Talis Biomedical Corporation (NASDAQ:TLIS) Q1 2023 Earnings Call Transcript May 14, 2023

Operator: Good day and thank you for standing by. Welcome to the Talis Biomedical’s Business Update Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Emily Faucette, Senior Vice President Corporate Communications and Investor Relations. Please go ahead.

Emily Faucette: Good afternoon and thank you. Joining me today are Rob Kelley, our Chief Executive Officer; and Becky Markovich, our newly appointed Interim Chief Financial Officer. Earlier today, the company released a business update and financial results for the quarter ended March 31, 2023. A copy of that press release can be accessed on the Investors page of our website at talisbio.com. Before we get started, I would like to remind you that management will make remarks during this call that are forward-looking statements within the meaning of the federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appear in the section entitled Forward-Looking Statements in the press release Talis issued today.

For a more complete list and description, please see the company’s filings with the SEC including the Risk Factors section of the company’s annual report on form 10-K filed on March 22, 2023 as maybe supplemented from time to time in other filings. Except required by law, Talis Bio disclaims any intention or obligation to update or revise any financial projection or forward-looking statement whether because of new information, future events or otherwise. This conference call contains time sensitive information and is accurate only as of the live broadcast on May 11, 2023. With that, I would like to turn the call over to Rob.

Rob Kelley: Thanks Emily. Good afternoon, everyone, and thank you for joining us. During today’s call, I will provide an update on the notable progress we have made to advance our business and women’s and sexual health. Including the tests we are prioritizing for development and our regulatory strategy to bring them to market as quickly as possible. Becky will then review our financial results for the first quarter of 2023. Let me begin by reminding everyone of our mission. Talis Bio is dedicated to advancing health equity and outcomes by delivering accurate, accurate infectious disease testing in the moment of need at the point of care. We are currently executing a focus plan to deliver the objectives of this mission. The significant opportunity in the women’s and sexual health markets is growing and bolstered by industry tailwinds.

The incidence of sexually transmitted infections, including chlamydia and gonorrhea continues to rise. According to new data released by the CDC in April, both increased by nearly 4% between 2020 and 2021 due in part to lack of testing. To address this major health challenge, the CDC is encouraging better availability of STI testing across more organizations and settings. Their call to action reinforces a critical need for rapid testing of these infections, to enable timely patient treatment, management and prevention. In addition, the American Congress of Obstetricians and Gynecologists recommends annual screening for chlamydia and gonorrhea in all sexually active women aged 25 and younger. Despite this, recent research shows that only 56% of these sexually active females have been screened for chlamydia, further demonstrating this significant unmet need.

With testing traditionally conducted by central labs, there was a great opportunity to move testing to OBGYN offices, and potentially other sexual health testing centers including urgent care clinics or primary care facilities. Today, patients are becoming more engaged consumers expecting convenient and immediate diagnoses and treatments. With turnaround time for centralized lab tests taking up to five days, physicians practices are looking for more efficient solutions that can also redirect reimbursement from central labs to their own practices. Providers are eager to test at the point of care retreatment can be immediately prescribed or ruled out and are increasingly comfortable with molecular point of care testing, due in part to the recent pandemic.

While the benefits of testing at the point of care are clear, the market has yet to decentralize. We believe this is because currently few if any point of care systems sufficiently meet the needs of providers due to limitations around test performance, turnaround time, workflows, clinical utility and economic rationale. The capability to address all of these requirements with one solution is critical to win this market. We estimate the immediate addressable market opportunity for Talis Bio in the women’s and sexual health markets is approximately $3 billion in the United States alone based on the point of care conversion opportunity for the initial menu of tests we are developing. Demand for these tests in these markets is large and growing.

And it is our goal to expand this total addressable market as we broaden our test menu. We believe the Talis One system is strongly positioned to address the current limitations around point of care testing, with its high accuracy, rapid turnaround, ease of use, flexible cartridge design for multiplexing and low manufacturing costs. Specifically, we believe Talis One is differentiated by the robust nature of our sample preparation, which includes nucleic acid extraction and purification to enable rapid detection of infectious pathogens in a variety of unpurified patient sample types. This automated on cartridge sample preparation paired with our isothermal amplification technique, and multiple reaction chambers is critical and delivers high sensitivity and specificity for a wide range of pathogens in less than 30 minutes.

We believe the unique combination of these capabilities on the Talis One system is an important competitive advantage of our plan test menu. The women’s and sexual health untapped markets are primed for decentralized testing and are differentiated Talis One system. We have validated disbelief through extensive customer surveys that revealed strong interest in our platform, with approximately 84% of respondents indicating that they would adopt Talis One for in office STI and vaginal testing. Further, approximately 40% of the respondents indicated that they would also leverage the PAP platform to offer point of care respiratory testing for women in the course of their care. To capture this significant opportunity ahead, our business strategy is focused on three key activities to drive profitable growth and build a foundation for long term success.

First, continue to increase the flexibility of our manufacturing capabilities to support the development of commercialization of the Talis One system that puts us on a path to meaningful margins in the future. Second, complete development and regulatory submissions for a targeted menu of tests to address the needs of the women’s and sexual health markets within the U.S. And finally, pursue commercialization of multiple tests on the Talis One platform. Now, I’d like to walk you through the progress we have made against our strategic investments in each of these areas. We are pleased to report that we have demonstrated our ability to manufacture cartridges and instruments with high throughput lines at the pace and the quality needed today and with what we believe will be attractive margins at scale.

To support this, we’ve established three tiers of cartridge manufacturing capabilities, consisting of a manual line at our Redwood City California facility with the capacity to produce 300 cartridges per day to support our research and development efforts. A semi-automated line at our Chicago facility with the capacity to produce 2000 cartridges per day to support clinical studies and early commercialization. And three fully automated lines operated at our contract manufacturing facility that will enable the production of 40,000 cartridges per day at full commercial scale. With respect to instruments, we have built several 100 to-date and have invested in and received raw materials to build 1000s more. We have consistently passed lots through our quality control protocols and this level of quality has also been demonstrated through investigational use only studies.

Looking ahead, our team is now working on driving further operational efficiencies and cost reductions, including restructuring relationships with contract manufacturing partners. We are laser focused on refining our production capabilities to lower manufacturing costs in our tracking toward expanding margins at scale. Ultimately, what we previously saw as one of our greatest challenges, we now believe we have transformed into one of our greatest strengths. With confidence and our manufacturing capabilities established, we are moving forward with a targeted menu and discipline regulatory strategy that we believe minimizes risk and accelerates time to commercial launch. We have created a deliberate plan for commercialization by prioritizing the development of four test panels consisting of a respiratory panel for influenza A, influenza B and COVID-19 or a [indiscernible] panel.

Chlamydia, gonorrhea and trichomonas vaginalis or CTNG herpes simplex virus or HSV 1 and 2 and a vaginal infection panel. In order to bring these tests to market as soon as possible, we’re leveraging progress made to-date with our COVID-19 test in pursuit of a 510-K clearance of the Talis One system. Knowing OBGYN are interested in offering respiratory testing, we plan to pursue full 510 K clearance of our fluid panel to create initial demand and experience with our target market while we finalize development of our CTNG test. We then aim to drive robust commercial adoption, with testing for CTNG in asymptomatic and symptomatic patients. To grow market share further or with further differentiation we are targeting the development of a test for HSV 1 and 2 and a vaginal infection panel.

On the regulatory front, our team is initiating a clinical study to support our COVID-19 510-K submission and has completed pre-submissions for our respiratory and CTNG test panels. Additionally, we are pleased to have received feedback from the FDA and are solidifying timelines for executing clinical studies based upon this feedback. Longer term, we plan to develop additional tests such as Group B strep and urinary tract infection that we believe will address the most critical infectious disease testing needs in women’s and sexual health. By focusing on a menu of high value tests tailored to the needs of OBGYN, we believe we can successfully establish Talis Bio as a trusted name in this large market. In summary, with the strategic investments and progress we have made, we now have a differentiated high performing diagnostic platform at the point of care.

A demonstrated ability to manufacture at scale, flexibility to drive our business strategy and a pathway to attractive margins and established strong commercial infrastructure to be well-positioned for launch a refocused product roadmap targeting the women’s and sexual health markets, and a highly efficient and experienced organization. Importantly, to execute our mission, we have streamlined our resources and reduced monthly cash burn to targeted levels which we believe will extend our cash runway of $113 million into 2025 as of the first quarter of 2023. With that, I’ll turn the call over to Becky to walk through the progress we’re making against long term financial objectives and our first quarter results.

Becky Markovich: Thanks, Ron. I’m pleased to participate in my first earnings call as interim CFO of Talis Bio. I had the pleasure of joining the company as the controller over a year ago and was attracted to the business because of its compelling mission, large growth opportunity and talented team. In this new role, I look forward to further increasing our financial discipline, as we continue to drive our business strategy and deliver on our objectives. During the first quarter, Talis Bio made significant strides towards achieving its long term financial objectives. First, we entered into a license agreement and terminated our supply agreement with one of our contract manufacturers that puts us on a path to deliver attractive margins at scale.

Second, we reduced our facilities footprint in Redwood City, California by two thirds. Importantly, due to our cash conservation efforts, we delivered a 62% improvement in net cashews and operating activities year-over-year and have achieved the goal we set in August to bring our monthly recurring burn rates down to between $4 million and $5 million. Turning now to our first quarter financial results. We recognize $1 million in revenue during the first quarter, which was driven mostly by NIH grant income. First quarter total operating expenses were $20 million compared to $36 million in the same period last year. Research and development spending for the first quarter of 2023 was $14 million compared to $21 million in the same period of 2022.

These decreases were driven primarily by rockhard inventory investments in 2022, as well as lower headcount costs from our spending reduction programs. Included in the first quarter were $3 million of nonrecurring expenses to obtain a license for patents, and cartridge raw materials in connection with the termination of the supply agreement with one of our contract manufacturers. This is a significant step toward our financial goal of achieving meaningful margins at scale. Selling, general and administrative expenses in the first quarter was $6 million compared to $12 million in the first quarter of 2022 primarily due to lower headcount costs. Unrestricted cash and cash equivalents as of March 31, 2023 were $113 million. In the first quarter, we used $16 million in cash compared to $44 million in the same period of 2022.

We have a strong balance sheet with no debt, and we continue to focus on conservative cash management. Our objective is to ensure that our current cash reserves are sufficient to fund operations into 2025. I’ll now turn the call back over to Rob for closing remarks.

Rob Kelley: Thank you, Becky. With a clearly defined product menu and disciplined regulatory strategy, Talis Bio is executing a plan to deliver multiple women’s and sexual health test panels at the point of care, treatment can be immediately prescribed ruled out. I’m confident in our ability to unlock these large and untapped markets because of the progress the team has made in the following. Establishing a highly differentiated platform that can address the limitations of current testing modalities, demonstrating the ability to manufacture with the flexibility and stability to address all stages of our business and to path to attractive margins at scale. And lastly, leveraging previous strategic investments in reducing costs to preserve capital.

With these achievements, cash runway that takes us into 2025 and our experienced team, we believe that Talis Bio is uniquely positioned to decentralize women’s and sexual health testing. With that, I’ll now turn it over to the operator to open it up for questions.

Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Rachel Vatnsdal from JPMorgan. Your line is open.

Operator: One moment for next question. Our next question will come from the line of Mark Massaro from BTIG. Your line is open.

Operator: Thank you. And now I’d like to turn the call back over to Rob for any closing remarks.

Rob Kelley: Okay, thank you for joining us today. And for your time and interest in Talis Bio. Good bye.

Operator: This concludes conference call. Thank you for participating. You may now disconnect. Everyone have a great day.