. Based on these improvements, we are ready to put the Talis One system into the field for investigational use to gain user feedback and experience on the platform's physical components, workflow and software.

Today, we have an innovative high-performing platform with Talis One evidence that we can manufacture cartridges and instruments at scale and approximately $165 million in cash to execute on our mission to improve health equity and outcomes with highly accurate infectious disease testing in the moment of need.

We plan to leverage these assets in markets where we believe we can deliver high value sustainable growth for a differentiated diagnostic platform at the point-of-care.

With this in mind and given the widespread shift in demand for molecular COVID testing to broad acceptance and increased use of low-cost at-home test, we have decided to discontinue further investment in commercializing our stand-alone COVID assay under EUA.

Recognizing that the markets have evolved, we believe the investment required to commercialize our COVID assay in the United States at this time would outweigh our potential economic return and limit our financial flexibility.

Importantly, this decision allows us to focus our resources on large and long-term market opportunities in women's and sexual health markets where we believe we can deliver the greatest competitive advantages, revenue growth and profit margins. There is a significant opportunity to decentralize testing at the point of care beyond the COVID market.

Patients are looking for convenience and immediacy with respect to testing and physicians are increasingly more comfortable with point-of-care testing in general.

We believe our onboard sample preparation and rapid turnaround time sets the Talis One testing platform apart from current offerings and will allow us to address unmet testing needs in the women's and sexual health markets.

This greater than $5 billion market opportunity in the US is largely unserved by high-value tests in CLIA-waived settings where prompt treatment can be prescribed.

Additionally, we will have a more focused physician call point to serve customers, enabling a more efficient commercial infrastructure and model to drive commercial launch and expansion of Talis One.

Looking ahead, we plan to focus future development efforts on multiplex panels to address some of the most critical infectious diseases in women's and sexual health.

In the near-term, we will leverage the progress we have made to date by executing the investigational field studies with the Talis One test system to inform the continued development of our product road map beginning with CT/NON-GAAP, followed by additional tests such as HSV, vaginosis, UTI and other STI panels.

In summary, we've made important progress manufacturing our Talis One System at scale. We are committed to focus on women's and sexual health markets that we believe will generate higher growth and margins overtime. We expect this more focused strategy will help us deliver the best long-term growth and shareholder value.

I'll turn it over to Roger now, to walk through the financial impact of this change in direction and our second quarter financial results..

Thanks Rob. To align resources with our new focus in women's and sexual health, we are implementing a reduction in force of approximately 35% that spans all functions, bringing our total team to just over 100 employees. We believe this action combined with other reduced spending will allow us to extend our current funding further into 2025.

The cost of these reductions will be taken as a charge this quarter, in the amount of $2 million. The annualized savings from these actions include $12 million in compensation expenses and $8 million in other expenses.

Based on the timing of notifications under the WARN Act, we expect to start realizing the benefit of our restructuring plan in the fourth quarter of 2022. Overtime we plan to further reduce spending in inventory, manufacturing, consulting and infrastructure.

Our target is to decrease our monthly cash burn rate from over $7 million between $4 million and $5 million beginning in 2023. Turning now to our second quarter financial results, unrestricted cash and cash equivalents as of June 30th 2022 were $165 million.

We recognized under $1 million in revenue in the second quarter which was driven mostly by antigen test sales. Turning to expenses, second quarter total operating expenses were $27 million, compared to $64 million in the same period last year.

Research and development spending for the second quarter of 2022, were $17 million compared to $54 million in the same period of 2021. These decreases were driven primarily by our manufacturing scale-up investments that are largely completed.

Selling, general and administrative expenses in the second quarter were $9 million compared to $10 million in the second quarter of 2021. Finally, in the second quarter we received CE Mark for our COVID assay and Talis One System.

While we don't have immediate plans to launch in Europe and are not guiding to any near-term revenue we intend to be opportunistic with ex-U.S. distribution opportunities if they are profitable. Now, I'll turn the call back over to Rob, for closing remarks..

Thank you, Roger. The changes we announced today, are necessary, to put Talis on a path for long-term success. I'm extremely proud of the work our team accomplished these past six months demonstrating our ability to manufacture at scale.

We look forward to leveraging the progress we have made to advance our product road map in the women's and sexual health markets. With that, I'll turn it over to the operator to open it up for questions..

[Operator Instructions] Our first question comes from Rachel Vatnsdal with JPMorgan. Your line is now open..

Hi. This is Casey on for Rachel. Thanks for taking my question.

I guess the first one is there still a plan to develop the broader respiratory panel? I think generally we had an understanding that the larger market opportunity on the respiratory side was the COVID and flu combo which sounds like it's getting taken out of the pipeline or at least de-prioritized here behind women's health.

So yes, just any color around your thoughts on that panel..

Yeah. Sure. This is Rob. Happy to answer that question and it's a great question. We have -- are in the final steps of optimizing the ABC assay. And we had recently, I think in August, submitted our pre-submission for the 510(k). So we have this assay it's come quite far.

And the question that we have is that where is the market? And so, we obviously see a huge opportunity for us with CT/NG and the women's health market. And this could play into that.

But I think we're going to have to take a wait-and-see approach given what we're seeing with COVID right now, whether or not that's something that we do want to commercialize down the road..

Got it. And then can you elaborate on what you said on having evidence that you can manufacture at scale? What is this evidence based on? And then, I guess more broadly, on the 2025 cash runway. Just curious on, where that burn is going to be allocated.

Will it be to continue to develop manufacturing processes, or will that kind of shift now towards R&D for the CT/NG test?.

I'll take that question. This is Roger. So first in terms of the evidence for our manufacturing scale-up we spent quite a bit of time as you know making sure that our manufacturing was optimized. And so we measure the success of that based on the ability to pass our acceptance testing.

And we've been seeing lots passing our acceptance testing frequently here and well within our acceptance criteria for the high-speed automated consumable line. And also in instruments we measure success based on our first pass yield and that has also increased to exceed our acceptance threshold and on a consistent basis.

So, we feel that there's quite a bit of evidence now that we have that we can manufacture at scale. It's a question now of driving efficiencies and continuing to refine the processes. Your second question I think was about where the investment will be.

It's obviously now focused on menu expansion of the platform in the areas of women's and sexual health. But we will also continue to invest in further manufacturing refinement, albeit at a lower scale to support our development needs until we commercialize them. .

And Casey this is Emily. I just want to jump in on the manufacturing progress. We're also since we've talked about it before seeing decreased invalid rates on the cartridges.

So, we had talked about the levels we're seeing increased imbalance that are consistently at the level that we experienced in our EUA study and also sometimes at the 5% target that we are striving to for the future..

Okay. Got it. .

There are three things. There's the valid rate there's consecutive lots and then there's the instrument first pass yield. So, collectively, those are the three pieces of evidence that we have that give us the confidence..

Got you. That's helpful. And then I guess just last one. Just wondering if you guys have pursued any strategic alternatives for exported sale? Thank you..

Yes. So, I'm happy to answer that. Obviously, we've done an extensive review of options for us here at Talis. And we really believe and the Board believes that the best path forward for us is moving into the women's health space.

But we certainly have evaluated a number of other options and on behalf of the shareholders we're going to continue to evaluate those as they come across. .

Our next question comes from Derik De Bruin with Bank of America. Your line is now open..

Great. Thanks for taking the question. This is Mike Ryskin on for Derik. I want to follow-up on your comments on the CT/NG assay and some of the other opportunities in women's and sexual health markets.

I'm just wondering if you could give us -- I realize it's still years out, but any thoughts on time lines and when we could start seeing any meaningful product revenues? How should we think about the path from where you are now for sort of getting those over the hump?.

Yes. So, I don't think we're going to give specific time lines and revenues on CT/NG, but let's start with the fact that CT/NG is our main focus. Obviously, it's our first women's health assay. We are currently in the process of optimizing the assay design with the next step being verification and validation.

If all goes well, we plan to submit our pre-sub in Q4 of this year. And then once we get the feedback from that it will help us -- inform us on how to design the studies and go forward from there..

Okay. Thanks.

And then as you talk about this head count reduction across the entire organization sort of, how are you working to ensure that you're retaining the right talent and that today's update and some of these cross-cutting steps going forward aren't going to further hurt development timelines of progress? Sort of how are you ensuring that the parts of the business that you're reprioritizing will be appropriately funded?.

Yes. Well, I think we have a financial plan in place and the capital that we mentioned $165 million in cash. So, we feel we have the funds that we need to move forward in the women's and sexual health space. We just did our second reduction of force in four months.

And we did that because we think we have exactly the right amount of people now that can get us there.

And the company and the Board and everyone's used to believe that given the assets that we have this innovative high-performing platform and the evidence that we can manufacture the best thing we can do is leverage the unique capabilities of our system which is sample prep and multiplexing combined with a rapid turnaround time that really fits the niche for molecular testing in the women's health realm.

So, we think the combination of the talent that we have here the opportunity we have in the market and the capital that we have is going to get us there..

Okay. And then last one. Your comments on COVID-19 just want to circle back to that. It seems like a lot of the initiative was due to the evolving landscape of COVID and how the disease and the testing landscape has changed in the last couple of months.

Just hypothetical if we do start seeing significant waves resurface and increased demand for COVID testing in the next six months, one year, 1.5 years. Is it an option to, sort of, reverse this step and ramp it back up, or is it, sort of, being permanently mothballed? Just thoughts on that. .

Yes. I think, we're always fluid in our strategy here and we have to pay attention to what's going on in the market for sure. The one thing I would say is, depending on how long it is for the market to, sort of, rebound and come back would there be more of an appetite for a combination panel like ABC as opposed to a single standalone COVID EUA.

And the longer that that takes the more likely would be that 510(k), would be the path we would go to market because of the risk of the EUA for both. .

Got you. Make sense. All right. Thanks so much..

[Operator Instructions] Our next question comes from Mark Massaro with BTIG. Your line is open..

Hey, guys. Thank you very much for the questions. On the cartridge invalid rates my understanding is that I think you are targeting below 10% invalid rates or better. You did indicate that you're seeing improvements there.

So is there any way for you to kind of give us a sense for where you are at this time?.

Sure. So Mark, this is Roger. We have been routinely seeing our -- the results come in below -- actually below 8.7%, which is where our EUA was. And we target actually to get below 5% and we've been seeing that pretty frequently as well. So we're feeling pretty good about invalid rates.

We also continue to see a consistency in our accuracy of PPA and NPA. And given that quality it gives us comfort in starting our IUO studies in the field. And so we feel like we've addressed many of these key challenges and are now working on refinements and efficiency. .

Yes, that makes sense. So I understand that women's health is a big market and COVID is a little unpredictable. But we have observed that the COVID market is probably a little more long in the tooth than I think a lot of people expected two years ago. People are still getting sick from COVID. Testing is still happening.

So in the context of you having an EUA in place -- and just correct me I believe you guys have EUA.

So I guess, I'm struggling a little bit for if your invalid rates have declined and the test could be launched why not launch it with maybe a smaller commercial team as opposed to just kind of canning the whole operation?.

Yes. Hey, Mark. This is Rob. I think it's a great question. When we got this data realizing that we could be launching the product, we did a reassessment of the market. As you know, we had a handful of salespeople that were out there on a daily basis talking to folks.

And we went back to some of the initial customers that had signed evaluation agreements with us. We found out that the majority of them not only had molecular testing, but they had antigen testing. We found out that very few of them were interested in looking at additional instrumentation at this time.

We also learned many of them less than 20% would be interested in even adding the ABC product to their offering. And we also see antigen continuing to drive most of the volume in these sites where the molecular testing is less than five tests per day on the average site. So all of this painted a pretty poor picture.

And then add to that increased competition in the market, antigen pricing coming down we're starting to see the molecular price point come down quite a bit. So if you add all that together and then look at the cost of commercialization, the economics don't look great.

And given that we feel like we really do have a great shot at this women's health market and can be differentiated in there and have some long-term growth it seems like the right thing to do. .

Yes, that makes perfect sense.

I guess, my last question given your commentary are you planning to discontinue sales or distributor of the antigen COVID test that generated about $600000 of revenue for you this past quarter?.

Yes. We will sell whatever we have left in inventory, which is a couple of million dollars if we can, but we do not plan on purchasing more or continuing that program. .

Okay. That’s it for me. Thank you..

Thanks, Mark..

I would now like to turn the conference back to Rob for closing remarks. .

Thank you all for joining us today and for your time and interest in Talis. Bye. .

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