T2 Biosystems, Inc. (NASDAQ:TTOO) Q1 2023 Earnings Call Transcript

T2 Biosystems, Inc. (NASDAQ:TTOO) Q1 2023 Earnings Call Transcript May 23, 2023

Operator: Greetings. Welcome to the T2 Biosystems, Inc. First Quarter 2023 Earnings Conference Call. [Operator Instructions]. I will now turn the conference over to your host, Trip Taylor. You may begin.

Philip Taylor: Thank you, operator. I would 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, 2023, 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?

John Sperzel: Thank you for joining our first quarter 2023 earnings and business update call. Today, I will start by addressing two press releases that we issued earlier this morning, then discuss our performance during the first quarter, including the progress we have made across our three corporate priorities as outlined in our first quarter earnings press release. I will then turn the call over to John Sprague, our Chief Financial Officer, who will review our first quarter financial results and our outlook for 2023, before I provide closing remarks and we open the call for questions and answers. This morning, we issued a press release announcing an FDA 510(k) submission for the T2Biothreat panel, a product that we developed in collaboration with the U.S. Department of Health and Human Services, Administration for Strategic Preparedness and Response, Biomedical Advanced Research and Development Authority, or BARDA.

The FDA submission marks an important milestone in our commitment to protect Americans from the threat of deliberate or naturally occurring outbreaks of Biothreat pathogens, and follows the recently completed U.S. clinical evaluation that demonstrated very high sensitivity and specificity, including 350 contrive positive samples and over 470 negative blood samples from both healthy and federal subjects. The T2Biothreat panel is a fully automated direct-from-blood test designed to run on the FDA-cleared T2Dx instrument and simultaneously detects six biothreat pathogens, identified as threats by the U.S. Centers for Disease Control and Prevention, or CDC, including the organisms that cause Anthrax, Tularemia, Glanders Plague and Typhus. If not treated promptly, infections with these biothreat pathogens can result in mortality rates of 40% to 90%.

The T2Biothreat panel is able to detect these biothreat pathogens within 4 hours directly from blood and provide clinicians with the needed information to appropriately treat infected patients. We believe the T2Biothreat panel demonstrates very high sensitivity and specificity for a direct-from-blood multi-target biothreat product and is the only such product developed by a U.S.-owned company, which we think will have an important factor in the discussions with the U.S. government regarding procurement of the T2Biothreat panel. This morning, we also issued a press release announcing the exploration of a range of strategic alternatives focused on maximizing value, and the implementation of a restructuring program. After careful consideration, the company has engaged an advisory firm to explore all potential strategic alternatives to maximize value, including an acquisition, merger, reverse merger, other business combination, sale of assets, licensing and other strategic transactions.

No updates on the process are expected to be provided during the evaluation period and less than the Board of Directors has concluded that disclosure is appropriate or required. A strategic restructuring program is being implemented to preserve capital and better position the company to explore all strategic alternatives, while continuing to support its customers, pursue new commercial opportunities and advance pipeline development. The restructuring program is designed to reduce annual operating costs and includes, among other things, an incremental reduction of the company’s workforce by nearly 30%, which was completed last week. I will discuss further strategic changes in the context of our three corporate priorities. Turning to our recent business progress.

The T2 Biosystems team has recently achieved a number of key milestones that position the company for success and support our mission to fundamentally change the way medicine is practiced through transformative culture independent diagnostics that improves the lives of patients around the world. These accomplishments support our three corporate priorities: accelerating our sales, enhancing our operations and advancing our pipeline. Starting with our first priority, accelerating our sales. Our commercial strategy is focused on increasing the adoption of our products, with emphasis on increasing sales of our FDA-cleared sepsis test panels and expanding the installed base of our FDA-cleared T2Dx instruments. As we stated during our March 2023 earnings call, our top commercial priority will be increasing the use of our sepsis test panels with existing hospital customers.

To drive increasing sepsis test revenue, we made two important changes to our sales strategy. The first change consists of expanding our sales targets to include larger hospitals and those that have a higher likelihood of achieving our annualized sepsis test panel utilization target of $200,000. Larger hospitals have shown greater potential for increased use of our T2Bacteria and T2Candida panels, given their increased patient volume and the number of patients that require complex treatments. At the same time, we acknowledge that larger hospitals have larger sales cycles, but believe balancing our sales funnel with a number of large hospital targets to complement our current targets of smaller and critical access hospitals provides greater opportunity for long-term sustained growth.

The second change consists of shifting our sales incentive compensation plan to weigh more heavily on sepsis test revenue as compared to instruments. Ultimately, this is intended to align with our strategy of more time spent with legacy accounts as well as to accelerate the time from when an instrument contract is signed to when the hospital goes live with patient testing. Our commercial, medical affairs and support teams are closely integrated to ensure we can provide customers with the training and education required to ramp their utilization and realize the clinical and economic benefits offered by our sepsis products. During the first quarter, we achieved sepsis and related product revenue of $1.7 million compared to $2 million in the prior year period, driven by lower instrument revenue.

We also ended the first quarter with a sepsis test panel backorder of $230,000. We generated sepsis test panel revenue of $1.2 million, representing an 11% increase compared to the prior year period, despite ending the quarter with a $230,000 back order. Had we been able to clear the back order as of March 31, the sepsis test panel increase would have been 34% compared to the prior year period. Importantly, we increased sales of T2Bacteria panel by 55% globally, including a 109% increase in the U.S. market compared to the prior year period. We entered into contracts for five T2Dx instruments during the first quarter, all of which were sold outside of the United States market. We believe these results are representative of the change in our commercial strategy to focus more on increasing sepsis test panel utilization in legacy accounts and of larger hospitals with longer sales cycles.

A strong validation of our new commercial strategy is that our U.S. T2Bacteria Panel revenues more than doubled in the first quarter of 2023 compared to the prior year period. This was supported by the adoption of four new hospital accounts ordering the T2Bacteria Panel for the first time, bringing our fourth quarter 2022 instrument closes online in a faster timeline. We’re pleased with the adoption rates of the T2Bacteria Panel as more hospitals are realizing the value of the product, as evidenced by the increased demand in our legacy accounts. We also have approximately 40 T2Dx instruments in U.S. hospital laboratories that were initially sold for COVID-19 testing and which we are targeting for conversion to our sepsis test panels. I’m pleased to inform you that another instrument was converted to our sepsis test panels during the first quarter of 2023, and we expect additional conversions from COVID-19 to sepsis in the coming months.

Separately, we’re excited that we recently entered into multiyear pricing agreements with two large U.S. health systems, covering a total of 69 U.S. hospitals. The key hospitals in each of these two health systems are multiyear users of T2 Biosystems sepsis test panels. In those hospitals, our sepsis panels are integrated into the sepsis management protocols, and they’re experiencing improved clinical benefits and positive economic benefits. The new agreements provide these 69 U.S. hospitals with contracted pricing for the T2Bacteria Panel and the T2Candida Panel for an initial 3-year period as well as options to procure T2Dx instruments. We’re certainly excited about the opportunity to expand the use of our sepsis products within these two large health systems, increasing sepsis test utilization within existing hospitals and expanding broadly across health systems are core tenets of our growth strategy and represent top U.S. commercial priorities.

Internationally, there continues to be a significant commercial opportunity for our T2Dx instruments and sepsis test panels. This is reflected by continued sales of instruments and sepsis test panels to our international distributor partners. We continue to see strong demand in Europe and the Middle East and expect to continue to expand distribution across the Asia Pacific region in the coming months. Our efforts to increase awareness of the benefits of our sepsis test panels extend beyond the activities of our commercial team, medical affairs team, key opinion leaders, and Scientific Advisory Board. In April, we presented clinical data at the European Society of Clinical Microbiology and Infectious Disease, or ESCMID. Three presentations were delivered by clinicians highlighting their real-world experience, including the speed, accuracy and clinical benefit delivered by our T2Dx instrument and sepsis test panels.

Driving awareness of the benefits of the T2 technology, combined with our optimized commercial game plan, gives us confidence in our ability to accelerate sales in the coming quarters. Moving to our second priority, enhancing our operations. We recognize that efficient operations are critical to our long-term success. To drive greater efficiency, we have taken measures to reduce expenses across the company. T2 Biosystems is now operating as a leaner organization with 110 employees compared to 204 employees in May of 2022. We expect the net result of our workforce reduction and cost control measures to significantly reduce our quarterly cash burn throughout 2023. Driving increased leverage is a constant focus for our organization. We can achieve significant gross margin expansion as our customers continue to increase sepsis test panel utilization.

Test panels carry a higher contribution margin. And as we increase test unit volumes, our overhead will be allocated across greater volume, which can lead to improved product gross margins. To support the growing demand for our sepsis test panels our operations and manufacturing teams are hard at work, managing the supply chain and continually improving our manufacturing process to drive greater efficiency. Over the last several months, we’ve strengthened our operations team by hiring a new Vice President of Operations and subsequently hired new manufacturing and supply chain leadership. On our March 2023 call, we discussed a raw material issue that we identified during our routine internal quality inspection that was limiting our ability to manufacture sufficient volume of sepsis test panels to meet customer demand.

Considering we identified this issue during our in-process inspection, product that we shipped to customers or distributors was not affected. We’re pleased to report that we have cleared the $230,000 back order for the T2Candida Panel and T2Bacteria Panel referenced earlier, since the end of the first quarter, and we’re returning to more normalized shipment patterns for these products. We’re still working through the materials issue for the T2Resistance Panel and we expect to have it resolved before the end of the second quarter. Finally, in the first quarter, we strengthened our balance sheet by raising $12 million in gross proceeds. In the coming quarters and consistent with the workforce reduction that we implemented last week, we will continue to be disciplined with our operating expenses to increase our operating leverage and extend our cash runway.

Moving to our third priority, advancing our pipeline. T2 Biosystems’ novel technology platform and scientific expertise position the company to expand our addressable markets in the future. Our new product pipeline is focused on two goals: one, developing new tests to expand the test menu on the T2Dx Instrument; and two, developing a next-generation instrument and comprehensive sepsis panel. We’re currently developing five new products to expand the test menu on our FDA-cleared T2Dx Instrument, including the T2Biothreat Panel, the T2Resistance Panel, the T2Lyme Panel, Candida auris and Acinetobacter baumannii. Each new test panel or test represents a differentiated solution to rapidly identify harmful pathogens and potentially allow clinicians to achieve faster targeted therapy.

We believe expanding the testing menu will increase both instrument adoption and test utilization. As we discuss the T2Biothreat panel earlier in the call, I’ll focus my comments on the four remaining menu expansion programs. First, T2Resistance Panel is a direct from blood molecular diagnostic test designed to simultaneously detect 13 antibiotic resistance genes known to cause antibiotic-resistant infections in just 3 to 5 hours, without the need to wait days for a positive blood culture. The T2Resistance Panel, which is marketed and sold in Europe under CE Mark, detects resistance genes that may confer resistance to common antimicrobials, such as carbapenems, methicillin and vancomycin. We have advanced the U.S. clinical trial and completed nearly 90% of patient enrollment and plan to file our submission to the FDA upon completion of the study.

As a reminder, the T2Resistance Panel was granted breakthrough device designation by the FDA, which provides for a prioritized review upon submission and has received funding under our contract with BARDA. Second, the T2Lyme Panel is a direct-from-blood molecular diagnostic test to detect Borrelia burgdorferi, the bacteria that is the major cause of Lyme disease in the United States. The T2Lyme Panel is intended to test individuals with signs and symptoms of Lyme disease and aid in the diagnosis of early Lyme disease, and we believe it will provide a significant advantage over the currently recommended serological testing that requires the presence of antibodies, which can take the body 4 to 6 weeks to create post-infection. In 2022, our T2Lyme Panel was named a winner in the Lyme Innovation Accelerator, or LymeX, a partnership between the U.S. Department of Health and Human Services and the Steven & Alexandra Cohen Foundation, the largest public-private partnership for Lyme disease that plans to award up to a total of $9 million to future award winners.

We previously also received a patent from the U.S. Patent and Trademark Office, covering the T2Lyme Panel. And FDA granted breakthrough device designation for the T2Lyme Panel in 2022, allowing for a prioritized review process upon submission to the FDA. We have completed the early assay development for the T2Lyme Panel and established a preliminary level of detection, or LOD, of 2 CFU per ml. We plan to initiate commercialization of the T2Lyme panel as a laboratory developed test and subsequently commence a U.S. clinical trial to support submission for FDA clearance. Third, we plan to add Candida auris to our T2Candida Panel, a direct-from-blood molecular diagnostic test that detects over 90% of Candida bloodstream infections. Candida auris is a multidrug-resistant pathogen recognized by the CDC as a serious global health threat, with a mortality rate up to 60%.

According to CDC, Candida auris is difficult to identify with standard laboratory methods, which can lead to inappropriate treatment. And some strains are resistant to all three available classes of antifungals. The CDC estimates the costs associated with U.S. fungal diseases in general are as high as $48 billion annually and is called on public health professionals to lower the burden of fungal disease by continuing to raise awareness of the life-saving benefits of early detection and proper treatment. We believe adding Candida auris to our existing T2Candida Panel will provide a significant time advantage compared to other blood culture-based methods and strengthen the value proposition of the test panel, making it even more attractive to our hospital customers.

We’ve recently completed feasibility and early development of a diagnostic test to detect the Candida auris pathogen, and I’m pleased to report that we also recently applied for FDA breakthrough device designation for this test. Finally, we plan to add Acinetobacter baumannii to the T2Bacteria Panel, a direct-from-blood molecular diagnostic test to expand the number of pathogens detected on the test panel. Acinetobacter baumanni can cause bloodstream infections, especially in critically ill patients, which can range from benign transient bacteremia to septic shock, and as reported, to have a crude ICU mortality rate of 34% to 43%. Acinetobacter infections rarely occur outside of healthcare settings in the United States and can disproportionately impact those with weakened immune systems, chronic lung disease or diabetes.

Acinetobacter can be resistant to many antibiotics, including carbapenems, highlighting the importance of rapid detection and targeted antimicrobial treatment. Looking ahead at longer-term projects, we’re focused on developing next-generation sepsis products, including a new instrument and a comprehensive sepsis test panel. The next-generation instrument is designed to increase the number of detections from a single whole blood sample. The comprehensive sepsis test panel is a direct-from-blood test designed to detect greater than 95% of all bloodstream infections caused by bacterial and Candida species, and antibiotic resistance genes identified as threats by the CDC in a single test with a time to result of approximately 3 hours. The next-generation instrument and comprehensive sepsis test panel have been funded under our contract with BARDA.

We have been operating in Option 3 of the BARDA contract, after successfully meeting all development milestones under the base phase, Option 1, Option 2A and Option 2B. We have filed a no-cost extension with BARDA under Option 3 to allow additional time to complete the U.S. clinical trial for the T2Resistance Panel. Further funding from BARDA may resume following the completion of Option 3 and BARDA’s potential exercise of Option 4 of the contract. Considering timing is still and funding are uncertain, we’re not providing guidance on BARDA revenue at this time. With that, I’ll now turn the call over to John Sprague to provide a detailed update on our first quarter financial results and our financial outlook for 2023. John?

John Sprague: Thank you, John. Total revenue for the first quarter of 2023 was $2.1 million, a 71% decrease compared to the prior year period, driven by a decline in COVID-19 test sales and reduced BARDA revenues. Product revenue was $1.7 million, a decrease of 57% compared to the prior year period, driven by a 98% decline in COVID-19 test sales, partially offset by increased sepsis test sales. Research and contribution revenues were $400,000, an 88% decrease compared to the prior year period, driven by decreased BARDA contract activities. Cost of product revenue for the first quarter of 2023 was $4 million, a 35% decrease compared to the prior year period, driven by decreased COVID-19 test sales. Research and development expenses were $4.5 million, a 33% decrease compared to the prior year period, driven by decreased BARDA contract activities.

Selling, general and administrative expenses were $7.3 million, a 21% decrease compared to the prior year period, driven by decreased medical affairs spending. Net loss for the first quarter of 2023 was $18 million, $1.32 per share, compared to a net loss of $16.5 million, $4.86 per share in the prior year period. Cash and cash equivalents were $10.1 million at March 31, 2023. In the first quarter of 2023, we raised $1 million from ATM sales and $11 million from a public offering. The 30% workforce reduction will decrease our burn. We remain in compliance with our loan covenants. We reiterate guidance and expect 2023 total sepsis and related product revenue of $11 million to $13 million. Thank you, and back to John Sperzel for closing remarks.

John Sperzel: Thank you, John. Before I conclude, I’d like to address our NASDAQ listing compliance. On November 22, 2022, we received a letter from NASDAQ indicating that for the last 30 consecutive business days, the market value of listed securities had been below the $35 million minimum requirement for continued listing on the NASDAQ capital market under NASDAQ Listing Rule 5550(b2). We provided an initial period of 180 calendar days or until May 22, 2023, to regain compliance. We expect to receive a letter from NASDAQ, informing us that our shares have failed to comply with the MVLS required for continued listing on the NASDAQ Capital Market, and as a result, our shares are subject to delist. We will file an appeal and hearing [indiscernible] with NASDAQ, which NASDAQ must grant, which will stay the delisting of our common stock from the NASDAQ Capital Market, pending a NASDAQ Listing Qualifications hearing panel’s decision.

There can be no assurance that the panel will grant our request for continued listing. However, we intend to present a plan to regain compliance to the panel that includes a discussion of the events that we believe will enable us to regain compliance in this time frame. As a reminder, sepsis presents one of the greatest challenges to healthcare systems worldwide, claiming approximately 11 million lives each year. In the United States, sepsis is the #1 cost of hospitalization, costing our healthcare system approximately $62 billion annually. The #1 cause of death in hospitals, claiming the lives of approximately 270,000 Americans annually, and another 80,000 deaths in hospital — in hospice each year. And finally, the #1 cause of 30-day hospital readmissions, requiring nearly 20% of sepsis survivors to be readmitted within 30 days and nearly 40% to be readmitted within 90 days.

We are making progress to enhance the current standard of care for patients at risk of sepsis with our advanced diagnostic technology, and we continue to be uniquely positioned as the only company with FDA-cleared diagnostics to detect sepsis causing pathogens directly from whole blood samples. Our sepsis and related product revenue continues to grow, including sepsis test panels and instruments, and we expect full year growth of 2023 of 31% to 55%. The demand for our products is strong, and our sales funnel continues to grow domestically and internationally. In an effort to maximize value, we also have taken important steps to reduce our operating expenses, including the restructuring program that was implemented last week. And we have engaged an advisory firm to explore all potential strategic alternatives.

Finally, we’re making excellent progress advancing our product pipeline, including several near-term programs focused on expanding test menu on the FDA-cleared T2Dx Instrument and that have the potential to add revenue as early as 2023. I’d like to turn the call back over to the operator to open the line for questions. Operator?

Q&A Session

Operator: [Operator Instructions]. Your first question for today is coming from Kyle Mikson at Canaccord.

Kyle Mikson: It’s good to talk to you. I wanted to just kind of level set, John, on the timelines and priorities kind of going forward. I’m just — I guess I’m curious how long it’s going to take to kind of grow into your kind of relatively refreshed commercial strategy while you complete these, I guess, internal efforts to advance the pipeline assets, recognizing you have the BARDA partnership as well? And how much time at the end of the day, you want to allocate towards these buckets? And how do you think about priorities as you kind of limit cash burn as well?

John Sperzel: Thanks, Kyle. So the way we’ve set the three corporate priorities. One, obviously, is focused on commercialization. That team is in place. It’s led by Brett Giffin. We have already evolved the sales team and the targets to focus on the targets that we have been prioritizing, which are some mid to critical access hospitals and supplemented that or enhanced it with a handful of large target accounts. So that’s underway. The comp plan has already been revised and that’s under specific leadership. The internal operating initiatives around manufacturing and cost controls, and those obviously are led primarily on the cost side by John Sprague, but on the operating side by our new Vice President of Operations, that’s Steve Miller.

And the pipeline is led by Roger Smith. So we have different leadership that’s focused on driving these initiatives, and on balance, we can do that. We’re doing it with a much leaner organization. So there are certainly some things that we have decided not to do or we’ve decided to slow down a bit to make sure that we can extend our cash runway appropriately.

Kyle Mikson: Okay. That was helpful, John. And maybe just thinking about the 11% year-over-year growth in the core product revenue, it sounded that’s not overly impressive at first glance, but obviously, you have this $230,000 back order that, I guess, came through in the second quarter, but that would have been in the first. If that wasn’t the first, it sounds like top line growth could have been 34%, which is solid. I guess, going forward, I mean, does that kind of 30-plus percent type growth for the next several quarters a good way to think about your guys’ financial performance? Or I mean, just kind of — that was kind of a one-off that back order situation. So how should we think about that variable kind of coming up in the future?

John Sperzel: Sure. Well, when we set the guidance, we guided to sepsis and related product revenue of $11 million to $13 million. And we expected revenue to be weighted 40% first half and 60% second half. And then if you split those halves, we also believe that the first half would be 40% Q1 and 60% Q2, and same with the second half, 40% Q3 and 60% Q4. So at the midpoint of $12 million, we expected 16% in Q1, 24% in Q2 and Q3 and 36% in Q4. So if you look at that 16% that we expected in Q1, of the $12 million midpoint, it would have been $1.92 million. We finished at $1.7 million. We had $230 million on back order. So we are exactly where we expected to be.

Kyle Mikson: Okay. And then I guess I have a couple of questions off the kind of the guidance, I guess, too. I mean just first with like kind of a simple one on the placements. So the 5 [indiscernible] definitely less than what we were modeling. But I mean that’s — it’s not all bad if the installed base is increasing relatively needed rate because then you’re seeing maybe utilization kind of increasing faster possibly. So I mean, can you maybe just talk about what you’re seeing with utilization trends as some of these customers mature with their current platform or the transition to sepsis kind of takes place and customers get more comfortable using those panels?

John Sperzel: Sure. So first thing I would say, the five instruments that were — went to the international markets, those are all sold. So that’s good news because in the United States, we typically place those instruments. They go on our balance sheet. So they have a certain cost associated with them. And it’s in line with our strategy to drive sepsis test utilization. So if you look at our installed base and our sales team, the sales team has a certain amount of hours that they can be selling in customer accounts. And we’ve shifted that strategically to make sure that they’re focus on driving increased utilization versus hunting for new accounts. Obviously, hunting for new accounts takes more time versus cultivating and growing the business in our existing accounts.

In addition, we have those 40 instruments that were initially sold for COVID testing that we have been working to convert to sepsis testing. It’s been a slower process than we anticipated, and carving out some of that sales force time so they can focus on driving those conversions are really important. And quite frankly, it’s a lot more efficient use of the sales time. We’ll get a much better return converting those 40 instruments that are already there than we would be putting 40 new instruments into the market at this point in time.

Kyle Mikson: Okay. That’s helpful. And I guess it’s actually not clear to me, this $230,000 back order, was that mainly instruments? Or is that consumables? Because that could be a few instruments possibly to, I guess, right? So I’m just curious.

John Sperzel: It was all consumables and it was predominantly T2Candida panels and a little bit T2Bacteria.

Kyle Mikson: Got you. Okay. So rest — the vaccinations were placement for the rest of 2023. The five in 1Q — I mean I appreciate the dynamics of buying and selling replacements and things like that. And it is quite the different, I guess, when you’re doing U.S. versus U.S. But anyway, the five is the lowest since the thick of the pandemic, ,I think like early 2021. Will the rest of the ’23 performance, like what’s in the guidance right here from 2Q to 4Q? Is that going to be driven by instrument revenue or panel revenue in your guys’ view? And how does that split between U.S. and then international look like? And then maybe if you could just comment on the pipeline product revenue. It sounds like you could include some of that you’re assuming maybe some this year. Is that in this guidance, too? Because that obviously could be upside.

John Sperzel: So there is not — I’ll just take those in different order. There is not new product revenue in the guidance. So for example, T2Lyme, or to the extent, T2Biothreat gets through FDA and is commercialized this year, that is not in our guide. That’s the first thing I would say. As far as instruments are concerned, the five instruments in the quarter, it’s obviously less than we anticipated. We didn’t guide on instruments because of the emphasis and the focus on test and test utilization, but we anticipate instruments on a quarterly basis throughout the balance of the year being higher than five per quarter.

Kyle Mikson: Got you. Okay. And then if I could just ask a final one. I don’t want to take too much time. But the — maybe this 30% reduction I think that — so that’s incremental to the one that you did not too long ago, I think it was several quarters ago. Which departments were affected by this more recent reduction last week?

John Sperzel: All of them.

Operator: Your next question is coming from Mark Massaro at BTIG.

Mark Massaro: Maybe just a follow-up on that last one. If all the departments were impacted, maybe could you comment, John or Brett, on what the commercial organization looks like? I know you are down to maybe three reps or so. Just what does that look like in terms of sales support, medical science liaisons and others that can help drive the top line?

John Sperzel: Sure, Brett, would you like to take that one?

Brett Giffin: Yes, sure. Can you hear me okay?

Mark Massaro: Yes.

Brett Giffin: Okay. Great. Mark, thanks for the question. So yes, I mean, as John mentioned, we — there were some impacts in the recent moves that we made. I would say that across the board, if you look at it, I think they were, I’d say, more minimized on the commercial side of things, if you just looked across the whole organization. And along with that, Mark, as I talked about in prior periods, we’ve obviously endeavored to strengthen our medical affairs organization. We’ve done that, same thing with marketing with a change in leadership. Those two organizations were not affected in this latest we did actually have a couple few positions here and there across sales and service. But I — look, we feel very strongly about the team we have in place, and certainly, we were very judicious about where those moves came from.

And we’re in the point now, we feel very comfortable in being able to cover the account base with the right amount of focus. So yes, I think we’re — I mean these things are always — they have impacts, but I sort of feel like on the commercial side of it and what we’re doing, that we largely minimize that.

Mark Massaro: Okay. On the — congrats on the multiyear pricing agreements with two large health systems. I’m curious if these are pricing agreements only? Or were there any purchases or any orders that went with these?

John Sperzel: Their pricing difference, Mark — go ahead, Brett.

Brett Giffin: No, I was just going to say their pricing agreements, Mark, with the — I think with the — I’ll call it, sort of the strong emphasis on tie-in with the sort of key anchor institutions, if you will, to help drive those across the other [indiscernible] institutions that’s part of those networks. But yes, they’re principally pricing agreements, correct.

Mark Massaro: Yes. Okay. Is it fair to say that you would expect purchasing behavior or purchasing off of these pricing agreements as the year progresses or the quarter?

Brett Giffin: Yes. Very much so. These are — for licenses to hunt, so to speak, I think much more not that we couldn’t have in the past, but I think with a much stronger, I’d call it, sort of tie-in and connection with the mothership, so to speak. So I think, yes, we’re very bullish about targeting those within those setups.

Mark Massaro: Okay. Great. So I guess, you guys have had a relatively low cash balance in the last couple of quarters. I’m a little bit surprised — modestly surprised to see the news on the strategic alternative pursuit. Maybe can you guys comment — I think there’s a statement in your queue that you believe that you may not have enough cash. Let me — may not have enough cash, I think, to get through June 30 or July yet to fund its operating plans through June 30. So I’m trying to figure out, has the cash burn spiked a little bit? Were there any one-timers? And then how much of the decision to pursue strategic alternatives is around the uncertainty on the no-cost extension from BARDA? I guess what I’m trying to figure out is if BARDA does extend you, how do you expect that might impact your funding situation in the next several months?

John Sperzel: So I’ll let John take the cash question. But I would just address the one about pursuing potential strategic alternatives. It’s completely unrelated to BARDA.

John Sprague: Yes. And just to add to the cash burn. Our cash burn has come down consistently, Mark, as we’ve leveraged operations as well as it’s going to be benefited by the reduction in force. We do have some seasonality in terms of our procurement purchases for pricing in our supply chain. You see that typically in Q1 and then it levels off during the rest of the year. But overall, going forward, we expect our burn to be significantly decreased as a result of all these efforts.

John Sperzel: Mark, I’ll just add to that. I mean the going concern language in our 10-Q that we filed yesterday, that’s not the first time that we’ve had going concern language because as you noted, our cash balance has been relatively lean on a sort of quarterly basis over the last 12 months.

Mark Massaro: Okay. I guess, I think you’ve touched on this, but maybe I’ll just make sure we’re all on the same page. Saying you’re not going to have enough cash to get through June and then reiterating the full year sepsis guidance range of 11% to 13% after doing a nearly 30% reduction in force, I guess, what gives you confidence that you can still hit those numbers this year?

John Sperzel: Well, I think what that language says is that we’re going to need to raise capital.

Mark Massaro: Yes. Understood, which is also clear. So all right. Well, congrats on the growth in the T2Bacteria, especially in the U.S. I guess maybe my last question, John, I guess, can you explain what drove the triple-digit year-over-year revenue growth in T2Bacteria. Were these predominantly the four new hospitals that came on? Or maybe can you just give us a sense for where that strength came from and what your near-term pipeline looks like to turn on T2Bacteria?

John Sperzel: Sure. I’ll start, and then Brett might want to add to it. It certainly was a factor that we had four accounts come online. I’d say it’s also a result of our renewed or modified sales strategy to focus on driving broader adoption within these hospital accounts and the fact that keep in mind, the T2Bacteria launch happens shortly before the COVID pandemic. So I don’t think that hospital accounts have had the full benefit of our sales and marketing team and our Scientific Advisory Board members the value of T2Bacteria, and we’re starting to see the impact of that. So Brett, do you want to add anything to add?

Brett Giffin: Yes, I think that’s correct. And Mark, you probably might recall, too, we’ve been seeing a really solid lift in bacteria going back into last year, I mean the second half of last year. And I think we’ve continued to accelerate that at obviously adding the — our medical affairs resources that we now have in place and having that integrated along, as I mentioned, with the marketing group and the sales all working together. I think it’s — yes, I mean it’s really borne a lot of fruit. And it’s a combination. We’ve certainly seen good solid lift within the legacy accounts, both in the U.S. as well as internationally. And again, as John mentioned, adding to that the new accounts that we’ve brought on are — we’re certainly seeing and experiencing the impact of that. So that’s been a great picture, and I think that’s certainly one we’re bullish on going forward, too.

Operator: Your next question is coming from Ben Haynor at Alliance Global.

Benjamin Haynor: First off for me, congrats on completing the assay development for the T2Lyme. What’s left to do there before launch? And is this something that you’re going to launch yourself or look to a partner? And does the present balance sheet situation make you lean more towards a partner? If there’s some upfront money potentially available? Just any help there would be helpful.

John Sperzel: Thanks, Ben, for the question. We have to do a little bit of work on the instrument side to make sure that we marry that with the assay development work that’s gone on. I think the really important point to underscore on the limit of detection that I described, that preliminary LOD of 2 CFU per ml, that’s really critical because our focus from a marketing perspective is on early line disease in that first 30 days, because the alternative tests that are in the market are relying on antibodies that take time to develop. So this is in line with our strategy where rapid detection is important for targeted treatment. From a commercial perspective, you covered both areas, which is, are we going to do this ourselves? Are we going to do it through a partner? We’re exploring both opportunities, and we haven’t decided at this point.

Benjamin Haynor: Okay. And are you having — I presume there’s some discussions going on, certainly, internal EBIT are you also discussing with potential partners and have kind of engagements there?

John Sperzel: Yes, we are.

Benjamin Haynor: Okay. Got it. I’ll stay tuned there. And then on the 30% reduction in force, what’s the right way to think about that in terms of expenses? I mean is it kind of a 30% reduction in OpEx as well? And then will there be any sort of charge in the current quarter and what does that look like?

John Sperzel: There’s no charge in the current quarter. John Sprague, would you take the forward-looking OpEx, give Ben some insight on that?

John Sprague: Yes. I think it’s fair to model somewhere between 20% and 30%, Ben. It is skewed based on the mix of employees that were impacted. But I think that that’s a good way to view our burn improvement going forward.

Benjamin Haynor: Okay. Got it. And then lastly for me, and I’ll take the rest offline. But the T2Resistance trial getting down to the short strokes here, what does that completing trigger any payment for BARDA? Or does that require them picking up option for to have some more cash come in the door?

John Sperzel: So I’d say first thing, we’re super excited about both T2Biothreat and T2Resistance. Remember, we came into this year anticipating getting two products over the goal line submitted to the FDA that could potentially be revenue contributors this year. And we have submitted T2Biothreat to the FDA. So that 90-day clock is now ticking. The FDA will respond to us sometime in mid-August, if not sooner. And we’re excited about that. We’re also excited about T2Resistance. We’re close to the goal line on completing the clinical trial. We’re 90% at this point. And we are under a no-cost extension. So from a BARDA perspective, we don’t anticipate additional funding for T2Resistance. Once we complete Option 3, as I mentioned in the earlier prepared remarks, that would be a point where BARDA may potentially trigger payment under Option 4, and then there was also a contemplated Option 5 and Option 6.

Those, again, assuming BARDA funds them, would be for the next-gen instrument and comprehensive sepsis panel.

Operator: We have reached the end of the question-and-answer session, and I will now turn the call over to John Sperzel for closing remarks.

John Sperzel: Thank you very much for joining our first quarter 2023 earnings call. Hope you all have a great day.

Operator: This concludes today’s conference, and you may disconnect your lines at this time. Thank you for your participation.