Greetings. Welcome to the T2 Biosystems Inc. business update. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Trip Taylor. You may begin.
Thank you, operator. I'd like to remind everyone that comments made by management today and answers to questions will include forward-looking statements. These statements relate 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 risks and uncertainties described in T2 Biosystems' annual report on Form 10-K filed with the SEC on March 31st, 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'd like to turn the call over to Chairman and CEO John Sperzel. John?
Thank you for joining our investor call. The purpose of today's call is to unveil our launch plan for the T2Lyme Panel and to update our stockholders on our progress across the business, including the T2 Biothreat Panel, the T2Resistance Panel, ongoing commercial and strategic discussions, and Nasdaq compliance. After my prepared remarks, we will open the call for questions and answers. Starting with the T2Lyme Panel and our 2024 launch plan. The T2Lyme Panel is a direct-from-blood molecular diagnostic test designed for the early detection of Borrelia burgdorferi, the bacterium that causes Lyme disease in the United States. Lyme disease is the leading vector-borne disease in America, with an estimated 3.4 million tests performed each year. The current diagnostic process is a two-tiered antibody test algorithm that relies on the presence of antibodies and can only be used accurately 4-8 weeks after infection.
If left untreated, the bacteria may spread throughout the body and become much harder to eradicate and treat effectively. Although early symptoms of Lyme disease are similar to the flu, Borrelia burgdorferi infections can lead to chronic, debilitating disease. To address this critical unmet need, we've developed a highly sensitive diagnostic test for the detection of early Lyme disease, with an analytical sensitivity that is in line with our FDA-cleared sepsis tests. We believe our test will detect Lyme disease within the first 30 days after infection, compared to antibody tests that can take 30-60 days after infection. We're finalizing internal validation and verification, and we expect to be in a position for a product launch during the third quarter of 2024.
We plan to launch our T2Lyme Panel as a laboratory-developed test, or LDT, and we believe there are numerous potential advantages of launching the T2Lyme Panel in this format, including: 1) faster time to market, 2) higher test throughput, and 3) stronger product contribution margins. Importantly, in a LDT format, we can run the test without the T2Dx Instrument, which can provide the potential to process hundreds of Lyme tests per day. This is because the individual components of our underlying technology can be leveraged to process a higher volume of samples. Given the LDT format does not require the T2Dx Instrument or the costs associated with a cartridge, we expect to realize strong product contribution margins. Our market research confirms that reference laboratories often charge greater than $250 for two-tiered antibody Lyme tests and greater than $250 for PCR Lyme tests.
Our objective is to provide early Lyme disease results to major U.S. reference laboratories. We believe we can utilize their retail networks to collect patient samples, which would allow us to provide testing to Lyme patients across the country. These samples would then be sent to our LDT partner to perform the T2Lyme Panel in their lab. It's important to note that T2Lyme Panel sales are not in our current 2024 revenue guidance, so any potential sales during 2024 represent upside to that guidance. Moving to the T2 Biothreat Panel and our commercial progress. The T2 Biothreat Panel is an FDA-cleared direct-from-blood molecular diagnostic test that runs on the T2Dx Instrument and simultaneously detects six biothreat pathogens, including the organisms that cause anthrax, tularemia, glanders, melioidosis, plague, and typhus.
These six pathogens have been identified as threats by the CDC and, if not treated promptly, can have mortality rates of 40%-90%. Our clinical evaluation of the T2 Biothreat Panel demonstrated positive percent agreement, or sensitivity, of 100% for all targets except Francisella tularensis, which was 94.3%, and negative percent agreement, or specificity, of 100% for all six targets. The National Biodefense Strategy and Implementation Plan includes an objective to "enhance preparedness to save lives through development, testing, evaluation, manufacturing, regulatory approval, distribution, and administration of countermeasures." The T2 Biothreat Panel was designed for this purpose in collaboration with the U.S. government, or BARDA, and we expect it to play a role in our nation's effort to counter biological threats.
There are two references to the T2 Biothreat Panel in the Administration for Strategic Preparedness and Response, or ASPR, Fiscal Year 2025 Budget Justification document, which covers the period of October 1st, 2024, through September 30th, 2025. The first is in "Building a Robust and Formidable Medical Countermeasure Development Pipeline" and includes the statement, "In partnership with industry, BARDA has built a robust pipeline of medical countermeasures, or MCMs, in advanced development," and goes on to list T2 Biothreat Panel for multi-target biothreat testing. The second is in "Biodefense and Diagnostics" and includes the statement, "Also in Fiscal Year 2023, the first BARDA-supported biothreat test panel, a test which targets multiple biothreat agents simultaneously, was cleared by the FDA" from T2 Biosystems.
These efforts are part of BARDA's successes in preparation for potential future biothreat outbreaks." The T2 Biothreat Panel detects unique biothreat pathogens, and we believe it provides unparalleled sensitivity and specificity, creating multiple potential sales opportunities, which we are pursuing, including the CDC's US National Laboratory Response Network, ASPR's US Strategic National Stockpile, US state and public health laboratories, other US government agencies, and international government allies. To advance our commercial opportunities for the T2 Biothreat Panel, we have entered into an agreement with Dr. Robin Robinson to serve as a strategic advisor. Dr. Robinson has significant experience and expertise leading US government entities in the areas of medical countermeasures and biodefense, including serving as Director of the Biomedical Advanced Research and Development Authority, or BARDA, and the Deputy Assistant Secretary in the Office of the Assistant Secretary for Preparedness and Response, or ASPR, within the U.S.
Department of Health and Human Services. We believe Dr. Robinson's vast network across multiple US government agencies, including CDC, ASPR, BARDA, Department of Defense, and National Institutes of Health, coupled with his expertise in medical countermeasures and biodefense, will be invaluable as we pursue government contracts to procure the T2 Biothreat Panel and protect our nation from the consequences of deliberate or accidental exposure to biothreats. It's important to note that T2 Biothreat Panel sales are not in our current 2024 revenue guidance, so potential sales during 2024 represent upside to that guidance. Moving to the T2 Resistance Panel and our newly published clinical results. The T2 Resistance Panel is a direct-from-blood molecular diagnostic test that runs on the FDA-cleared T2Dx Instrument and simultaneously detects 13 antibiotic-resistance genes in just 3-5 hours, without the need to wait days for a positive blood culture.
We believe the T2 Resistance Panel will be a catalyst to drive broader adoption of our sepsis products. On Monday, we issued a press release to announce the results of a new study that was published in the Journal of Clinical Microbiology, highlighting the performance and clinical benefits of the T2 Resistance Panel. The prospective study included 59 patients at two sites and intended to determine the clinical sensitivity, time to detection, and clinical impact of the T2 Resistance Panel compared to blood culture and conventional microbiology methods. Highlights included high accuracy. The T2 Resistance Panel demonstrated clinical sensitivity of 94.7% and specificity of 97.4%, adjudicated. This is consistent with the clinical performance of our two FDA-cleared sepsis panels, the T2 Bacteria Panel and the T2 Candida Panel. Rapid turnaround time.
The T2 Resistance Panel results were available on average in 4.4 hours, compared to 58.3 hours with blood culture-based methods. The T2 Resistance Panel provided a 92% improvement in time to result compared to blood culture-based diagnostics. Clinical impact. There were 49 clinical interventions in 24 of the 59 patients, resulting in 17 antibiotic escalations and 32 discontinuations of unnecessary antibiotics. The use of the T2 Resistance Panel led to a change in antibiotic therapy for 41% of the patients in this study, as those patients were on the wrong or unnecessary antibiotics. We believe this performance data demonstrates the enormous potential of this unique and highly differentiated product to reduce cost, improve patient outcomes, and reduce the threat of antibiotic resistance. These results demonstrate the strongest clinical impact of the T2 Resistance Panel to date in a real-world hospital setting.
We expect this to be a catalyst for greater adoption of the T2Resistance Panel in countries where we currently market under CE Mark. We also believe the international experience with direct-from-blood detection of resistance genes is an important precursor to our launch in the U.S. market. As a reminder, we plan to submit a 510(k) premarket notification to the U.S. Food and Drug Administration, or FDA, during the third quarter of 2024, and we have previously received Breakthrough Device Designation from the FDA, which provides for a prioritized FDA review upon submission. Moving to our ongoing commercial and strategic discussions. As previously discussed, we engaged an advisory firm in 2023 to explore all potential strategic alternatives to maximize value, including an acquisition, merger, reverse merger, other business combinations, sale of assets, licensing, and other strategic transactions.
Over the past 12 months, we've engaged with a number of potential partners and continue to explore potential commercial and/or strategic partnerships. Moving to our NASDAQ compliance plan. On March 12, 2024, we announced that the NASDAQ Hearings Panel has granted our request for continued listing on the NASDAQ stock market, subject to the company demonstrating compliance with NASDAQ's Market Value of Listed Securities, or Market Value, requirement, as set forth in NASDAQ Listing Rule 5550(b)(2), the rule, on or before May 20, 2024. We continue to prioritize maintaining our NASDAQ listing and consider it to be in the best interest of both the company and its stockholders, as we believe listing on the NASDAQ stock market maintains liquidity for our stockholders, helps attract and retain key employees, broadens our access to capital, and better positions the company for potential mergers and acquisitions.
The rule requires that the company maintain a closing market value of at least $35 million for a minimum of 10 consecutive business days. During the extension period, we will continue to actively monitor our market value and take appropriate action, if necessary, and as advised by our Board of Directors, to remedy the deficiency. These actions may include the potential conversion of $15 million of outstanding indebtedness held by our lender, CRG, to equity in the company. Additionally, while not part of our NASDAQ compliance plan, we have numerous potential business catalysts that we believe can create value and increase the market value of our listed securities. There can be no assurance, however, that the company will be able to timely comply with the terms of the NASDAQ Hearing Panel's decision.
In its written decision, the NASDAQ Hearing Panel stated, "The company has outlined what appears to be a reasonable plan to regain compliance with the exchange's listing requirements. It has also described its range of products that appear well poised to gain notable sales in the medical testing space, based on its description of the product's efficacy.
In light of the developments in the company's products, the fact that the company has already executed the conversion agreement with CRG, and the short time period requested to cure its listing deficiency, the panel believes an exception is appropriate. We have given special notice of a special meeting of stockholders to be held on April 11, 2024, for the following purposes: one, to vote on the approval of the CRG debt-to-equity conversion; and two, to transact such other business as may properly come before the special meeting or at any and all adjournments or postponements thereof. Your vote is important. Whether or not you're able to participate in the special meeting online, it is important that your shares be represented.
To ensure that your vote is recorded promptly, please vote as soon as possible by submitting your proxy by telephone, via the internet at the address listed on the proxy card, or by signing, dating, and returning the proxy card, which requires no postage if mailed in the United States. To summarize, we believe the T2Lyme Panel offers potential to significantly increase our revenue, and we plan to launch our test for the detection of early Lyme disease as a laboratory developed test, or LDT, in the third quarter of 2024. We continue to advance our discussions with the US government regarding the use of our T2 Biothreat Panel to protect Americans from the threat of bioterrorism, and we have engaged Dr. Robin Robinson to accelerate our efforts.
We're thrilled with the new data on our T2Resistance Panel, which showed excellent clinical performance, significantly faster time to detection, and the potential to significantly improve antibiotic stewardship. We continue to explore strategic options, and we are in ongoing discussions with a number of firms regarding strategic and/or commercial partnerships. Finally, we received an extension to comply with the NASDAQ Market Value requirement, and we're optimistic that the plan will result in the attainment of the listing requirements. With that, I'd like to turn the call back over to the operator to open the line for questions. Operator?
Certainly. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Your first question for today is from Kyle Mixon with Canaccord Genuity.
Yeah. Hey, guys. Thanks for the questions. Congrats on the upcoming launch here. So, John, could you just. I think you may have walked through this a little bit quick, but could you just elaborate a bit on the, the TAM of the Lyme market and then how material could Lyme and Biothreat revenue be in 2025 relative to the product revenue guidance this year and 2024? Thanks.
Happy to, Kyle. Thanks for the question. So I think first, just to start with what we view as the TAM, or Total Available Market, for the Lyme test. First thing is, if we look at the number of tests that are performed today, the estimate is 3.4 million tests. Of course, some of those are antibody tests, and some of those are PCR tests. The current protocol for two-tiered antibody tests is obviously leaving an enormous number of patients frustrated, without answers, and unfortunately with chronic Lyme disease. And so we believe that over time and we think this can happen relatively quickly that clinicians will prefer a two-tiered test that includes antibody and molecular diagnostic test. That would cover the full range of the first 30 days where we think our test will fit, and then between day 30 and 60, where antibody tests are really effective.
Using an antibody test in the first 30 days, frankly, is useless because the body hasn't developed antibodies, and therefore they're not going to be detectable. So we look at a portion of those 3.4 million tests shifting to PCR testing. In fact, a lot of testing is already done with PCR tests. Unfortunately, they're very insensitive, so they miss a lot of infections, again, which leads to patients being frustrated. When it comes to average selling price, both the two-tiered antibody tests as well as PCR tests that are sold by the major reference labs today are well in excess of $250 average selling price.
So if you just take, somewhere between 25% and 50% of that 3.4 million tests and multiply it by the $250 of tests, which we think is on the low end, you get a very significant total available market, and we think we can capture a very big chunk of that. As far as forecast for 2025, I think we'd get to the launch of the Lyme test, and then we will adjust our guidance appropriately.
Right. Okay. Well, that's all that was very helpful. In terms of the instrumentation, it doesn't sound like it's going to be based on magnetic resonance, like the T2Dx kind of legacy instrumentation. But so the current standard is the antibody format, then you're talking about molecular, so PCR. Could you, you know, how do you envision, I guess, you know, your Lyme test being rolled out in 3Q beyond? Is it just a molecular-based test? Is it just PCR? And would you ever, like, consider, you know, developing your own box for that, like, just this test, I guess, to enable, like, an end-to-end sample-to-answer kind of workflow? Because I think, you know, the convenience could be useful, especially given this the TAM sounds relatively, you know, meaningful, right? So I think just be curious to hear your thoughts on, like, how this works out in, like, the medium term.
So the first thing is to talk about the detection method of our T2 Lyme panel. It absolutely is a magnetic resonance detection method that we're using, so we're absolutely leveraging the technology that, you know, gave us highly differentiated sepsis tests, you know, where we have the only FDA-cleared products able to detect directly from blood. So we're leveraging our magnetic resonance. When it comes to us potentially distributing or even developing an antibody test, I think that's unlikely. The major reference labs have access to antibody tests. I think the most efficient and we believe the most effective and the smartest approach is for us to partner with them through an LDT partner and provide that. They can pair an antibody test with our molecular diagnostic test and provide those results to clinicians, and we don't need to get involved in the antibody testing business.
Okay. And then in terms of the non-dilutive grant-based funding to advance the panel and then, I guess, anything else, yeah, I mean, what are your I mean, is there anything you're kind of in those discussions right now? Is there any timeline when we could hear something about that?
Kyle, I missed the first part of your question.
The funding to advance the T2Lyme Panel? You talked about it being non-dilutive and grant-based. You know, I feel like that's probably in the works. Just yeah.
So there are a couple of things here. We have right now, we're participating in the LymeX funding. That is to advance a T2Dx Instrument-based molecular diagnostic test for Lyme to FDA. That program is entering phase three. We continue to be a participant in that program, so we're certainly not ruling out the potential of continuing down that path with FDA clearance.
However, it may not be necessary. Our ultimate objective is to partner, again, with an LDT partner and then align ourselves with the major reference labs in the United States. If you consider yourself a patient that got bit by a tick and is concerned you might have Lyme disease, or you are one of the 70% of the patients that develop the bullseye ring around a tick bite, which is an indication of Lyme disease, you generally go to your primary care physician. And when you go to your primary care physician, they're either going to draw blood on-site or they're going to send you to potentially a LabCorp or Quest drawing site, and that blood is ultimately going to go to LabCorp or Quest or another major or smaller reference lab.
And so in order for us to disrupt that, you know, we would need an enormous organization and an enormous amount of capital. And so we think the smartest strategy is to partner with the major reference labs through the LDT channel. There's a strong history of major reference labs partnering with LDT labs to provide proprietary tests. In fact, if you go back in history, prior to this antibody-antibody two-tiered test protocol, it was antibody Western blot. Western blot testing was reference lab-based, and LabCorp and Quest, in fact, outsourced that to an LDT lab. So there's a good history there with Lyme. We think we have an excellent, highly sensitive test, and there's strong potential for it in a partnership model rather than a go-it-alone expensive model.
Okay. That makes sense. Then on a similar note, you mentioned that the contribution margin would be pretty strong, I guess, for the T2 Lyme. I just was wondering if the launch of the T2 Lyme and the Biothreat panel thereafter would cause gross margins to, you know, take a step back and make it kind of tough for you to achieve positive gross margin on, like, a consistent basis going forward because that's been sort of like a you know, like a lumpy-ish metric in the past. So I just feel like these new tests, just as they ramp, could be kind of dilutive to that.
I think it's actually the opposite. I think they will be incremental. If you look at, again, this is a low estimate, a $250 average selling price. You can go look up a PCR test at LabCorp or Quest.
They're well in excess of $250. So if you look at a conservative estimate of $250, our cost of goods, not having to use the instrument, not having to use a cartridge, goes way down compared to our sepsis test panels. So we think the contribution margins of a Lyme test, for example, are a significant step up compared to our current business. And I think the same holds true, although the model is a little bit different, for a Biothreat test. We can look at competitive Biothreat tests. They're in excess of $200, and we know that our T2 Biothreat Panel will run on the T2Dx Instrument, but the potential for volume is pretty significant, certainly in a U.S. Strategic National Stockpile environment. So again, just to summarize, we think T2Lyme Panel and T2 Biothreat Panel will drive our margins higher rather than the opposite of that. Okay.
I'll ask a final one before I hop off. Just on the two kind of lumped together. On, first on the commercial side, I mean, I mean, I get would there be any changes to the current, you know, sales force right now to commercialize this? Would you have to expand the team, at all, or will you just leverage the, kind of like a marketing partner more or less? And then the second part is, just how are you thinking about the European or international rollout? Like, when would that just take place, like, years in the future, and it's not even, like, a figment of your imagination at this point, or just, you know, could that happen sooner rather than later, given your current success internationally?
So I'll try to take that just in whole, both for Lyme and for Biothreat. T2 Lyme testing is a different call point than our sepsis test panels. We sell our sepsis test panels to microbiology labs. This is a hospital sale. We're talking to pharmacists. We're talking to infectious disease docs and lab personnel. And so Lyme is different. We plan to leverage the marketing that's done by the major reference labs. They do a really effective job in getting primary care physicians to send them their samples. What we want to do is provide a proprietary, highly sensitive test for the early detection of Lyme Disease to them. And we think that's the smartest way to do it. In terms of Europe, Lyme Disease is caused by a different pathogen than Borrelia burgdorferi.
The nice thing about that is, in a lab-developed test environment, or LDT, it's much easier for us to add other targets to the panel. So we could certainly add other Borrelia targets, which would cover Lyme Disease in Europe. And so we are thinking about that. We are looking at that.
Interesting. Okay. Well, great. Thanks, John. Appreciate it, guys.
Thank you, Kyle.
Your next question is from Ben Haynor with Alliance Global Partners.
Good day, gentlemen. Thanks for taking the questions. First, for me, on you mentioned that you're still using MR to detect Lyme with this test. What sorts of instruments will that be run on at the lab partner?
It's run manually, Ben.
Okay. Got it. And then
On a
Go ahead, sorry. Okay. Okay. Got it.
And then on the gross margins that you think a partner will require to bring the test in, do you have a sense of what those might be? And, you know, I appreciate the $250+ pricing for these sorts of tests. Where do you think the gross margin shakes out for the partners?
I think we're a little bit early to discuss the economics in an LDT partnership, but certainly look forward to doing that in due course.
Okay. Fair enough. And then presumably, if you're gearing up for a Q3 launch, you're already in discussions. You know, could you kind of characterize how broad this potential launch could be? I mean, is it the major reference labs and, you know, maybe some more regional or smaller labs as well? Is it, you know, a handful of labs? One or two? What's the right way to think about it?
From a regulatory perspective, companies can only do LDT testing in a single site.
Right. Got it. Makes sense. And then lastly for me on Biothreat, can you maybe provide additional color on how the discussions with the various entities that could be interested in the panel are going thus far?
The discussions are very positive. We have a test that has, I would say, unparalleled, unprecedented performance, both sensitivity and specificity. In hundreds of clinical evaluations or samples that we evaluated, we had zero false positives. I think that's quite remarkable. Our team did an unbelievable job developing a great product. Three of the targets on our multi-target panel are found nowhere else on any other multi-target panel, so we think we have unique targets. We know we have outstanding performance, and the discussions have gone accordingly.
I mean, we think that people are interested in our product, and one of the reasons that we've engaged with Dr. Robinson is he has a tremendous network. It would take us years, if not decades, to get the kind of network and relationships that he has throughout multiple government agencies, and we think working closely with him is just going to accelerate both the sales process and ultimately the procurement and contracting.
Okay. Got it. Well, I'll leave it there. Thanks for taking the questions, and congrats on all the progress.
Thank you, Ben. Appreciate it.
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.
Thank you very much for joining our business update call. We look forward to speaking with you at our special meeting of stockholders on April 11, 2024. Have a great day.
Thank you. This does conclude today's conference. You may disconnect your phone lines at this time. Thank you for your participation.