Good day, ladies and gentlemen, and welcome to the T2 Biosystems First Quarter 2022 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Malcolm MacLeod.

Sir, the floor is yours..

Thank you, operator. I would like to remind everyone that comments made by management today and answers to questions will include forward-looking statements. These 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 23, 2022, 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 Chairman and CEO, John Sperzel.

John?.

one, significantly expanding our T2Dx instrument installed base through the sale or placement of new instruments; and two, doubling our sepsis test revenue by driving broad adoption and utilization among new and existing customers.

In the first quarter, we entered into 15 T2Dx instrument contracts, expanding our installed base of instruments to 91 in the United States and 55 internationally. We generated sepsis panel revenue of $1.1 million. In the United States, we achieved annualized sepsis test utilization of $109,000 per legacy T2Dx Instrument.

While disruptions from the COVID-19 case surge in January negatively impacted sepsis test utilization, sepsis test panels were strong in the last weeks of the quarter. We continue to believe that over time, annualized U.S. sepsis test utilization will reach $200,000 per instrument. In recent quarters, we have significantly expanded our U.S.

commercial team to accelerate sales of our sepsis product market penetration. Under new leadership, this team has been organized regionally and has implemented an advanced metrics-driven sales process. Our new sales management process allows us to generate qualify and forecast lead conversions more accurately.

We're confident the new structure and analytics can help build and execute a strong funnel of placements and utilization with greater visibility into monthly and annual performance. To that end, we're able to tightly manage the sales force against internal quantitative performance metrics.

We're seeing increased productivity as our expanded commercial team gains traction in the market. The T2Dx instrument placement model we are now offering is also shortening deal cycle times. Placements are generating higher test panel pricing and established volume requirements.

Waning COVID-19 demand is creating capacity for new hospitals to evaluate sepsis solutions and also provide the opportunity to convert COVID-driven instrument placements to sepsis testing. We expect these instruments will eventually transition to sepsis testing in the coming quarters.

We have rebuilt and expanded our medical and clinical affairs teams. These teams are actively engaged with key opinion leaders or KOLs, and working together to generate and disseminate real-world data through scientific journal publications at medical conferences and at industry trade shows.

Our medical affairs team, which consists of infectious disease doctors, laboratory professionals and farm Ds [ph] is now reporting into Brett Giffin, our Chief Commercial Officer. And this organizational realignment ensures that these resources are best positioned to drive growth in our sepsis business.

Our clinical affairs team is now reporting into Roger Smith, our Senior Vice President of Science R&D, which aligns our product development and clinical validation under common leadership. Aparna Ahuja has resigned as Chief Medical Officer to pursue other opportunities, and we thank her for her contributions to T2 Biosystems and our customers.

Hospitals around the globe largely faced the same challenges when carrying for patients suspected of sepsis. And we view this as an opportunity to bring our solutions to additional patients and customers. To capture this opportunity and maximize our distributor relationships, we have employed three international business managers.

As previously announced, we expanded our distribution networks with agreements in Norway, Finland and Turkey during the first quarter. We are having success expanding our international distribution network, enabling commercialization of our products in more countries, and we anticipate further expansion in 2022.

Moving to our second priority, enhancing our operations, we are continuing to make investments and implement changes to our operations that will enable sustained long-term growth. Scaling our manufacturing capabilities and strengthening our supply chain have been major focuses in recent quarters.

We have made strategic investments in tooling, automation and efficiency projects to further scale our manufacturing capabilities and continue to improve our cost of goods. The workflow updates that we have implemented have resulted in lower scrap rates and higher efficiency with reagent materials.

As a result, we expect to see gross margin improvement throughout the year. We are experiencing supply chain challenges, and our team has been effectively managing these dynamics by building inventory through pre-purchases and continuously evaluating alternate material suppliers where possible.

Moving to our third priority, advancing our pipeline, our new product development priorities continue to be the programs under our milestone-based product development contract awarded by the U.S. Biomedical Advanced Research Development Authority, or BARDA, which is valued at up to $69 million.

We highlighted the four products that we are developing under our contract with BARDA, the T2Resistance Panel, the T2 Biothreat panel, the comprehensive panel and the next-generation instrument at our recent Analyst and Investor Day.

This pipeline represents a portfolio of differentiated diagnostics that have the potential to meaningfully advance standards of care and protect our nation from biothreat attacks. We are pleased that our scientific and engineering teams successfully completed the milestones described under option 2A of the BARDA contract during the first quarter.

BARDA subsequently chose to exercise option 2B of the contract, which is valued at $4.4 million and planned for the period between April 2022 and July 2022. Upon successful completion of Option 2B, we are optimistic that BARDA will choose to exercise option three to continue to support the development of these important products.

As a reminder, in December 2021, we initiated the U.S. clinical trials for the T2Resistance Panel and the T2 Biothreat panel, both ahead of our previously announced schedule. We designed these clinical trials to evaluate the performance of the T2Resistance and T2 Biothreat panels.

The data will be used to support respective regulatory submissions to the U.S. Food and Drug Administration in 2022.

The T2Resistance Panel is a direct from blood test panel designed to run on the T2Dx instrument and simultaneously detect 13 antibiotic resistance genes from both gram-positive and gram-negative bacterial pathogens, which are known to cause antibiotic-resistant infections in three to five hours.

We are currently marketing and selling the T2Resistance Panel in Europe under CE Mark - and we are on a pathway to apply for U.S. FDA 510(k) clearance prior to commercialization in the U.S. market. The T2Resistance Panel was granted breakthrough device designation from the FDA, which provides for a prioritized FDA review process.

The clinical trial will include up to 1,500 patients from multiple sites across the United States. We expect the trial to be completed in 2022, opening the door for the filing of an FDA submission as early as this year.

The T2 Biothreat panel is a direct from blood test panel designed to run on the T2Dx instrument and simultaneously detect six biothreat pathogens identified as threats by the U.S. government, including Bacillus anthracis, Francisella tularensis Burkholderia mallei, Burkholderia pseudomallei, Yersinia pestis and Rickettsia prowazekii.

Similar to our sepsis products, the T2 Biothreat panel is designed to provide results in three to five hours without the need to wait days for a positive blood culture. The U.S.

clinical trial includes negative samples being analyzed at a single site, which has been completed and positive samples being prepared and analyzed at a high containment Biosafety Level 3 laboratory, which is expected to be completed in 2022, potentially enabling the filing of an FDA submission in 2022.

The comprehensive panel for the detection of bloodstream infections and antimicrobial resistance is a direct-from-blood test panel designed to run on our next-generation instrument and detect greater than 95% of all bloodstream infections caused by bacterial and candida pathogens as well as antibiotic resistant markers identified as threats by the centers for disease control and prevention in a single test with a time to result of approximately three hours.

We're developing the comprehensive sepsis panel using our pre-existing proprietary technology.

The next-generation instrument is designed to be fully automated, on-demand and random access similar to our T2Dx instrument, but with faster turnaround times and the ability to detect an increased number of pathogens and resistance genes from a single whole blood sample.

We're pleased to announce that we have successfully completed the build of multiple development units ahead of schedule and are in the process of conducting qualification testing on all of them with the goal of merging the assay to initiate full-scale system wet testing.

We believe that our next-generation instrument and comprehensive panel for the detection of bloodstream infections and antimicrobial resistance will replace most blood cultures for patients at risk of sepsis.

The launch of those new products will transition the position of T2 for use as an adjunct test to the primary product to detect sepsis causing pathogens and antibiotic-resistant genes. Finally, we have submitted two applications with the U.S. Food and Drug Administration for breakthrough device designation.

One, the T2 Biothreat panel, which we announced -- in April 2022; and two, the T2Lyme Panel, which we included in today's first quarter earnings press release.

The T2Lyme Panel is a qualitative molecular diagnostic assay designed to run on our T2Dx instrument and to detect the presence of borrelia bacteria directly in human whole blood specimens and provide results in three to five hours.

As a reminder, the FDA breakthrough devices program is a voluntary program for certain medical devices and device-led combination products that provide for more effective treatment or diagnosis of life-threatening or irreversibly debilitating diseases or conditions.

It's available for devices and device-led combination products, which are subject to review under premarket approval application, or PMA, premarket notification or 510(k) or de novo classification request.

This program is intended to help patients have more timely access to these medical devices by expediting their development, assessment and review while preserving the statutory standards for PMA approval, 510(k) clearance and de novo marketing authorization, consistent with the FDA's mission to protect and promote public health.

With that, I'll now turn the call over to John Sprague to go over the details of our first quarter 2022 financial results and our financial outlook for 2022.

John?.

Thank you, John. Total revenue for the first quarter of 2022 was $7.2 million, an increase of 4% compared to the prior year period, driven by increased T2Dx instrument sales in BARDA contract activities, offset by decreased COVID-19 test panel sales. Product revenue was $3.8 million, a decrease of 17% compared to the prior year period.

Research contribution revenues were $3.4 million, an increase of 47% compared to the prior year period. Product costs for the first quarter of 2022 were $6.2 million, an increase of $400,000 compared to the prior year period, driven by increased T2Dx instrument sales and offset by decreased COVID-19 test panel sales.

Research and development expenses were $6.7 million, an increase of $2 million, driven by increased part contract activities. Selling, general and administrative expenses were $9.2 million, an increase of $3 million, driven by increased commercial and medical affairs headcount.

Net loss for the first quarter of 2022 was $16.5 million or $0.10 per share compared to a net loss of $10.7 million, $0.07 per share for the prior year period. Cash, marketable securities and restricted cash were $20.5 million as of March 31, 2022. We have used the ATM facility minimally in 2022.

Through March 31, we sold 3.5 million shares for net proceeds of $1.4 million. CRG has extended the interest-only period and loan maturity to December 31, 2023, and we are in compliance with the remaining loan agreement covenants.

We continue to expect full year 2022 revenue of $28 million to $31 million, including product revenue of $16 million to $17 million and research contribution revenues of $12 million to $14 million. We continue to expect to close 60 to 70 T2Dx instrument contracts in 2022 and COVID-19 revenue to decrease from $9.5 million to $3.5 million.

Thank you, and back to John Sperzel for closing remarks..

Thank you, John. We are pleased with the progress across our three corporate priorities during the first quarter, and we're encouraged by the financial results we're generating following the expansion of our commercial and medical affairs teams.

Under new commercial leadership, our expanded sales force is increasing the installed base of T2Dx Instruments globally while focusing on increasing adoption and utilization of our sepsis products.

Our medical affairs team will work closely with our sales team to increase awareness of our sepsis products through KOL engagement as well as the generation of additional clinical and economic evidence to reinforce the value proposition of our products.

Expansion of our international distribution network is ongoing, capture the global demand for our culture independent diagnostics. We have improved our manufacturing efficiency and continue to make investments to scale the business and improve product gross margins.

Finally, we continue to successfully complete the milestones associated with the BARDA product development contract. This advances us towards two FDA regulatory submissions we expect to make in 2022 and drives the next generation of culture independent products to rapidly detect bloodstream infections and antibiotic resistant genes.

Our recent accomplishments have created business momentum early in 2022, and we're extremely excited about the future of T2 Biosystems and confident in our ability to change the standard of care for patients at risk of sepsis. Now let's open it up to questions.

Operator?.

[Operator Instructions] Your first question for today is coming from Ben Haynor with Alliance Global Partners. Ben your line is live..

Good afternoon gentlemen thanks for taking the questions. First off for me, just congrats on filing for the breakthrough designation on T2 and the T2 Biothreat panel. But I'm curious about T2Lyme.

Do you have an idea of what a Lyme trial could look like being that the current test out there are not considered particularly accurate?.

Ben, thanks for your comments on the quarter. We think that success with the breakthrough device submission would facilitate those kinds of discussions with the agency.

As you probably know, there are an awful lot of submissions in queue, and we're hopeful that a successful breakthrough device submission will advance the cause much faster than otherwise..

Okay. And that makes sense. And then on the positive arm for T2 Biothreat, it doesn't sound like that's scheduled.

I mean is that something that you're just kind of beholding to whatever the labs that are able to do these types of testing are able to schedule it or how does that work on the positive arm?.

It's a single site Ben it is 100% contrive samples, and there are multiple T2Dx instruments at that site. So we do believe that, that's a pretty straightforward positive arm of the study, and we anticipate that it will be completed prior to the T2Resistance clinical trial..

Okay. That's fair enough. And then lastly for me, on the placements, you mentioned higher test panel pricing and volume commitments.

Can you share maybe how those differ from the more traditional sales or contracts that you've had in terms of is the pricing ex percent higher or the volume commitments? How do those -- how are those impacted by the agreements that you're signing these days?.

Ben, I'm going to ask Brett Giffin to take that question, our Chief Commercial Officer. He's here with us..

Hi Brett..

Hi so yes, I mean, with the placements and as John mentioned, and as we said, coming into the beginning of the year, we anticipated that it made sense from an acceleration standpoint to rely more heavily on placements. And we certainly still offer capital options, although 90% of the time in the U.S. plus, it's been placements.

So obviously, we're accelerating the sales cycle with that greatly, a clear benefit. So in answer to your question, yes we certainly get a - I'd say, a rather substantial uptick on the price front in exchange for that. I mean, keep in mind, a capital sale of the instruments $100,000.

So those - obviously, the rates that we put on there certainly are more significant.

And what it does also as part of that we also tie volume expectations to that so that when we do those with an account, they - obviously, they're signing up for increased pricing, but at the same time also signing up for volume commitments that then we monitor against a contract that we put in place with them so..

Okay that makes sense. Thanks for the color there. I'll leave it at that. Thanks for taking the questions gentlemen. Congrats on the progress..

Thank you, Ben. .

Thanks Benefit..

Your next question for today is coming from Steve Brozak with WBB. Steve, your line is live..

Hi John, and thanks for the update, of course. And I want to dive into a couple of questions to see the landscape as we're looking at it right now. On the first part, I know that this may initially be anecdotal, but you had -- during I guess at the JPMorgan week.

You had discussed or your group had discussed around the increased prevalence of watching COVID patients who are also now dealing with sepsis? Can you give us any insight and again, I know it's anecdotal, but can you give us any insight into what you're seeing there and what the clinicians are presenting back to you along those lines? And I do have one question here, and you may not know the answer to it.

Are you seeing anything that might play in the underserved community that may draw even more attention to this particular question or phenomenon. And I've got another question after that? Thank you..

Sure, thank you, Steve. Early on in the COVID pandemic, there was data first coming out of China, then in the U.S. and then other countries as the virus spread around the world that up to 30% of critically ill hospitalized COVID patients would go on to develop sepsis [indiscernible] infection and sepsis.

And that data has been pretty consistent from early 2020 through today's date. And we've had clinicians present on that, one of whom said a third of the patients that came into as ICU with COVID became septic.

So this is something that has been happening for the last couple of years, and we would anticipate it continuing to happen because these critically ill COVID patients are very susceptible and very vulnerable to bloodstream infections and sepsis.

In terms of the underserved communities, Sepsis Alliance has put out a lot of data on the impact of sepsis in the underserved, and particularly the Latino and African-American communities, and it's pretty much across the board a factor of two higher - so there is a disproportionate impact of sepsis in the underserved, and we're trying to do something about that..

Okay. And that actually leads me to my next question because obviously, the one thing the T2's technology is something that is standardizes a treatment protocol and puts you on a level playing field for those clinicians and rapidly addresses the critical time that you need to treat sepsis.

How would that play into the greater adoption for those "underserved" hospital systems and for those patients who are disadvantaged - and how would you model that into the future as far as being able to assist or deal with that? And I may have one more follow-up after that, please? Thank you..

Well, I would go back to the comment that Ben asked Brett about our commercial strategy and one of the shifts that we've made from a capital sale to a placement program. Obviously, one of the obstacles to whether they're critical access hospitals or hospitals that serve underserved communities is access to capital.

And so by minimizing the requirement on the capital side to get access to our technology, we opened the doors for many more institutions to get access to our products.

And we strongly believe that our products can identify these pathogens much faster, lead to faster targeted therapy, and there's significant data out there that shows we can identify these pathogens faster. We can achieve targeted therapy faster. We can deescalate enteric protocols or broad spectrum antibiotics faster.

So - we are looking at all kinds of opportunities to try to accelerate the commercialization in these underserved communities..

Great. And one last item on a more application note, and I'll hop back in the queue. Obviously, in going over the last years with the press releases, Qs and Ks, I've noticed a significant decrease in terms of expenses, being able to go out there and cut overhead.

I would ask you in terms of what your plans are into the future as far as being able to both cut costs, but also equally important, what can you tell us about the ability to ramp up on manufacturing given the configuration that you've got right now? And let me hop back in the queue after that. Thank you..

Well, one of the blessings that impacted us with respect to COVID is it required us to dramatically scale our manufacturing capabilities. In the past, we've talked about a sevenfold increase in manufacturing output both for our consumables and our instruments.

Typically, companies like ours go through growth pains over a more extended period of time, and we ramped that up within a couple of quarters to those levels. So having gone through that process once very dramatically gives us a lot more confidence that we can do it again, and again and again, we spend a lot of time strengthening our supply chain.

It's actually been very, very helpful in the current environment because we were a bit ahead of that. And we obviously intend to sell, as we sit here today, twice as many instruments as we sold last year globally. And so, we're continuing to scale our operations.

And if we have the opportunity to double that again with some support, whether its government support or other to go after these underserved communities, we would absolutely get behind that..

Great, again, thanks for the translation and the updates and congrats on the quarter..

Thank you, Steve..

Thanks, Steve..

There are no further questions in queue. I would like to turn the floor back over to John Sperzel for any closing remarks..

Thank you very much for joining our first quarter 2022 earnings call. We appreciate your support, and we look forward to updating you next quarter. Have a great day..

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation..