Laura Pierson; Investor Relations; Accelerate Diagnostics Inc
John Phillips; President, Chief Executive Officer, Director; Accelerate Diagnostics Inc
David Patience; Chief Financial Officer; Accelerate Diagnostics Inc
Presentation
Operator
Good day, and welcome to the Accelerate Diagnostics, Inc., third-quarter 2024 earnings conference call. (Operator Instructions) And please note that this event is being recorded. I would now like to turn the conference over to Laura Pierson. 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 27A of the Securities Act of 1933 and Section 21E 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 31, 2023, and other reports we file with the SEC. It is my pleasure to now introduce the company's President and CEO, Jack Phillips.
John Phillips
Thank you, Laura. Good afternoon, everyone, and welcome to our third quarter earnings call. We're excited to share some significant milestones from this past quarter, which underscores our commitment to advancing innovation, growing our market leadership and securing long-term financial stability. Beginning with an update on WAVE, we're pleased to report that our clinical trial for the WAVE system and Gram-Negative testing menu is on track with external site enrollments meeting our expectations. The trial's clinical performance at all four external laboratories meets our expectations thus far. In addition, the WAVE systems are demonstrating strong reliability, and laboratorians like the ease of use and workflow. We anticipate submitting to the FDA in Q1 of 2025 with a review timeline of approximately 9 months. The promising progress here reinforces our belief in WAVE's potential to significantly improve patient outcomes by enabling timely, accurate diagnostics. Another major achievement this quarter was obtaining FDA 510(k) clearance for our Accelerate Arc system, including the blood culture kit. This automated platform designed for use with Bruker's MALDI Biotyper CA System brings us a step closer to reducing diagnostic turnaround times in clinical settings. The Arc system's streamlined workflow for microbial identification from positive blood cultures means clinicians can receive critical diagnostic information faster, which is especially vital for conditions like sepsis. This, along with our future WAVE rapid susceptibility testing, supports our mission to enhance antimicrobial stewardship by accelerating appropriate therapy decisions. Now turning to our commercial progress. We also made strides in executing our commercial strategy, which focuses on three core pillars: strengthening our leadership in rapid positive blood culture AST market, disrupting the isolate susceptibility testing landscape and broadening our reach beyond the US and EMEA markets. During the quarter, we continued to sign contract extensions with US customers, resulting in a significant number of committed customer contracts through the anticipated WAVE commercial launch. Throughout customer discussions on WAVE, a focal point of conversations has been centered around rapid identification and AST workflows. As a reminder, Pheno is an integrated identification and AST test while WAVE is designed to be open to any identification method the lab uses for PBC samples. Labs today utilize a wide range of systems for PBC identification, which primarily fall into two categories: one, MALDI identification; or two, syndromic molecular PBC identification. By moving our current customers to WAVE, we are creating an actionable market opportunity for rapid PBC identification adoption by assisting our current labs with their conversion to WAVE. For the market segment already using MALDI, as we discussed in the past, the advantages for labs using MALDI for PBC ID includes a broader menu, ease of use, and it is low cost once the MALDI system has been adopted by the lab. That said, a major drawback of using MALDI for PBC ID is that the process is mainly overnight unless the lab moved forward with adopting a rapid method, which are manual workflows and can create inconsistent and varying results between laboratory technicians preparing these PBC samples. With the recent 510(k) approval for Arc, labs now have a fully automated system to rapidly prepare PBC samples for ID at a cost-effective price point compared to existing syndromic molecular options. We view the timing of the Arc clearance as fortuitous, given we now have a great opportunity to provide labs with cost-effective and automated sample preparation for rapid PBC ID when looking to convert to WAVE. Customers are excited about the opportunity to produce MALDI results rapidly by integrating Arc into their workflow with WAVE. The other portion of the PBC ID market, syndromic molecular platforms, is another large opportunity to pair with WAVE rapid AST. Some customers already have a molecular platform on site, which is used for other syndromic testing or have already validated running rapid PBC ID and see value in their decision. Regardless, the lab has a low lift to bring on WAVE to complement their rapid ID workflow. The second part of our commercial strategy is centered on the isolate susceptibility market, which further differentiates WAVE from emerging competitors. As we develop the future menu for WAVE, our ongoing dialogue with customers confirms the demand for a unified AST platform, which will consolidate lab testing volumes on a single platform rather than forcing labs to utilize multiple platforms for various specimens. As a reminder, the isolate susceptibility testing market is approximately a $1 billion market and is ripe for innovation, given aging legacy platforms on the market today. The WAVE platform is positioned to meet this demand by delivering a complete AST solution. In addition to platform consolidation, customers desire same-shift reporting for all AST samples, which WAVE delivers. And thirdly, in the future, we will be looking to bring WAVE to new markets and secondly, explore applications of our proprietary holographic imaging technology in other diagnostic fields. These efforts further our goal to provide innovative and impactful diagnostic solutions globally. In summary, we are highly encouraged by our progress in the clinical trial to date as well as our commercial efforts, including the launch of Arc and the growing market interest in WAVE among both existing and new customers. Our achievements in this quarter underscore our strategic priorities and reinforce our commitment to innovation and market leadership. We're energized by the progress and look forward to building on this momentum in the coming quarters. Now I'd like to hand it over to David Patience, our CFO, who will take you through our financial performance for Q3. David?
David Patience
Thank you, Jack, and good afternoon, everyone. Net sales were approximately $3 million for the quarter, which compares to approximately $3.3 million for the same period in the prior year. While we did see a decrease in overall net sales period-over-period, which was driven by lower instrument sales in the current quarter, net sales from consumable-related products increased high single digits compared to the same period in the prior year. Gross margin was approximately 29% for the quarter, which compares to approximately 3% in the same period in the prior year. Our increase in gross margin in the quarter was driven by both product mix as well as an inventory write-down in the prior period. Selling, general and administrative expenses were approximately $5.6 million for the quarter, which compares to $7.8 million in the same period in the prior year. SG&A expenses for the quarter include approximately $1 million in noncash stock-based compensation. The overall decline in SG&A expenses is a result of lower employee-related expenses. Research and development expenses were $3.8 million for the quarter, which compares to $7 million for the same period in the prior year. R&D expenses for the quarter includes approximately $200,000 in noncash stock-based compensation. The overall decline in R&D expenses is a result of lower third-party related development expenses for our WAVE program. Our net loss for the quarter was approximately $14.6 million, resulting in a loss per share of $0.59. Cash used for the quarter was approximately $5.5 million net of financing activity. Our financing in the quarter includes proceeds from our note issuance, a refundable R&D tax offset as well as proceeds from warrant exercises. As previously discussed, our cash burn target is approximately $5 million per quarter. With this burn rate and our current cash balance, we anticipate having sufficient operating cash through year-end 2025 assuming we receive contingent contractual payments related to our on-market third-party product partnership. In summary, we are pleased to deliver a strong reduction in cash used for the quarter while continuing to deliver on our key WAVE milestones. At this time, we are happy to open the call to take any questions from our covering analysts.
Question and Answer Session
Operator
(Operator Instructions) Andrew Brackmann, William Blair.
Hi guys. This is [Kate] on for Andrew. Thank you so much for taking the questions. The first one for me, maybe just on WAVE. Assuming all goes to plan on the clinical trial and approval, can you talk to us about how you're thinking about the steps required to convert your current Pheno installed base over the WAVE? Specifically, does this happen quickly? Or what does that look like from a transition standpoint? Thanks.
John Phillips
Yeah. Hi, Kate. Thanks for the question. Yes. As I mentioned in my prepared comments, the WAVE clinical trial continues to go as planned. Enrollment is on track and looking good. While we can't speak to the performance of the data because we're in the clinical trial, it is meeting our expectations and consistent with the preclinical study that we conducted ahead of the clinical trial. And customers are giving us -- the clinical trial sites are giving us really good feedback on ease of use and workflow. To your question, we are very active in the market today with our current customers and with new prospective customers around WAVE. We've had a plan in place for quite a while to continue to secure our longtime loyal customers, the long-term contracts. We've done that. In addition, we are in the process of educating our customers deeply on the functionality of WAVE, what WAVE will do in their laboratories compared to Pheno and how we'll look to transition those existing Pheno customers to WAVE in the future when it's obviously on market and FDA-approved. So I would say that effort's ongoing. It's been ongoing a while, and it will continue into '25 until we have a successful launch of WAVE. Things are going well, and we expect fully to convert the majority of our existing Pheno customers to WAVE once we launch
Okay, great, thanks. And then on Arc, I just wanted to ask one more. I recognize approval came just over a month ago. But can you talk about the commercial road map there and how we should be thinking about that ramping into revenue for 2025 and beyond?
John Phillips
Yeah, Absolutely. So yeah, we're excited about the launch of Arc. It really was a great submission, went very smoothly through the FDA. It was about a 6-month process. And we're really happy to be on market and FDA-approved with 510(k) for Arc. As we get into the market now and we're launching the product with our partner, BD, it's still too early to provide guidance, forward-looking guidance regarding financial contributions that Arc will have. But I will say this, we fully trained the sales force. We have marketing plans in place. We've already started to work our funnels for Arc, and there's a lot of really good interest in the market. Customer receptivity is high. And the value of Arc to really automate MALDI, turn MALDI into a rapid ID solution for labs is something that's resonating quite well. So things are going well. The sales force is very excited about getting out and positioning Arc. And early days, it's very positive.
That's really helpful. And then if I could just squeeze in one more for David. Could you maybe just talk about -- talk to us about expected cash usage moving forward a little more? I recognize there's still a couple of months left in 2024, but any more color on how we should be thinking about 2025 would be helpful. Thanks.
David Patience
Perfect. Thank you, Kate, for the question. Just focusing on the current quarter, we delivered a strong reduction in cash used for the quarter, both year over year and quarter over quarter, while delivering on our strategic priorities with -- as Jack outlined in the prepared remarks is securing our current customer base and bringing them to WAVE and additionally by delivering strategic milestones with our WAVE program. And so where we are today, we continue to focus on $5 million a quarter on a go-forward basis. As Jack mentioned, this does not include financial contributions from Arc, just given it's a little early in the launch for us to include those in our cash burn forecast. And then cash used for the quarter, I just wanted to point out we did have strong working capital gains additionally. And we're proud to show that our cash used from operations was down over $2 million quarter-over-quarter. So moving forward, our care for cash is a critical component to our strategy while we deliver on these key value-inflecting milestones. And so we see a $5 million per quarter use of cash on a go-forward basis. And with that, we are focused on that every single day and delivering on that.
Okay, great. Thanks. That's all for me.
Operator
And this will conclude our question and answer session. I'd like to turn the conference back over to Jack Phillips for any closing remarks.
John Phillips
All right. Thanks, Kate and William Blair, for the questions today. As we close out in summary, we are very pleased by the momentum we're building across our innovation pipeline here at Accelerate, starting with the progress of the WAVE clinical trial to date and also the FDA 510(k) clearance of Arc -- the Arc system. Additionally, as I mentioned, our commercial efforts are happening and progressing very nicely. And we fully expect to maintain our market leadership in rapid AST while always exercising discipline around financial management to enable our future runway. I do want to take the opportunity to thank our employees here at Accelerate for their tremendous commitment to moving innovation forward and also to our customers, who rely on us every single day to assist them in delivering life-saving diagnostics for those patients with serious infections. I want to thank you all for joining the call today. Have a great day.
Operator
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect your lines at this time.
