NEW YORK (360Dx) – Accelerate Diagnostics reported after the close of the market on Monday that its second quarter revenues jumped 143 percent year over year but fell short of Wall Street expectations.
For the three months ended June 30, 2018, the company's revenues rose to $1.7 million compared to $699,000 in Q2 2017. The analysts' average estimate was $2.1 million.
The company reported a record number of new signed agreements during Q2 2018, bringing the global total to 430 instruments. The firm increased its North American installed base by 30 percent during Q2 2018 to 259 instruments, of which 193 instruments were evaluation contracts and 66 were commercial placements. Meanwhile, total contracts for customer evaluations reached 312 instruments, and commercial placements grew to 118 across the US, European, and Middle East regions.
In a conference call to discuss the Q2 results, Accelerate CEO and President Lawrence Mehren noted that the company has made progress on developing its severe bacterial pneumonia kit for 510(k) clearance from the US Food and Drug Administration. The firm expects to begin the clinical trial during the current quarter.
"We are excited about this new [bacterial pneumonia] test," as "not only will it increase our current [plans] for North America and the EU from approximately 4 million to over 6 million patients, it will demonstrate the platform potential of the Pheno, and its ability to replace significant portions of the current micro-workflow" Mehren said.
"We signed agreements with Vizient, GSA, and a third small, but highly compliant [group purchasing organization] this quarter alone and expect the last one of the four to be signed in Q3," Mehren said. "The combination of these networks cover 1,400 hospitals, and the vast majority of our current sales funnel."
As part of the agreement with Vizient, Accelerate announced this morning that it has received an Innovative Technology contract from the company, based on a recommendation by hospital experts of the Pheno system. In a statement Mehren said the contract will allow Accelerate to streamline the process of "equipping physicians with faster results for patients fighting sepsis and antibiotic resistant infections."
An Accelerate spokesman said that the contract will simplify and ease the procurement process for member-hospitals "and provide additional value as they bring the technology into their clinical laboratory." He added that the agreement covers Accelerate's Pheno system, related components, and diagnostic kits.
On the conference call, Mehren also announced a new initiative to concentrate on reagent rentals with a reduced focus on instrument sales in order to create an avenue for recurring revenues.
"Given the productivity gains from the reorganized salesforce, good data, an enhanced marketing, we expect more customers… will want the instrument, but won't immediately have capital budget," Mehren explained. "We will meet this demand by removing our requirement from select customers and offer an expanded reagent rental program."
Piper Jaffray analyst William Quirk said in a research note this morning that the change in business mix would increase placements of Accelerate's Pheno system "in the field as lab managers no longer have to fight for capital with other departments … The immediate downside of this shift is lower numbers due to revenue recognition timing."
William Blair analyst Brian Weinstein added in a research note issued last night that Accelerate had hedged on making such a move earlier as management believed "the value proposition [of its instrument] would justify the upfront dollar commitment."
He said that with a small revenue base, the change will push Accelerate's near-term revenues lower, but also lock in the opportunity and revenue stream in the long run. He added that he supports any move that quickly places the systems in the clinical space in order to stand out from competition, as well as to drive the use of the firm's other assays currently in development.
Accelerate also anticipates that more platform conversions will be supported by the new reagent rental program in the next quarter.
"For the majority of contracts in North America to be for capital, the change in mix will lead to lower revenues in 2018, the scale of which will be determined over the next quarter," Mehren explained. "Conversely, we are confident that this change will result in an even higher number of contracts this year, greatly increasing our market penetration and setting us up for a better future."
For Q2 2018, Accelerate recorded a net loss of $23.2 million, or $0.43 per share, compared to $16.5 million, or $0.31 per share, the year before. The consensus Wall Street estimate was for a loss of $0.37 per share.
Accelerate's R&D expenses rose 11 percent year over year to $6.1 million from $5.5 million in Q2 2017 due to additional investments in the preparation of respiratory clinical trials and expanded scientific affairs activity, the company said. The firm's SG&A costs rose 33 percent to $15.3 million from $11.5 million, driven by higher personnel and customer evaluation related costs in the US and EU.
Accelerate ended the quarter with $66.8 million in cash and cash equivalents.
In late-morning trading on the Nasdaq on Tuesday, shares of Accelerate were down 4 percent at $20.85.