Accelerate Diagnostics Inc (AXDX) 2016 Q2 法說會逐字稿

Good afternoon, and welcome to the Accelerate Diagnostics Inc. 2016 Second Quarter Results Conference Call. All participants will be in listen-only mode. After today's presentation, there will be a question-and-answer session. Please note, this event is being recorded.

I would now like to turn the conference over to Laura Pierson of Accelerate Diagnostics. Please go ahead.

Before we begin, I would like to advise you that information presented during this conference call may contained forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include statements about our future and statements that are not historical facts may contain expectations regarding revenues, earnings, operations, and other results and may include statements of future performance, plans and objectives.

Forward-looking statements include statements pertaining to, among other things, our projections as to when certain key business milestones maybe achieved including marketing authorization by the FDA of the Accelerate Pheno System and Accelerate Pheno Test, BC Kit for positive blood cultures, the commercial launch of the Accelerate Pheno System and the Accelerate Pheno Test BC Kit for the positive blood cultures, the expected results of our Phase II clinical trial, the potential of our technology generally, our estimates as to the size of our market, opportunity and our competitive position and our future development plans and growth strategy, including with respect to research and development.

These statements represent only our belief regarding future events, many of which are inherently uncertain. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors.

Information regarding important factors including specific risk factors that could cause actual results to differ, perhaps materially from those on our forward-looking statements is contained in reports we file with the SEC. You should read and interpret any forward-looking statement together with the reports we filed with the SEC.

I will now turn the conference call over to Mr. Lawrence Mehren, President and CEO of Accelerate. Larry?

Thank you, Laura, and good afternoon everyone. I appreciate you joining us for our Q2 2016 conference call. Over the last quarter, the Company has taken some important steps forward. These include our submission to FDA, initiation of Phase II of our clinical trial, our first commercial contracts and solid progress in research and development. I will cover these topics in order and then turn the call over to Steve Reichling to review the quarter's financials. We will then open it up for questions.

Let's begin with our FDA submissions. Needless to say, we couldn't be more pleased that our submission is with the FDA. It's a significant milestone for the Company, and I believe an impressive document. The submission is over 10,000 pages long and includes data on over a 100 assays, multiple analytic studies and other important validations of our Pheno System's performance.

As we have mentioned previously, we believe a 140 assays met out acceptance criteria. Of these, we have submitted 118 to FDA for De Novo clearance, a form of 510(k). The remaining 22 assays are RUO and will not be submitted, but are intended to be launched with the product under a specific research use-only mode of operation. We have high confidence that our submission will receive a fair and timely review by the agency. This confidence is the result of over three years of productive discussions, negotiations, and document reviews with FDA, including the creation of a mock submission.

This document is representative of our final submission and the agency's review which we received earlier in the second quarter helped us fine-tune our final de novo submission. In terms of timing, I will reiterate that while review timelines are variable, we believe our team's work with the agency should result in the most efficient review process possible.

Accordingly, we remain hopeful to have a decision as early as Q3 2016. We have also initiated our Phase II clinical trial at six of the original clinical trial sites. This trial is being done primarily to continue testing assays, not reaching sufficient powering, during the initial trial and therefore is much smaller in scope than the first.

The protocol of the trial will be nearly identical to the first, but will include a greater portion of specifically targeted fresh samples to provide the necessary rare organism powering. We believe that the trial's performance will be in line with the positive performance we saw in Phase I. This would allow us to add additional nice-to-have assays to the panel in a timely manner as early as Q1 of 2017.

Moving on to commercial progress, here we have seen significant activity in the quarter. In the US, we have largely completed the build-out of our go-to-market team, recently hiring a rep for the important Boston territory. Including this hire, we believe we now have 23 absolutely world-class sales professionals who have an outstanding track record of success in diagnosis and they have been very active.

Not only have they been building a large funnel of potential accounts, but we have now begun converting them to contracts of which we have more than a few, with many more under hospital administrative review. These contracts are designed to allow customers to do a systematic evaluation against predetermined endpoint. If these endpoints are met including FDA approval, the contracts convert into acquisitions.

Further, during the evaluation period, we expect to begin generating kit revenue from customer sharing the cost of these evaluation. We couldn't be more excited about the progress here which we believe is quite good for a system at this stage.

As mentioned in our Q1 call, the team also has established a number of early access sites who among other activities will begin publishing data from their studies with the Pheno. At this time, three of the 13 sites have completed their studies and are working on manuscripts for publication. During the quarter, the number of sites increased from 12 to 13 with the addition of a large Canadian hospital.

In general, performance scores are similar to what we have seen at the clinical trial sites. Further, on time-to-result, a critical measure at the heart of our value proposition, we continue to see savings exceeding our expectations ranging from 21 to 45 hours over the current standard of care method. We believe we will have multiple manuscripts submitted to top tier journals in Q4, 2016 outlining these and other important advancements.

Commercial progress in the EU is also proceeding as anticipated. Again, we have put in place a highly experienced team of industry veterans and we believe they are using these considerable skills to great effect. As mentioned in Q1, we are excited about this market and believe that the long-term test potential could equal or exceed that of the US due to higher incidence rates of serious infections.

However, due to the tender process and extended sales cycle. We expect a relatively slow ramp. That being said, we believe our EMEA team is doing an outstanding job and we have seen solid gains in many countries, not only in funnel development but in tender wins and evaluation contracts of which we have many currently signed.

A recent visit to one of the EU customers currently in the process of their evaluation yielded exciting insights on how our platform can drive unique benefits in the European market. Specifically, this customer believed that the Pheno's ease of use would enables off-ship testing, dramatically improving a hospital's ability to optimize a patient's therapy around the clock days earlier than is possible today.

Now on to research and development, where we also believe progress has been solid. First, as mentioned on our Q1 call, we've been working on a simplified QC process that is as easy to use as our Pheno system and blood culture kit. I'm happy to report that the team has finished development on this assay and we'll be rolling the new assay out for testing in the next couple of weeks. We believe this will have a positive impact on the customer experience and decrease the times and complication of the verification process.

In addition, the team has made progress on our Beyond the MIC, formerly referred to as SIR 2.0. Our Beyond the MIC program uses our proprietary technology, Morphokinetic Cellular Analysis the deeply interrogate the pheno type of the pathogen. Enabled by high-speed optics and supercomputing, MCA simultaneously analyzes thousands of single cells for multiple features to determine useful clinical data. The project began with the gathering of hundreds of patient samples tied to actual clinical outcome data. For each of these samples, we have the patient record including clinical presentation which antibiotics were given in what quantity and what the outcomes were.

Using this large, full annotated dataset, we run the pheno to generate a bacterial signature and correlate it to the outcome data. While common in other areas of science, engineering and medicine, we believe we are the first to do this type of data mining in microbiology. The creation of this cohort is now nearly complete and over the next months, we will be analyzing the pheno signatures and doing the data mining. If this goes as we planned, we will have a number of unique parameters that are more predictive than the current MIC perhaps, creating new gold standard and giving us a strong strategic position.

Finally, we continue develop additional system and assay capabilities, enabling our next test kits and instruments. This quarter, we developed an advanced sample preparation method, which we believe will be critical for directly testing higher complexity samples like respiratory.

And with that, I will now hand over the call to Steve Reichling. Steve?

Thank you, Larry, and good afternoon everyone. Revenue for the second quarter was derived from royalties and amounted to $20,000. An increase of $1,000 over the same period in the prior year. Selling, general and administrative expenses for the quarter were $9.2 million compared to $4.8 million in the same period in 2015. This increase was principally driven by personnel-related costs in our US and EU sales and marketing organizations.

Research and development costs for the quarter were $8.1 million, up from $7.1 million from the same period in the prior year. The 14% increase is driven by clinical trial costs and the cost of pre-launch inventory.

Our net loss for the quarter was $17.9 million resulting in a net loss per share of $0.35 on basic shares outstanding of 51.2 million. Net cash used for the quarter was $14.3 million. The Company ended the quarter with cash and investments of $102.4 million.

I will now hand the call over to Larry for some closing comments.

Thank you, Steve. In summary, we have been continuing the hard work and are enthusiastic about the progress the team has made on the FDA submission, Phase II of the clinical trial, commercial expansion, and research and development.

While there is still much to do, we are more confident than ever that our Pheno System and our Company has real potential to create a sea change in microbiology, providing rapid actionable results to microbiologist, physicians and pharmacists who are helping their patients fight serious infectious diseases.

A special thanks to the team at Accelerate who worked incredibly hard this past quarter to complete our clinical trial, prepare our submission and advance our other priorities. And finally, thank you to all our shareholders whose steadfast support has made this all possible.

And with that, I will open it up to questions.

Bill Clark, Piper Jaffray.

Hi, first question, I guess Larry, I wanted to hit on one of the items you spoke about at the end of your prepared comments, which was a new sample prep methodology. Can you elaborate a little bit on that. I mean historically, you've talked about a second specimen being released as soon as the end of 2017 and I'm just curious kind of how critical is this new sample prep methodology to making sure that can do you direct specimen testing?

So Bill, it's not a need to have, it's a nice to have. It's just an improvement on our gel technology. It does a few things for us. One, it decreases our cost of goods significantly, allowing us to use another matrix that's less expensive, which is a real positive for us. And secondly, it further concentrates the sample.

So, it allows us to take samples that previously would have been outside of our dynamic range and bring them into the system and test and improve our reportability. So it's quite a positive development. But again, all these things are nice to haves not need to haves for the future products that will come out on the Pheno.

And then just staying on the pipeline for one more and I got a couple after this, when might we start to see some of the data on the respiratory samples. Is that something that at ECCMIDnext year or ASM or possibly AMP. Just trying to get a sense as to what we should be expecting from a pipeline data standpoint?

It's a good question, Bill and I'll have to get back to you on that. I mean, it should be soon, but I can't give you a specific time right now.

That's fine. And then just thinking about, I guess, some of our early diligence suggests that we may need -- even though, it seems obvious that the time savings will translate into better outcomes for patients at least one site had suggest they wanted to see some of that data even though I think they shared that observation. Can you talk a little bit about some of these early access studies, I know that you've got at least one outcome study in the works, but how should we be expecting that data from some of these early access sites or do you think it's going to be more of -- kind of the early studies being largely performance based? Thanks.

So, our strategy was that the early studies would be performance-based and then the latter studies would be outcome-based. The outcome studies are obviously much more difficult to do and we regardless of it, continued to do them, and you should see those over the course of the next quarters.

Okay, got it. And then just last one from me is, on the FDA submission, if 140 of the assays met your criteria, what was the thinking behind, I guess, submitting fewer than that? And I certainly recognize you're going to have a follow-up submission here, but just trying to parse that out. Thank you.

So, are you talking about the RUO assays that we are submitting? Is that what you meant, Bill?

Yes, that's correct. Yes, that's right.

Okay. So the assays that we are not submitting, all met our acceptance criteria, but as they're not indicated on the antibiotic drug label, the FDA does not review these and accordingly, they're not submitted. They're run at the lab under an RUO mode.

Got it. Thank you.

Karen Koski, BTIG.

I guess, just first for me, can you provide a bit more color around the comments you made in the prepared remarks regarding maybe some fine tuning you did to the final submission based on the commentary you received from FDA after the mock submission?

Yes, I mean, I will tell you that all the pre-work that we did with the FDA was such that the nature of their recommendations on the mock submission were more in the form of preference, data table presentation, analytical study data presentation and those kinds of things, Karen. So there were really no surprises. There were nothing that was really of-note there. It was really just a fine tuning.

And then, have you gotten any, I guess, comments or questions from FDA since you made the final submission? And just regarding the new QC method that has been developed, does that impact your initial submission at all?

So in terms of FDA feedback. So the review process, as you know, is interactive and we would expect to receive questions, as the FDA has them and we'll respond to them in a timely manner. At this point, we don't have anything material or any update there. And in terms of QC your question once again?

Just regarding the new QC method that you've developed and I think you said you plan to roll it out to customers in the near term. Does that impact your submission at all or is that something that FDA has to review before they might grant you approval?

So in this case, we already have the QC method, that's part and parcel to our submission. So no, the current method QC that we have and our submission are not impacted by this. It's an open question as to whether a change in QC method requires a new submission or not. And I think that's still under review here internally.

And then, just thinking about kind of the early success you've had with some customers in the US and recognizing that maybe some of your conversations have to be a little bit more limited since you don't yet have the approval on hand. But what has been the feedback from initial customers as far as the data you've been able to share with them thus far?

You're talking about in the US specifically, Karen?

Yes, yes.

I think it's been quite good and we're pleased that we have a number of PVP contracts signed with many more under administrative review and we think, as I mentioned in my prepared remarks, for a system of our vintage we think that's indicative of the interest in the marketplace. So we're quite pleased. In terms of the data, people have been really excited about the data. Our overall performance, as you've seen, is quite good and I think people, in general, were not expecting our performance to be as good as it is.

And then, just last one from me. We've been hearing maybe a little bit of mixed feedback from other companies that are looking to sell or looking to place capital into the clinical microbiology market as of late. Have you gotten any increased sensitivity around labs and the ability to make an outright capital purchase? Sounds like things are going pretty well, but just wondering if you could touch on that point a little bit?

So Karen, as you know, we have capitalized the Company and arranged a different financing to ensure that that we can place instruments regardless of whether they will be capital sales or not. And so, while we're sensitive and of course prefer capital, it's not required for the launch that we expect.

So far with the sites that we have been interacting with, capital has not been an issue and we have not yet had to fall back on any kind of financing arrangement. And accordingly, we think that's again, a good sign. That being said, if we do and that becomes an issue, we have the instruments in place to ensure that we can continue to place instruments in the fashion that we expect.

Very helpful. Thanks so much.

Brian Weinstein, William Blair.

Hey guys, thanks for taking the question. Just following up on Karen's question a little bit there. So your intention is to continue to push forward with capital purchases here. You're not hearing anything at all in terms of people being unwilling to go ahead and put that capital down, but how many systems are each of these institutions taking? Are these kind of onesies or are they looking at maybe buy two or three of these systems, any thoughts on that?

So first of all, Brian, we have not yet had the push back that you're describing. Secondly, none of these are onesies. So they're all multiples system placements. And three, as mentioned, we do have a number of alternative acquisition programs, if it becomes an issue. But so far we have not and we think we're doing a good job with these folks, in particular, because many of them had not planned for this capital acquisition in this capital acquisition cycle. So they're taking capital likely from other alternatives and using it to acquire our system, which we think is another good sign.

Got it. And then following-up a little bit on what Bill was saying about when you were talking about the outcome studies. I'm assuming you're referring to clinical outcomes there. Any additional work on economic outcome studies and when we would be able to see some data published on that?

Yes, sorry. I was referring to Pharmacoeconomic studies, which typically have a clinical and an economic end point, Brian. So those would typically be combined. The clinical outcome typically drives an economic outcome. And so, in our case, we're combining both of those together.

Perfect, thank you, and then you, mentioned the European tender win, I know you said not to expect a whole lot of revenues this year. But can you give us some idea about kind of the scope and size of that win and if there was anything other than the obvious that helped you win that tender?

Look, I mean, we're pleased with winning the tender, and we're also pleased with EU performance overall. Frankly, in Q1, it was early days and we weren't really ready to talk about how well we would or would not do in Europe. It looks like we're going to do better than we thought. We are seeing a number of PVP contracts come through and tender wins. It is of course country-dependent, but things look good there and we're pleased. We think the market is responding well to our product in Europe.

And then last one from me, on manufacturing, when I was out there several months ago, we went to the facility attached to your headquarters there and you were building stuff out. Can you just talk about where the buildout is on manufacturing? Where you capacity sits for initial launching and if there's any incremental CapEx that you guys think that you'll need to put to work to kind of finish that off? Thanks.

Yes, you bet, Brian. So, right now we have manufacturing capacity both for instruments and reagents to take us through our planning period. And the facility next door is now complete, and the buildout internally is being done component by component and the majority of the components are also complete. And so, soon we will be manufacturing all our reagents internally. The real benefit for us there is both control and cost of goods.

That's it from me. Thanks.

Tycho Peterson, JPMorgan.

Hey, thanks guys. It's actually Patrick Donnelly in for Tycho. Just on the contracts that you guys have in place, can you discuss the conversations you had with lab directors on the pricing side. How much push back, if any, you saw and kind of the premium pricing you're trying to push through on the testing and obviously you're showing the time savings. So may be just kind of talk through those conversations?

So Patrick, I guess on the PVP contracts that we won. Clearly, we had to use the various tools and studies that we've done so far to show the economic benefits of the system. And we are a premium priced product and believe that we should be a premium priced product and so far we've been able to maintain that premium price. And we anticipate continuing to do so.

I think as we move through more and more customers and we move out of the segment that we're targeting right now into other segments, we're going to need more data and we are in the process of generating that data right now. But in the segments that we're targeting today, so far things look quite good.

Okay, and then just on the sales force ramp up, I know you mentioned you have 23 reps in the US now. I mean, I think, I've seen you in the past talk about kind of mid-to-high 20's. I mean are you actively filling any positions or you feel very pretty content with the current team going into possible launch?

I think we have two open positions right now to take us to 25, but we feel quite good with the 23 that we have now.

Okay. Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Larry Mehren for any closing remarks.

I think that's it. Thank you very much folks and we'll look forward to talking to you all again soon. Have a good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.