Good day and welcome to the T2 Biosystems First Quarter 2021 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Philip Taylor, Investor Relations. Please go ahead, sir..

Thank you, operator. I'd like to remind everyone that comments made by management today and answers to questions will include forward-looking statements. Those include statements related to T2 Biosystems' future financial and operating results and plans for developing and marketing new products.

Forward-looking statements are based on estimates and assumptions as of today, and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied by these statements, including the risks and uncertainties described in T2 Biosystems' Annual Report on Form 10-K, filed with the SEC on March 31, 2021, and other filings the company makes with the SEC from time to time.

The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law. With that, I would like to turn the call over to President and CEO, John Sperzel.

John?.

Powerful Lessons in Leadership, Strength and the Will to Succeed and I am donating 100% of the sales to Sepsis Alliance and Donate Life America, the nation's leading organizations for sepsis and organ donation.

Our aim at T2 Biosystems is to change the standard of care by enabling targeted therapies faster, that is within three to five hours of the first blood drawn. This is critical, as each hour of delayed targeted treatment can increase patient mortality rates by up to 8%.

Our T2Dx Instrument, combined with our sepsis tests, the T2Bacteria and T2Candida panels offer the first and only FDA approved products able to detect sepsis causing pathogens directly from whole blood in three to five hours without the need to wait days for a positive blood culture.

To further T2 Biosystems mission and create shareholder value, we've outlined three corporate priorities for 2021, that we believe position the company for long term success; one, accelerating our sales; two, enhancing our operations; and three, advancing our pipeline. We'll start off by addressing our first priority, accelerating our sales.

On our last call, we identified three commercial priorities intended to accelerate our sales. First, to transition instrument sale in the U.S. during the second half of 2020, from COVID-19 testing to sepsis testing; second, to increase sepsis test utilization in our legacy installed base, and third to expand our T2Dx Instrument installed base.

To accomplish these objectives and expand our commercial reach, we have rebuilt our U.S. sales team. We understand that driving adoption of T2Dx Instrument and fully implementing the use of our test and inter building them into sepsis protocols within the U.S. hospitals requires a clinically focused sales team.

In late 2020, we created a geographic sales model with 10 regional account managers across the U.S. and we have filled all, but one of those positions. Our U.S.

regional account managers are sales professionals with bread experience selling capital equipment into the hospital market across multiple stakeholders and understand the system wide sales process.

They have completed a training program designed to articulate the clinical and economic value proposition to the whole hospital, clinicians, laboratorians, hospital administrators and the microbial stewardship committees and sepsis committees.

In combination with our field application specialists and medical affairs specialists, we now feel that we have the right structure and team in place to accelerate adoption and continue to increase the utilization of our sepsis products. Our newly appointed Chief Medical Officer, Dr.

Aparna Ahuja, and the Medical Affairs Department, are generating evidence to support the clinical and help economic value of our products, both internally and through collaborators with industry thought leaders.

We expect to see data published and presented at key medical conferences throughout 2021, which is important as we seek to build greater awareness of our products in the medical and scientific community. Dr.

Ahuja is also leading the creation of our Scientific Advisory Board and building our Clinical Affairs team as we prepare to initiate multiple clinical studies. The expert review of medical devices a peer reviewed medical journal, recently published a meta-analysis exemplifying the clinical and economic benefits of our products.

We believe this data will be a powerful tool for our sales and marketing teams. This meta-analysis includes data from 14 clinical studies evaluating the use of our sepsis products in the United States and internationally.

According to the meta-analysis, as compared to blood culture, the use of T2 Biosystems diagnostic products reduce the time to pathogen detection by 81 hours, reduce the time to species identification by 77 hours, accelerated the time to administration of targeted antimicrobial therapy by 42 hours, accelerated the time to de-escalation of patients from empiric therapy by seven hours, decreased the length of patient ICU stay by five days and decreased the length of patients hospital stay by 4.8 days.

Again, that's comparing T2 Biosystems sepsis technology to traditional blood culture. The authors conclude that in addition to significant clinical improvements and efficiencies, this could theoretically reduce hospital costs by as much as $25,000 per patient tested.

This independent third party publication further demonstrates the potential impact that the T2Bacteria and T2Candida panels can help in improving clinical and health economic outcomes. While U.S. COVID-19 cases have decreased since the peak in January, our T2SARS-CoV-2 panel continues to be a valuable tool for our U.S. hospital customers.

We believe U.S. hospitals will continue their COVID-19 efforts during 2021, especially as new COVID-19 variants emerge, like the B1617 variant currently spreading in India.

We previously announced that the T2SARS-CoV-2 panel is capable of detecting the Brazil, UK and South Africa variants, based on sequence, and in silico analysis, and I'm pleased to confirm that the T2SARS-CoV-2 panel is also capable of detecting the India, B1617 variant based on the same analysis.

While the COVID-19 pandemic has limited access to hospitals, we anticipate increased access to hospital personnel as the year progresses and to a greater extent during the second half of the year.

We believe this provides greater opportunity to sell new T2Dx instruments for sepsis testing, add sepsis test panels to customers that are currently utilizing only the T2SARS-CoV-2 panel, and to drive broader adoption of sepsis test panels in legacy sepsis accounts.

This is why we expect 70% of 2021 T2Dx instrument sales to occur in the second half of the year, and to be used primarily for sepsis testing. This has been our strategy since the onset of the pandemic. And the reason why we have only been selling our instruments to pre-qualified U.S.

hospital microbiology lab customers with a stated interest in evaluating the use of T2Bacteria and T2Candida panels for integration into their sepsis treatment protocols. As previously stated, our commercial focus in 2021 remains on driving adoption and utilization of our sepsis products.

We remain on track to close at least 30 [ph] T2Dx instrument contracts during 2021. Our new U.S. sales force is actively calling on targeted customers, both virtually and in person, and we are advancing toward our 2021 sales objectives.

I'm pleased to report that during April, we sold T2Dx instruments to two of the leading U.S hospitals, which will be used for routine sepsis testing.

Moving on to our second priority, enhancing our operations, in 2021 we will continue to prioritize enhancing operations across our business, including improvement in product gross margins and operating cost structure. Over the last 12 months, we have significantly scaled our manufacturing capabilities and strengthened our supply chain relationships.

We believe this is important for the future success of the company, as we advance our product pipeline and continue to enhance our operations.

While the increased volume has had a favorable impact on overhead absorption, we are continuing to pursue a number of cost improvement initiatives, and in improving product gross margins and increasing the company's overall efficiency. Finally, I will now like to address our third strategic priority, advancing our pipeline.

We intend to extend our technology lead by broadening our capabilities for the detection of sepsis causing pathogens from whole blood samples. Our ongoing focus has been on advancing the programs outlined in our product development contract awarded in 2019 by the Biomedical Advanced Research Development Authority, or BARDA.

The total value of the contract is up to $69 million paid upon the achievement of certain milestones and defined contract phases. We completed the base phase of the contract during the third quarter of 2020, and we are currently working toward fulfilling the milestones under option one of the contract.

As I previously stated, our new product development programs have been running ahead of schedule and under budget, which provided an opportunity to revisit the terms of the BARDA team, including the schedule.

Today we announced that we have modified the terms of our existing BARDA contract that will allow us to accelerate our project milestones in option one, for our comprehensive sepsis panel, the next generation instrument, and the biothreat panel.

We have recently hired a number of employees to accelerate these programs under the terms of the BARDA contract, including the schedule and funding.

The comprehensive success panel is a direct whole blood test panel, designed to detect approximately 99% of all bloodstream infections caused by bacterial and Candida species and the antibiotic resistant markers, identified as threats by the CDC in a single test with a timely result of approximately three hours.

We believe this comprehensive sepsis panel has the potential to totally disrupt the traditional blood culture workflow and become the new standard of care. The next generation instrument is designed to be fully automated and random access, like our current T2Dx instrument.

The instrument is being designed in parallel with a comprehensive sepsis panel to detect an increased number of pathogens and resistance stains [ph] from a single whole blood sample independent of blood culture.

The biothreat panel is a direct full blood panel designed to detect six biothreat pathogens from a single patient sample and run on the FDA cleared T2Dx instrument. Today we also announced that BARDA has agreed to include milestones to the T2Resistance panel that will enable T2 Biosystems to commercialize this product in the United States market.

While we are currently selling the T2Resistance panel in Europe under CE Mark, we need to conduct additional verification and validation studies, as outlined by the FDA, through the pre-submission process to initiate the clinical trial, needed to pursue FDA 510(k) clearance.

To frame this opportunity, more than 2.8 million antibiotic resistant infections occur in the U.S. each year, and more than 35,000 people die as a result.

Unfortunately, these patients are typically on empiric therapies that do not adequately treat the resistant infection in a timely manner, as the current standard of care for identifying these resistance markers also relies on blood culture workflow.

We believe the T2Resistance panel can be a game changer for many of these patients, providing results in hours instead of days, enabling clinicians to target therapy for patients with resistance infections faster than ever before.

In 2017 CARB-X, which is funded by both BARDA, and the Wellcome Trust awarded T2 Biosystems $2 million to support the development of the T2Resistance panel, designed to detect 13 resistant genes from both gram positive and gram negative pathogens directly from a whole blood specimen, without the need for blood culture.

In 2019, the FDA granted breakthrough device designation for the T2Resistance panel reflecting the purpose of the test panel to rapidly identify resistant infections.

We believe this test will enable more patients to get on the right targeted therapy faster, potentially reducing mortality and hospitalization costs, and we're excited to continue our partnership with BARDA on this critical project. With that, I'll now turn the call over to John Sprague to go over the details of our first quarter financial results..

Thank you, John. Total revenue for the first quarter of 2021 was $7 million, an increase of 173% compared to the prior year period. Product revenue was $4.7 million, an increase of 345% compared to the prior year period, driven primarily by increased sepsis and COVID-19 test sales.

Research contribution revenue was $2.3 million, an increase of 54%, compared to the prior year period, driven by increased BARDA contract activities. Product costs for the first quarter of 2021 were $5.8 million, an increase of $1.1 million, compared to the prior year period driven by increased sales.

Research and development expenses were $4.7 million, an increase of $400,000 driven by increased BARDA contract activities. Selling, general and administrative expenses were $6.2 million, a decrease of $1 million driven by lower headcount.

Net loss for the first quarter of 2021 was $10.7 million, $0.7 per share, compared to a net loss of $14.9 million or $0.22 per share for the prior year period. Total cash was $43.9 million as of March 31 2021, including marketable securities and restricted cash.

We filed a new form S-3 registration statement, and established an ATM facility in March to allow the company to sell common stock. To date we have not sold any stock under the facility.

Reiterating guidance, we continue to expect total revenue for the full year 2021 of $24 million to $26 million, including product revenues of $16 million to $18 million and research contribution revenues of $8 million, and we expect to close at least 30 T2Dx Instrument contracts. Thank you and back to John Sperzel for closing remarks..

Entering 2021, we set three corporate priorities, accelerating our sales, improving our operations and advancing our pipeline. We're very pleased with our progress during the first quarter, which included total revenue growth of 173% and product revenue growth of 345% compared to the prior year period.

Most importantly, our sepsis test sales continued to increase with an 85% increase compared to the prior year period and a 32% sequential increase compared to the prior quarter. We have rebuilt a clinically focused U.S.

sales team to drive greater adoption of our novel sepsis products and we are strengthening our medical and clinical affairs teams to generate additional clinical and economic data and support our customers.

We continue to enhance our internal [ph] operations which have resulted in a more favorable cost structure and we remain excited about our product pipeline, including the T2Resistance Panel and our opportunity to lead the change in the standard of care for the management of patients suspected of sepsis. We will now open the call to questions.

Operator?.

Thank you. [Operator Instructions] And we take our first question from Mark Massaro of BTIG. Please go ahead..

Hey guys, this is [indiscernible] on for Mark. Thanks for taking the question..

Thank you..

I just wanted to ask on how you anticipate balancing placing new instruments along with instrument conversion over from COVID to sepsis for 2021?.

Sure. So, first of all we are super excited to have the new sales team in place and we are able to attract really talented people.

If we look at those 10 sales territories, there was a mix of installed base for sepsis which we would call our legacy installed base, new instruments that we sold in the second half of 2020, which are primarily used for COVID testing, so not every territory looks the same.

Some territories in fact of those 10 have very few instruments in their installed base. So, depending on what that particular territory looks like, a sales rep may have a heavy emphasis on converting COVID driven instrument sales to sepsis testing, may have a mix of that plus sepsis testing or may have a very heavy load of selling new instruments.

But as John said, when we look across the whole business for 2021, we feel confident in the 30 instruments that we plan to sell for this year, the 30 contracts. And I will say that in April we already closed two major accounts, one of them is Mayo Clinic and the other is Baylor in Texas.

So, we feel really great about the quality of those two closures that we already have in April..

Okay, awesome. Thanks so much.

And just one follow-up from me, on the modification of the BARDA contract, it seems like you may have some updates on the product pipeline, so if could just touch on the updating effort, T2Lyme, T2Resistance, as well as the next gen instrument?.

Sure. So, the way the BARDA contract is structured as I mentioned in the call, there was a base phase which we completed late last year and then there were six options. We're working in option one right now and we obviously have to earn our way into option two and three and four and so on.

The best way we can do that is to deliver on the milestones within the option that we're currently working. And our team has done a terrific job. We delivered all the milestones on the base phase which lead to option one and we did that ahead of schedule, under budget.

We were in the same place with option one, so we had the opportunity to meet with BARDA and revisit the schedule, the structure, the timing, the funding to a very favorable position.

Remember our goal is to get these products finished, get the regulatory approvals and get them into the market, so that we can save patient lives and we're ahead of schedule on that.

We were able to pull milestones from option two for the comprehensive sepsis panel, the next gen instrument and biothreat panel into option one, so the hope would be that when we get to option two, we are able to pull milestones from option three into two and continue along that pace.

So, when we get to the goal line we are faster on all of these projects. The most important thing that we were able to accomplish is to get T2Resistancepulled into the overall BARDA program.

It was listed as an additional service originally and we were able to bring milestones for T2Resistance into option one, which is going to allow us to accelerate that program and we're super excited about that. We view it as a key product in our portfolio in the U. S.

As far as T2Lyme, just your last question, our strategy has always been to initially sell T2Lyme as a LDT or lab development test, through a partner, that obviously got put on hold because of COVID, but that remains our strategy going forward and we're hopeful to make some progress in the back half of 2021..

Okay, awesome. Thanks for taking my questions..

Thank you..

Thank you. Our next question comes from Stephanie Yan of Canaccord Genuity. Go ahead..

Hi guys. Thank you for taking the question. I am on for Max Masucci today.

So, first off, could you give us an inside view of the sales interaction that you have been experiencing lately in terms of the customer types you're targeting, are you seeing any strength -- areas of strength or certain regions or customers of a specific size, whether that's a larger integrated healthcare system or a smaller hospital lab?.

So, we are obviously targeting hospitals only. That's the only place that we're selling our products because of course we're focused on critically ill patients, whether it's for COVID testing or for sepsis testing. We're targeting a mix of integrated systems as well as standalone hospitals.

I mention too that we just closed Baylor and Mayo and of course those are systems as well. So, it's a combination. If we target all systems sometimes they have a longer sales cycle and we want to just have a good balance there. We just hired and expanded the sales team. For most of the first quarter they were in very extensive training.

They have a lot of experience selling diagnostic products, selling capital equipment. Many of them have sold into microbiology labs. So, the training was very focused on the clinical value proposition and the economic value proposition, and of course the technical aspects of our products.

We are already active with a lot of customers and as the first questions came in around the mix of customers that we have out in the market, we're speaking with customers that bought our instrument for COVID testing about transitioning to sepsis.

We're talking to our sepsis customers about more broadly utilizing our products in their facilities and we saw that in the increases in utilization in the first quarter. And we're very early in the process of talking to customers that we've never spoken with before.

We're still seeing hospitals, to some extent limiting sales rep access, but we're doing everything that we can whether it's via zoom or telephone calls or in fact in-person meetings to get as much access as we can. We do see that evolving in a favorable way as the year progresses..

Okay, great. Thanks so much.

And also could you give us a little bit more detail around the demand and utilization trends you've been seeing withT2Bacteria versus T2Candida?.

So, the majority of our sales in the U.S. are focused on T2Candida, and that is really just a consequence of when those products gained FDA clearance. T2Candida came out well ahead of the T2Bacteria and T2Bacteria evaluations in the United States were more impacted by COVID than T2Candida, which was already integrated in many of our customer sites.

So, we see that mix changing over time. The opportunity is obviously much greater with T2Bacteria and that's obviously a priority for our sales team as well..

Okay, great.Thanks so much..

Thank you..

Thank you. [Operator Instructions] Our next question comes from Ben Haynor of Alliance Global Partners. Please go ahead..

Good afternoon gentlemen. Thanks for taking the questions. First off from me, just nice apparently improvement for the utilization on the sepsis instruments.

You know, is there 10 loss [ph] figure that you see being able to build upon as time goes -- as we go through 2021 and beyond here at least as the existing accounts, I know there will be some impact that some of these COVID accounts move over to sepsis testing as well, but have the existing accounts, do you expect that that will continue to build?.

We expect to continue to increase the test utilization on our sepsis platform. We targeted, I would say as an average $200,000 per instrument per year on an annualized utilization basis. If you remember Ben, a year ago when I joined it was at about 50,000. I think a year ago, this quarter it was at 60,000. It grew throughout the year.

We ended 2020 at 86,000. We came out of Q1 at a111,000. So, we're obviously moving toward 200,000. We had hoped to get there sooner.

Again we set a target at end of 2020 to get to 100,000, we are a little bit short of that, but there were some COVID headwinds and that's part of it is still a little bit unpredictable, but we still consider $200,000 as the right threshold or baseline for sepsis utilizing customer. We have many that are doing well beyond that by the way..

Okay. And then you know on the gross margin improvement, I think it's the best you put up in the past few years anyway in terms of gross margin.

Is that largely due to a better mix of sepsis panels or COVID panels or is that a function of grant/research revenue coming in at a higher margin, what's the right way to think about that?.

John Sprague, would you like to take that?.

Yes. I think it's all of the above Ben, but you know think about it in pieces. The product margins are improving. We've been able to make bulk buys against our forecast and get better product materials pricing for components.

We've put in operational efficiencies on the plant floor, which is driving better throughput and better yields and then of course the BARDA volume absolutely drops right, the margin helps. But the product trends will continue improving and we will also benefit from improved sales volumes..

Okay. That's helpful. And then just thinking about the clinical side of things, obviously the mid analysis that you had published -- that was published seems awfully compelling -- if you can pull [ph] out of the ICU 5 days earlier and I know it's theoretical, but $25,000 for a patient tested, that would seem, I guess -- awfully compelling.

I guess what additional evidence do you think hospitals need to see to get onboard and anything that you can discuss in terms of what your clinical efforts might look like this year that you mentioned earlier in the prepared remarks?.

Ben, I would completely agree, it's very compelling data and of course that is up to $25,000 per patient tested, that's based on cost, average cost in an ICU, ICU days. So, that can fluctuate across the country depending on where the patient is.

We're going to continue to develop both clinical and economic data to support the products and that's why we hired Dr. Ahuja as Chief Medical Officer. And I would say the bar is being raised every single day in that area and we're excited about it..

Okay, great. Well thanks for taking the questions guys..

Thank you..

Thank you..

Thanks you. This concludes today's Q&A session. At this time I would like to turn the call over to our host for any additional or closing remarks..

Thank you very much for joining our First Quarter Earnings Conference Call. We look forward to updating you next quarter..

Thank you. Ladies and gentlemen this concludes today's conference call. Thank you for your participation. You may now disconnect..