Participants

Laura Pierson; IR; Accelerate Diagnostics Inc

Jack Phillips; President, Chief Executive Officer; Accelerate Diagnostics Inc

David Patience; Chief Financial Officer; Accelerate Diagnostics Inc

Presentation

Operator

Hello, and welcome to the Acceleron Diagnostics Fourth Quarter and Full Year 2023 earnings call. (Operator Instructions) As a reminder, this conference is being recorded.
I would now like to hand the call to Laura Pierson with Accelerate Diagnostics. Laura, please go ahead.

Laura Pierson

Before we begin, it is important to share that information presented during this call may contain forward-looking statements within the meaning of Section 27 A. of the Securities Act of 1933 and Section 21 E of the Securities Exchange Act of 1934. Forward-looking statements include projections statements about our future and those that are not historical facts. All forward-looking statements that are made during this conference call are subject to risks, uncertainties and other factors that could cause our actual results to differ materially. These are discussed in greater detail in our annual report on Form 10 K for the year ended December 31st, 2023, and other reports we file with the SEC.
It is my pleasure to now introduce the company's President and CEO, Jack Phillips.

Jack Phillips

Thank you, Laura, and good afternoon, everyone. Today I would like to discuss the exciting innovation with WAVE. I will cover both near-term program milestones and how wave will revolutionize automated susceptibility testing. Additionally, I will provide updates on our strategic partnership process and our FDA submission. First, I will pass it over to David Patience., our CFO, to summarize our financial results.

David Patience

Thank you, Jack, and good afternoon, everyone. Net sales were approximately $3 million for the quarter and approximately $12.1 million year to date. This compares to approximately $3 million and $12.8 million for the same periods in the prior year. The decrease in net sales was driven by lower onetime instrument sales in the current period.
This was partially offset by an increase in reoccurring consumable net sales gross margin was approximately 21% for the quarter and year to date. This compares to approximately 28% and 26% for the same period in the prior year. The overall decline in gross margin primarily resulted from a $1.2 million inventory write-down of excess inventory during the third quarter of 2023.
Selling, general and administrative expenses were $5.8 million for the quarter and $31.2 million year to date. This compares to $8.8 million and $39.2 million for the same periods in the prior year. The overall decline in SG&A expenses resulted primarily due to lower employee related expenses. Research and development expenses were $5.6 million for the quarter and $25.4 million year to date.
This compares to $6 million and $26.9 million for the same periods in the prior year. The overall decline in R&D expenses resulted primarily due to both lower third-party development expenses for our Wave program as well as lower employee related expenses. Our net loss for the quarter was approximately $13 million and $61.6 million for the year, resulting in a net loss per share of $0.89 for the quarter and $4.94 for the year.
Cash used for the quarter was $7.9 million and $46.3 million for the year. We meaningfully reduced our quarterly cash burn in the second half of 2023. We are focused on continuing to drive further significant reductions in cash burn moving forward. So back to you, Jack to discuss our exciting innovations with WAVE.

Jack Phillips

Thanks, David. As we exit the development phase, we are focused on delivering several key milestones over the next 12 months. These include a preclinical trial and clinical trial, followed by an FDA submission and clearance for the WAVE system and a full gram negative positive blood culture menu over the past several months, we have made significant progress and formally exited development with a very impressive dataset, leveraging our deep experience in the AST. market.
Our approach and developing wave was extremely thorough. This included running more than 5,000 unique organisms, 10,000 consumable cards were run and 100 million images were taken on approximately 25 wave platforms these results were compared to more than 30,000 broad microdeletions, which is the reference method for comparison, along with strong data.
The average time to result is less than 4.5 hours Wave's unique holographic imaging technology is what makes it possible to deliver an unprecedented time to resolve for extensive bug drug combinations for E. coli, the most prevalent gram-negative organism wave can make definitive calls in under 3.5 hours for many drugs on our panel by leveraging growth and morphology data.
While there are many other highlights, let me highlight one, particularly challenging type of bacteria from microbiologist Pseudomonas aeruginosa, which is a major threat to hospitalized patients and is very difficult to treat because its highly resistant Pseudomonas is a slow-growing bacteria, which presents many challenges for both traditional and rapid susceptibility platforms.
Often this bacteria must grow over eight hours to make an accurate call wave is able to capture changes in morphology within two hours and make definitive calls in under 4.5 hours for an important carbapenem drug meropenem. This has the potential to make significant clinical impact by ensuring patients are put on optimal therapy in the same shift with Wave development successfully completed on the most challenging both drug combinations. We are confidently ready to begin our preclinical trial.
Our preclinical trial will include two sites enrolling both fresh perspective as well as contrived challenge isolates. Our objective is to demonstrate AST. performance compared to the reference method and verify our time to results. Additionally, the preclinical trial demonstrates our ability to successfully ship install, train and run Waste Systems and cards within a clinical microbiology lab setting. Our first system has been installed in a clinical microbiology lab and is running samples.
We will be installing a second site in the coming weeks. We anticipate wrapping up our preclinical trial by the end of April, giving us confidence in running patient specimens and starting the clinical trial. The clinical trial will start in the second quarter, aligned with our previously communicated schedule. The clinical trial will include a total of four external sites, the two preclinical sites plus two additional sites already identified. We anticipate the trial to last for about three months, followed by the FDA submission shortly thereafter. By the end of the third quarter. With submission in quarter three, we anticipate our 510(k) should be approved by mid 2025.
In summary, we remain on track to deliver our key milestones over the next 12 to 15 months through FDA clearance of the system and first assay.
Turning now to the commercial strategy for WAVE accelerate is uniquely positioned to disrupt the microbiology susceptibility testing market, surpassing emerging positive blood culture and traditional traditional isolated Colony systems. The global PPC market is estimated at around $800 million with the isolate market at approximately $1 billion.
Wave brings a consolidated platform that can process both PBC. and isolate specimens on the same instrument, providing industry-leading time to results, scalability, high throughput workflow and profitable cost structures. Our loyal customer base currently using rapid susceptibility testing will be an important factor in early wave success.
Our strategy for commercializing wave starts with leveraging our position in the PBC market with existing and new customers in the US and Amea. Secondly, we will expand into the isolate susceptibility testing market by offering new assays to increase customer engagement and market research.
Finally, we will enter new regions beyond the US and Amea and apply our holographic imaging technology to other areas of diagnostic testing the first step in our strategy to extend leadership in PBC with increased market penetration is well underway. We continue to secure our existing customers to long term rapid susceptibility testing contracts and grow our funnel of 500-plus accounts interested in adopting rapid susceptibility testing.
Our next step is to further increase market access with a global commercial partner with a strategic partner, we will build on our existing clinical and economic outcomes data and begin developing early wave champions. Launching wave and converting our existing installed base provides a commercial platform for quick wins, but also reduces our overall cash burn and sets us on a path to cash flow positivity.
The second step of our commercialization strategy is to expand customer wallet share by launching an isolate menu on the same instrument already in the lab producing PBC susceptibility results today, legacy platforms REPORT isolate results in most cases in greater than eight hours and up to 24 hours missing a critical window for clinicians to either adjust therapy or discharge patients by bringing customers through same shift results with a comparable cost structure to legacy isolate platforms, we can begin replacing antiquated systems.
And finally, by expanding our geographic footprint into markets beyond the US in AMEA affords another growth trajectory for WAVE to improve patient outcomes. Additionally, we see wave capable of completing other microbiology assays such as yeast and analogs, along with antibiotic development opportunities with pharma. Also, while still early, we see ways holographic imaging technology with the potential to expand applications beyond microbiology testing.
Now for a quick update on important work to secure a strategic commercial partner for WAVE. As mentioned, an important part of our strategy is to sign a global strategic partnership to commercialize wave. Over the past several months, we have engaged in multiple discussions with several potential partners. There is strong interest, and we remain confident we will be able to sign a strategic partnership by midyear. Wave can accept an ID result from any source, making it highly complementary to numerous microbiology diagnostic portfolios. Wave will be the pivotal building block for our strategic partners, microbiology diagnostic solutions.
Now moving on to ARC. We have recently completed and submitted our 510(k) application for the ARC instrument and consumables. We remain encouraged with the commercial prospects of providing microbiology labs within automated yet cost-effective rapid multi-identification for PBC samples.
In summary, we are very optimistic about the next 18 months. Having achieved successful development exit for WAVE, we are set to deliver on our next major milestones in our strategic discussions continue to confirm the incredible market potential of WAVE with a complete menu of both PBC and isolates an average time to result of 4.5 hours in a scalable platform meeting. The needs of all laboratories wave will set a new standard in microbiology for AST testing.
At this time, I'm happy to take any questions from our covering analysts.

Question and Answer Session

Operator

Alex Nowak, Craig-Hallum.

Good afternoon, everyone. This is Connor on for Alex. Thanks for taking my questions. Could you maybe describe your thoughts on how well you think the BD partnership is going, where is it going well or maybe struggling? And then maybe when can we start to see a potential sales inflection begin to incur?

Jack Phillips

Thanks, for the question. This is Jack. So of the BD partnership, a couple of things on. First of all, it's very active. We continue to work with BD on all fronts relative to sales and marketing, as I mentioned previously in Europe, first off, I mean, we once we got into the Europe market, we realized that the commercial agreement that we had with BD.
We mutually agreed that it wasn't something it was setting us up for success. We redid that agreement. And um, you know, several quarters ago now we we signed a new agreement for Europe that really puts us on a much better glide path to for the European BD team to participate in tenders. So as they as they submit tenders for the broader microbiology business of BD. They can now include the Pheno and the ARC in Europe in those tenders. So that's going well.
But we were we were put back on several months as we as we went through and transition that in the US, really momentum continues to build. We've had more training and ongoing training with the BD sales team that's been very productive and successful, resulting in continued funnel growth. We're getting into more and more sites we granted in Q4. T
he placement production in new account closes was disappointing, but many of those deals shipped into shifted into Q1. And I'm happy to say in the quarter in the quarter, we brought those in in Q1. So so that was very positive and then the other pieces, we continue to progress opportunities in the funnel. So as we get opportunities, we continue to bring them closer to close.
The last thing I would say is that, as we mentioned, ARC is now filed with the FDA. I'm happy to say that and the team is already trained and ready to go. Arm is ready to start positioning arc in the US as well.

And then could you maybe frame up the potential impact or can have once it's launched? And then maybe walk through the pacing of that as well?

Jack Phillips

So just a reminder, I mean, ARC fills a very big need in the market and there are many thousands of multi clinical multi platforms on the market today that dumb really serve an important need and identification. It's our it's one of the broadest, it's the broadest menu. It's an easy to use platform.
One of the challenges with multi, though it takes it takes a long time to produce an identification with ARC in conjunction with our partner Bruker on this, we have an agreement with Bruker to co-develop and co-develop both ARC and the Biotyper into one system. That would then be five 10 K approved in the US. And we are we really expect to capitalize on the opportunity as we move forward.
We've got good traction in Europe. Again, as I said before, we're a bit behind, but we did close several deals in Q4 in Europe for ARC on we're on as we're in the FDA were very careful about not doing marketing in the US, but we are making customers aware of our plans for ARC, What ARC is and getting the market prepared.
And we are we expect big things for ARC in the U.S. once we get FDA approved because there's so many multi platforms in the market in customer sites already. And it's a tremendous opportunity to move multi-identification results from basically overnight to a one plus our turnaround time.

What's been the main hang-up with Pheno not getting more traction in terms of system placements?And then what else can be done to drive more placements there?

Jack Phillips

I mean, we are, like I said, midyear next year last year, we were we were starting to gain more traction. We continue to gain traction with BD on the strategic selling process remains challenging with rapid AST. It involves many stakeholders across many, many functions within the US healthcare system. Both ID docs have pharmacy to microbiology to a to the C-suite and Dom.
And so our funnel continues to build on. We've been, like I said, we've been challenged with decision making and moving opportunities through the funnel effectively. We also, as a result of our partnership with BD. We restructured our organization to cut cash burn and we did that. We did that last year. And we probably in hindsight maybe did that a little early on in thinking that BD would be up to speed and trained quicker than they were, and that's taken a bit more time.
And that's that's probably one of the biggest drivers of the lag in really getting the traction that we need because of that change that we went through in our organization on to out to really cut cash burn and up and really kind of getting BD. and their sales and marketing team up to speed. And this is a complex sale. It's one of the most complex sales in diagnostics for sure and microbiology and dumb, and it just takes time to come up to speed. So we're excited about where we're headed there and we expect to see greater productivity moving forward.

All right. That's helpful. And then one more here. Is there any is there any more work left to do on the funnel? Because I have a wave?

Jack Phillips

No. So, we've exited a development. And so we've walked through the development design down on Wave. Our card is locked as well. Software is completed, and we are just really thrilled to have a wave in hospital laboratories today. We're in one site will be in another site in a week or so.
And that is our preclinical study. Things are going very well and we're off to a good start. We of course, as we go through preclinical and we go through clinical, there's always that chance to where we may need to upgrade or update software make changes like that. But we do not anticipate any major development initiatives on Wave, you know, leading up to a FDA approval.

Operator

Andrew Brackmann, William Blair.

Hey, everyone. This is Dustin on the line for Andrew. Thanks for taking our questions. First question for us. I know in the past you've talked about releasing data, I think ACT metals on area. You're going to plan on submitting that. But if that's still the case, what performance metrics should we expect there with wave? And how should this be different from some of the preliminary data we saw back in December?

Jack Phillips

Yes, great. So thanks, Dustin. Yes, we do plan on releasing data when we're able to do so on through our preclinical and clinical trial. Again, some of that will be also dependent on our ability to release data that possibly will be embargoed as we lead up to FDA submission and data that we put into up to an FDA submission. That said, where possible. we intend to be fully transparent on the data that we're seeing for Wave. You're correct. Actimid is at the end of April in Barcelona.
And at that conference, some we've actually been we'll have a couple of posters on wave there. And we'll also we've also been selected for an oral presentation for our breakthrough technology and microbiology and one of our key scientists here at Accelerate will be actually presenting on wave one, our holographic imaging format that we use for data capture and image capture of the system, so we're really excited about that.
And then you ask about the metrics, and we'll be we'll be releasing of key metrics that are very much related to this area of essential agreement, categorical agreement time to result metrics. Those will all be metrics that we will continue to release as appropriate and as we're able to do so, I'm in alignment with our FDA submission.

Understood. Thanks for the color there. On another question on isolates in, understand the pairing there, a positive blood culture on what would the FDA approval process look like for that after you get the gram negative positive blood culture? And how long would that take thereafter?

Jack Phillips

So our menu strategy for WAVE is first to submit, as I've mentioned the gram for gram negative our PBC. panel on a full menu. By the way, it's a much more robust menu than what we have today on Pheno and it will surpass anything that's coming or that's on the market for as it relates to menu, and that's what we'll be going into clinical trials with an ultimate submission.
The next on the next menu focus will be gram-positive positive blood as well. We feel like it's important to round out the full menu of PBC. highest acuity samples and also as we look to upgrade our existing customer base with from Pheno to wave that will allow us to do so. And then in parallel, as we get ready to prepare that, we're already working on gram-positive development.
By the way, as we've moved off of development for gram-negative, that work has already started on once we get gram-positive ready for submission, then we'll move quickly to gram negative isolates and that full menu. And then once we go through that development, we'll look at submission there. So and then lastly, it will be gram-positive isolate menu beyond there. And then so as far as timing goes, I don't want to release any dates on that right now.
But again, back to the gram-negative first menu, we plan to our complete clinical trial and submit to the FDA in quarter three, we expect by midyear next year to get FDA approval. And then as we continue to progress gram-positive, we expect to have clinical trials and FDA submission and get approval for gram-positive likely some time in '25 as well after gram-negative. Beyond that is when the isolate menu will be will be launched.

Okay. Appreciate the detail there. On one last one for David. Just any commentary you can give on spend this year and where we can expect front end up? Thank you.

David Patience

Yes. Thank you, Dustin. As you know, cash burn has been a significant focus for us and we have implemented many cost-saving initiatives over the past 18 months. Overall, our cash burn in 2023 does not reflect a lot of these initiatives as we referred in the first half of the year with over $8 million related to our amendment and extension with legal, our debt restructuring fees.
But since the amendment and extension of that debt, you have seen meaningful quarter-over-quarter reductions in the third quarter as well as the fourth quarter, we're confident that we can further reduce our burn from. For example, in R&D, we've averaged approximately $6 million a quarter, excluding non-cash compensation in 2024.
Moving in 2024, excuse me, we see significant reduction as our Wave program on exits development and heads into the clinical portion of the program.
So starting in the second quarter, we're going to forecast about $2 million of savings per quarter in '24 and as well as on in SG&A. We've made significant cuts over the past 18 months, but again, those have been a bit muddied, given the fact we have a debt restructuring, we're focused on continuing to reduce SG&A and think that both the fourth quarter cash burn as well as our SG&A cash spend for the fourth quarter are good, jumping off points when modeling into 2024 and then we look to further reduce, as mentioned, appreciate that that's all from us.

Laura Pierson

Thank you very much. This concludes our question and answer session. I'd like to turn the call back to Jack Phillips for closing remarks.

Jack Phillips

Yes, thank you, everybody, for joining the of the Q4 and full year 2023 a call today. Appreciate your continued interest in Accelerate Diagnostics and the work that we're doing around sepsis and AMR, such an important area in the space of health care and becoming more and more important.
And I just want to wrap up on a few important items that we talked about today. First of all, we are we are just off to a great start with our preclinical trial for WAVE. We've already been running for about three days we've run a number of samples of systems running in a clinical laboratory today and the workflow looks very good and the results are yet to come, but we're very optimistic about the results we'll see and we feel like we're very much on track to start the clinical trial in quarter two and then followed by FDA submission some time thereafter, likely in Q3 on as we prepare way for the market.
As a reminder, we've done significant work in the market to ensure that this product really meets and exceeds the needs of microbiology and infectious disease in general, with over 125 deep market research interviews, we continue to confirm the value proposition. He's right for wave on the ability to consolidate positive blood and isolate on one menu of the ability to deliver results that are not delivered today at all in microbiology, around 4, 4.5 hours.
The workflow and scalability of the platform is also a major driver in the value proposition and resonates very well with the customers that we've done market research with, we continue to prepare our existing customers Pheno to move to wave as many of them are already on extending contracts and end up looking to upgrade to wave.
Another exciting announcement around ARC is that we submitted our 510(k) FDA approval. The BD team is already trained and ready to go, and we expect to continue to see increased productivity with the BD sales team in the US and abroad. And our strategic partnership discussions be on Pheno and Arc with Wave specifically continue. We've had many good global commercial partnership discussions with multinationals on those continue to progress and they're on track.
And therefore, we're on track to sign a partnership agreement by midyear. And David did a good job of outlining our cash burn initiatives. This is quite important for the company remains a major priority. And we every quarter we continue to make good progress for long term cash burn reductions.
And then in closing, I want to take a moment and thank our wonderful employees, accelerate for the great work that they're doing across the board. We've made tremendous progress in all the areas that I've mentioned. We've got a lot of work ahead of us. The teams very excited to deliver on these milestones that we laid out today, and we're really excited about the remaining quarters in 2024. Thank you very much for tuning in, and we'll talk to you soon.

Operator

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