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Edited Transcript of TTOO earnings conference call or presentation 2-May-17 8:30pm GMT

Thomson Reuters StreetEvents

Q1 2017 T2 Biosystems Inc Earnings Call

Lexington May 4, 2017 (Thomson StreetEvents) -- Edited Transcript of T2 Biosystems Inc earnings conference call or presentation Tuesday, May 2, 2017 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Darlene Deptula-Hicks

* John P. McDonough

T2 Biosystems, Inc. - CEO, President and Director

* Rahul K. Dhanda

T2 Biosystems, Inc. - SVP of Corporate Development

* Tucker Elcock

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Conference Call Participants

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* Bryan Paul Brokmeier

Cantor Fitzgerald & Co., Research Division - Senior Equity Research Analyst

* Isaac Ro

Goldman Sachs Group Inc., Research Division - VP

* Paul Richard Knight

Janney Montgomery Scott LLC, Research Division - MD, Head of Healthcare Research and Senior Analyst

* Puneet Souda

Leerink Partners LLC, Research Division - Associate

* Stephen Gilbertpaul Brozak

WBB Securities, LLC, Research Division - Senior Equity Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to T2 Biosystems 2017 First Quarter Financial Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Tucker Elcock. Please go ahead, sir.

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Tucker Elcock, [2]

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Thank you, operator, and good afternoon, everyone. Thank you for joining us for the T2 Biosystems 2017 First Quarter Results Conference Call. On this call this afternoon, to discuss results and operational milestones for the period ended March 31, 2017 are President and CEO, John McDonough; Senior Vice President and Chief Financial Officer, Darlene Deptula-Hicks, and Rahul Dhanda, Senior Vice President of Corporate Development. The executive team will open the call with some prepared remarks, followed by a question-and-answer period.

I would like to remind everyone that comments made by management today will include forward-looking statements. Those include statements related 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 those statements, including the risks and uncertainties described in T2 Biosystems' annual report on Form 10-K filed with the SEC on March 15, 2017. The company undertakes no obligation to publicly update or revise any forward-looking statement except as required by law.

With that, I'd like to turn the call over to President and CEO, John McDonough, for his opening comments. John?

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John P. McDonough, T2 Biosystems, Inc. - CEO, President and Director [3]

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Thanks, Tucker, and good afternoon, everyone. Thank you for joining us on the call.

Before getting into our results, I want to welcome Darlene Deptula-Hicks, our new Senior Vice President and Chief Financial Officer. As you all have seen, Darlene joined us from Pieris Pharmaceuticals where she had served as Senior Vice President and Chief Financial Officer for the past few years. Darlene brings a wealth of experience to this role and we're real excited to have her here today.

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Darlene Deptula-Hicks, [4]

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Thank you, John. I'm very excited about joining the T2 team and look forward to hitting the ground running. And I also very much look forward to getting to know all of you over the coming months.

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John P. McDonough, T2 Biosystems, Inc. - CEO, President and Director [5]

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Thanks, and welcome aboard. Turning now to our results. The first quarter proved to be a solid one for T2. During the quarter, we expanded our customer base by adding access to an additional 30,000 patients annually considered to be at high risk for sepsis infections via contracts with 2 hospitals, 1 in United States and 1 in Europe. We remain on track to reach our goals expanding the number of high-risk patients at customer facilities under contract by 200,000 patients from the 12-month period beginning October 1, 2016 through September 30, 2017 or just ahead of the expected FDA clearance for the T2Bacteria Panel.

During the quarter, we took action to help streamline placements of instruments at hospital locations in the United States by reallocating instruments from smaller hospitals with low T2Candida patient testing volumes to more productive locations. This reallocation has had a positive impact on our balance sheet and many of these hospitals are strong candidates to adopt the platform when T2Bacteria enters the market. We ended the quarter with 48 contracts in place with hospitals and hospital systems in the United States and Europe representing 126 hospitals and providing access to approximately 420,000 patients at high risk of infections that could be tested T2Candida or in the future T2Bacteria. We also expanded our European presence to now include access to 10 countries where the T2 platform is marketed through international distributors as our performance in that market continues to exceed our expectations. We have a strong presence in most of the major European markets including Germany, France, Italy, Spain and Sweden and those customers are beginning to see the benefit of our platform that Rahul will discuss later. We made progress on the quarter with T2Bacteria as we saw validation testing and patient enrollment at the FDA clinical trial remain on track as planned. This keeps us on track for completing the trial and filing for market clearance with the FDA by mid-2017.

The T2Bacteria Panel is now an important consideration in all our discussions with new and existing customers. Interest in T2Bacteria is high and we continue to believe it will be a game changer for our business. It'll be filed with the FDA through the standard 510 (k) process, which we can see review an approval as fast as 90 days. For reference, T2Candida was filed with the T2Dx Instrument and was filed under a 510 (k) de novo classification, which typically takes longer, which in our case took just under 4 months. Additionally, we anticipate earning at CE mark that will enable the launch of the T2Bacteria Panel in Europe in the second half of 2017, with the full commercial launch of the panel there soon after.

Now let's cover the financial results for the first quarter. Total revenue for the quarter was a $941,000, which consisted of $631,000 of product revenue compared to $437,000 of product revenue in the first quarter of 2016. Results were driven by increased patient testing across the installed base and instrument sales.

Total operating expenses excluding cost of product revenue for the first quarter of 2017 were $12.46 million compared to $12.8 million for the first quarter of 2016. Research and development expenses remained consistent year-over-year, while a reduction in SG&A expenses was due to strong cost management. The net loss applicable to common shareholders for the first quarter of 2017 was $14.7 million or $0.48 loss per share compared to $13.4 million or $0.55 loss per share for the first quarter of 2016. We closed the quarter with a cash and cash equivalents balance of $58.8 million as a result of increased operating and investing activities. We feel confident in this cash position to carry us through the commercialization of T2Bacteria. However, we will continuously evaluate all potential avenues to access additional capital, including strategic partnerships such as the partnerships in place with Canon and Allergan.

Before I turn to our pipeline and further detail around T2Bacteria, I want to turn the call over to Rahul Dhanda, Senior Vice President of Corporate Development, to discuss some compelling customer success stories that were recently presented at the 27th European Congress of Clinical Microbiology and Infectious Diseases that took place a few weeks ago in Vienna. Rahul?

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Rahul K. Dhanda, T2 Biosystems, Inc. - SVP of Corporate Development [6]

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As John mentioned, we had some exciting data presented at one of the largest microbiology and infectious disease conferences called ECCMID in Vienna. Presentations, which included independent data from initial studies with T2Bacteria highlighted 2 important advantages that the T2MR platform has a solution to sepsis management.

First, T2MR identifies patients missed by blood culture, while also predicting outcomes for the most complicated patients including the prediction of patients with elevated risk of mortality. This can lead to significant improvements in patient care.

Second, there is growing evidence that T2MR test should be used for every patient at risk for sepsis such as those with a fever in the ICU or immunocompromised or have a fever and a catheter and in the emergency department.

In one of the presentations by Giulia De Angelis from Catholic University Hospital in Rome, she presented interim data from her ongoing analysis of T2Bacteria. She highlighted the high accuracy and sensitivity of the panel, which was best characterized by examples of a series of patient cases that included confirmed cases of infection that were missed by blood culture but accurately identified by the T2Bacteria Panel. This interim data from the ongoing study shows great promise for T2Bacteria's unique capability as a highly accurate test to identify patients that currently go undiagnosed or are delayed in their diagnosis of sepsis.

The next was from Sandy Estrada from the Lee Memorial Health System who presented a robust data set showing that adoption of the T2Candida Panel improves patient care, while providing substantial cost savings. The hospital was saving approximately $200 every time that they test the patient, based solely on the value of the T2Candida's negative test results, which enable the physician to remove therapy. On top of those savings, Lee Memorial is also experiencing a reduction in the length of stay for patients with positive T2Candida results as well as avoiding the complications that emerge when Candida goes untreated or treated too late. They concluded that T2Candida is strengthening the hospital's antimicrobial stewardship program by allowing clinicians to discontinue unnecessary antifungal therapy for a significant number of patients faster than ever before.

Finally, Patricia Muñoz from Gregorio Marañón Hospital in Madrid, Spain, presented interim data from 2 perspective and statistically significant studies. These studies were significant because of the specific focus on outcomes. In the first study, her data showed that T2Candida can identify the most severe cases of disease while other tests, including blood culture, failed to do so. In her second study, she expanded on the first concept to demonstrate that T2Candida also predicts those patients that will not survive the disease. And again, that the panel performs better than the other tests in the study. She concluded that T2Candida is the most effective diagnostic to manage candida patients, especially the most complicated patients.

We are very pleased with the continued success that hospitals are realizing through the T2Candida Panel and that some of the first data presented on the T2Bacteria Panel, which is expected to be seen in March and commercially available in Europe in the second half of this year. With that, let me turn the call back over to John.

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John P. McDonough, T2 Biosystems, Inc. - CEO, President and Director [7]

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Thanks, Raul. As mentioned earlier, we believe that T2Bacteria will be a game changer for our business. And I want to spend a few minutes delving in deeper into a few areas that hopefully will allow you to better understand why we are truly excited about it. We see the market opportunity for T2Bacteria as $8.75 million high-risk patients each year in the United States alone. We believe that our broader sepsis menu that will include T2Candida and T2Bacteria, once FDA cleared, along with the expanded patient population for testing patients will create an opportunity for us to target hospitals above and beyond the top 450 hospitals that we've been focused on with T2Candida.

One area that we've discussed in the past where interest is growing for use of T2Bacteria is in testing patients at high risk of sepsis presenting in the emergency department. Of the 8.75 million high-risk patients that could be tested with T2Bacteria, there are an estimated 2 million-plus patients that present in the ED each year in the U.S. alone. Incidence of Candida is low in this patient population, so T2Candida is typically not used. But bacterial infections are high and our T2Bacteria Panel identifies approximately 90% of all gram-negative infections coming in through the ED and approximately 70% of all sepsis related infections.

With the strong reimbursement structure in place, providing about $294 of direct hospital reimbursement for testing these patients and a product requirement to provide test results in the ED in 6 hours or less, T2Bacteria may be the only product that can meet the significant unmet need for patients.

Blood culture, the only other method for providing species-specific results is a non-starter for these patients as it will take 1 to 6 or more days to arrive test results and, of course, those test results will miss 35% to 50% of patients with infections. We are really excited about this potential [beef share] For t2Dx deployment in hospitals and are even more excited about the potential patient and economic benefits this product may yield.

Like T2Candida, we also believe that T2Bacteria will be deployed in testing inpatients in hospitals. The reimbursement structure for inpatients will be the same as T2Candida, where patients are covered under DRG code where all cost savings associated with testing patients will drop to the bottom line of the hospital. Published literature demonstrates that typical patients detected by T2Bacteria could save a hospital about $25,000 based on the reduction in their length of stay in the hospital. This type of savings has already been proven through the use of T2Candida through presentations made by existing T2 customers, including the Henry Ford Health System. We expect T2Bacteria to make a big difference at hospital adoption of the T2Dx platform that could potentially significantly accelerate our earnings growth profile.

Moving now to the other areas of our pipeline. We continue to make good progress with T2Lyme and remain on track to complete preclinical studies in 2017, which will lead to an expected FDA clinical trial in 2018. And development is underway with our gram-negative resistance panel and we remain on track for commencing preclinical studies in 2018.

Let's turn now to our financial outlook. For the second quarter, we expect product revenue to continue to grow sequentially by 10% or more and we're expecting totally operating expenses to be between $12.3 million and $12.9 million, of which approximately $1.8 million is noncash expenses, which are primarily related to depreciation and stock compensation expenses. We're also anticipating research revenue to be below $100,000 in the second quarter, as revenue from Canon from the Lyme disease panel will decline due to the fact that the product is in the preclinical stage of development. Research revenue should normalize in the range of $100,000 per quarter in Q3 and Q4 as development of the gram-negative resistance panel accelerates. Weighted average shares for the quarter are forecasted to be $30.7 million.

Finally, we remain on track to reach our goal of expanding the number of high-risk patients at customer facilities under contract by 200,000 patients by the end of the third quarter. As we've said on our last call, our square focus for 2017 is on executing against our priorities and in the first quarter, we did just that. We expanded our customer base and gained access to an additional 30,000 high-risk patients and we remained on track to hit our 12-month goal. We progressed our pipeline and are on track for a mid-year filing for T2Bacteria with the FDA. We've held the line on expenses and prudently redeployed T2Dx instruments where appropriate. Partnership interest remains strong and we're hopeful that we can continue to leverage the power of the T2MR platform by additional collaborations and partnerships as we've done in the past.

Finally, customers further demonstrated the power and game-changing nature of the T2 technology through the data presented at ECCMID. With that, I'd like to turn the call over to the operator for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Isaac Ro with Goldman Sachs.

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Isaac Ro, Goldman Sachs Group Inc., Research Division - VP [2]

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Wanted to start with just general backdrop for visibility with Candida. I realized you're working on the panel as well but maybe if you think about relative to this year, what are the top 2 or 3 priorities for your sales force to hit your goals for just getting the placements to a better place?

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John P. McDonough, T2 Biosystems, Inc. - CEO, President and Director [3]

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You bet. So, Isaac, you're asking specific to T2Candida, how do we drive placements. There's really 2 things that we see driving those placements even as we entered the second quarter here. One, for sure is leveraging all of the customer success stories that continue to just grow and grow on excitement in terms of the value proposition of the T2Candida product being proven out in hospitals. As Rahul mentioned just a little bit ago that there were some very, very exciting presentations at ECCMID relative to our ability to predict what's happening with patients and so different than blood culture. And generally speaking, that ECCMID conference for this year just had a very, very different tone to at a different level of excitement about it and it's all been driven by those customer success stories. The second part of that is T2Bacteria. So, there is no question that the vast majority of accounts that we think will close in the next 3 quarters of 2017 are going to be extremely excited about T2Bacteria and T2Bacteria is entering the thought process as they bring the platform in place and drive T2Candida. And we have programs in place for existing customers, then for that new customers to work with that T2Bacteria product, obviously, on a research-use-only basis because it's not FDA cleared. But they can start doing some of the work that they would want to do prior to rolling it out with the product in its current form and the interest in all of that is quite high. So we feel very good about the pipeline. We think we will see a clear ability for us to hit our objectives here, over the next 2 quarters, ahead of what we helped with the clearance of T2Bacteria in the fourth quarter. Of course, I can't guarantee that because that's in the hands of the FDA. But the overall sepsis solution that we're now bringing to market and talking about is resonating really well in terms of building and developing that pipeline.

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Isaac Ro, Goldman Sachs Group Inc., Research Division - VP [4]

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Got it. And so with the second point in line on the bacteria. It's obviously been a slow ramp in overall market adoption of T2MR technology that we might have hoped over the last couple of years. But if you're successful in the bacteria conversations, sounds like the inflection here would be more about 2018 versus 2017. Is that the right way to think about the curve because I appreciate you not giving specific guidance on this year?

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John P. McDonough, T2 Biosystems, Inc. - CEO, President and Director [5]

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Yes, I mean it all depends on what you mean by inflection. I mean there are multiple points to the inflection. One inflection point would be growth and adoption and number of users that are adopting the platform. The other point of inflection would be increased testing of patients within those accounts that are closed. And I don't rule out seeing significant growth, especially as we get into the second half of this year in terms of testing a patient. For example, in Europe, we're probably going to be -- have regulatory clearance through the CE mark earlier in the year and could see T2Bacteria testing starting to enter the mix in terms of assessing volumes in Europe.

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Isaac Ro, Goldman Sachs Group Inc., Research Division - VP [6]

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Got it. And then last question I had for you is just thinking about managing the expense side of things here. How much of an incremental SG&A investment you need to make ahead of the Bacteria launch. Just trying to think about what the P&L looks like on the expense side over the next you know 6, 12 months?

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John P. McDonough, T2 Biosystems, Inc. - CEO, President and Director [7]

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Yes, we don't think we have to make a big one. You'll probably see some modest growth in SG&A over the next couple of quarters. We'll add probably some sales people, but nothing significant. In fact, that could even likely would be offsetting expense savings will come out of the T2Bacteria clinical trial. So we won't be spending at the same rate as that trial draws to a close in the late Q2 time frame. So we think we can hold the line on expenses. We think we've done a good job on that. We think it's really important to do that and we're really cognizant of making sure that the capital that we deploy is being deployed to drive T2Bacteria and drive revenue growth into the business to drive us towards a profitable business model in the future.

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Operator [8]

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Our next question comes from Bryan Brokmeier with Cantor Fitzgerald.

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Bryan Paul Brokmeier, Cantor Fitzgerald & Co., Research Division - Senior Equity Research Analyst [9]

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In your prepared remarks, John, you discussed the shift of the instruments to more productive locations. Did you move those systems to hospitals that already had a system? Or did you move them to customers that had signed contract but hasn't yet received the installation?

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John P. McDonough, T2 Biosystems, Inc. - CEO, President and Director [10]

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Yes, a combination of all of that, and even moving of instruments through T2Bacteria clinical trial site. So obviously, this is capital being deployed and if testing volumes are going to be where they need to be, certainly, the hospital doesn't want to keep an instrument in place if they're not being able to figure out how to drive the testing ramp and we want to make sure that those instruments are being deployed in a really productive way.

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Bryan Paul Brokmeier, Cantor Fitzgerald & Co., Research Division - Senior Equity Research Analyst [11]

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And it sounds as though some of that is because the system isn't used as much in the ER as you had anticipated because ER tend to see more bacterial infections? Is that true?

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John P. McDonough, T2 Biosystems, Inc. - CEO, President and Director [12]

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Yes -- No, I don't think that's completely accurate. We never anticipated T2Candida being broadly used in the ER. We see the T2Candida product is being used on inpatients and hospitals and that's what's folks like Henry Ford and Lee Memorial Health System and Riverside Hospital and the hospitals in Europe are having great success are doing. In some hospitals that just -- they've struggled with either getting the lab on board or getting physician education or getting the ordering in place and they just haven't been able to get liftoff in testing of those inpatients. The ER opportunity we see is a big one and awful one, potentially a really game changer for us but it's driven by the bacteria panel. The infections that show up in the ER are bacterial infections and our panel is truly uniquely positioned to meet that unmet need. In fact, if anyone is confused about the difference between what we're doing and anything that's blood culture based, that confusion ends when you start talking about the ER and the time to results requirements that can only be met by us.

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Bryan Paul Brokmeier, Cantor Fitzgerald & Co., Research Division - Senior Equity Research Analyst [13]

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Okay. And last quarter, you discussed sales people that were dedicated to working with hospitals and physicians to improve utilization. Can you update us on how that's progressing?

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John P. McDonough, T2 Biosystems, Inc. - CEO, President and Director [14]

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Yes, it's progressing well. We -- a segment of the sales force, about, let's call it, 30% of the sales force is dedicated towards working with closed accounts to do all the things we're talking about, educate physicians, helping these accounts go online and they are making a big difference in driving adoption within those closed accounts.

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Bryan Paul Brokmeier, Cantor Fitzgerald & Co., Research Division - Senior Equity Research Analyst [15]

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Okay. And you normally group the number of contracts in the U.S. and in Europe together. What's the total number of high-risk patients across the U.S. and Europe?

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John P. McDonough, T2 Biosystems, Inc. - CEO, President and Director [16]

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The total number of high-risk patients across the U.S. and Europe is approximately 420,000 patients.

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Bryan Paul Brokmeier, Cantor Fitzgerald & Co., Research Division - Senior Equity Research Analyst [17]

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Okay. I thought 420,000 was just in the U.S?

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John P. McDonough, T2 Biosystems, Inc. - CEO, President and Director [18]

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No, that's worldwide.

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Operator [19]

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Our next question comes from Puneet Souda with Leerink Partners.

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Puneet Souda, Leerink Partners LLC, Research Division - Associate [20]

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If I could -- and welcome Darlene to the team. Just wanted to understand briefly on -- as you were having conversation with the lab directors now that you've been on the market for some time. How those conversations have evolved? Are you finding that is there a lesser need for finding a champion to drive it in the hospital or has the sales cycle, I think you elaborated to about 6 to 12 months, sometimes stretching to 18 months, has that changed at all over the past quarter?

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John P. McDonough, T2 Biosystems, Inc. - CEO, President and Director [21]

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Yes, great question. We still need a champion. The best champion is when it's the lab director themselves and sometimes that is the case but that's not always the case. I would say what is changing on the champion side is that when you start talking about T2Bacteria, the lab director more often becomes the champion when it's Candida alone. With Candida alone, all too often there's an education process that requires an internal champion to work with the head of the lab to convince them that there is a really significant unmet need in terms of Candida infections within their institution and we get there. Most of the time, we're able to convince them but it takes a long time to do that with a lot of skepticism going into it. And I would say that's the case probably 80% of the time and 20% of the time the lab director does get it and we have a reasonable sales cycle. With bacterial infections, the lab director understands that much better. There's a much higher incident rate of bacterial infections within hospitals, which helps them get it and oddly enough a lot of times during the hospital they think sepsis is bacterial infection and not that sepsis is either fungal or bacterial infection. So even the association of sepsis ties more tightly with bacteria than it does with Candida. So there is a change occurring in terms of -- and we think it's significant but it's way too early because we're not selling the product because we're not FDA cleared. But we're definitely seeing receptivity in a significantly changed way with the lab as we introduce the T2Bacteria panel to that.

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Puneet Souda, Leerink Partners LLC, Research Division - Associate [22]

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Okay. And then the smaller side to that have I mean stopped using the system as it has moved to more productive sites. Have those sites specifically -- have they shifted away back to blood culture or [technology] platform or something else?

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John P. McDonough, T2 Biosystems, Inc. - CEO, President and Director [23]

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No. Well, they never shifted away from blood culture or (inaudible) Path or whatever they may be using. And because we don't displace, right? You're still going to do a blood culture, you just may not do 4 per patient. But you're still likely to do that first diagnostic blood culture. So more in these cases, they either just couldn't get off the ground with Candida infections or even after they adopted more completely convinced with enough Candida within their institution to warrant a more general rollout. Many of these, if not most of these institutions, remain very exciting opportunities for the T2Bacteria Panel.

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Puneet Souda, Leerink Partners LLC, Research Division - Associate [24]

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Okay. And then just last one. Just wanted to confirm that you do plan to release the data as we get closer to this mid-year timeline? And also if you have any sense or any color into the review team at FDA, if this is the same team that's reviewed your early filing, hopefully things go faster. Any color on that?

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John P. McDonough, T2 Biosystems, Inc. - CEO, President and Director [25]

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Yes. So it's in our intent to release the data, I'm not sure what form it will take, whether it's an 8-K filing or something like that. We probably won't do that until we have filed with the FDA. But it is our intent to release that to the investment community. And secondly, at this time, we have the same review team that we had with T2Candida. The same reviewer who knows the product well. Of course, the T2Candida Panel we were getting both Canada and the T2Dx cleared under a 510 (k) de novo path and that happened in 117 days. And in this case with T2Bacteria standalone no instrument and it's not a do novo, it's a straight up 510 (k). So things are -- from a -- heat up as well as they could be for hopefully a reasonably time review from the FDA.

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Operator [26]

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Our next question comes from Stephen Brozak with WBB securities.

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Stephen Gilbertpaul Brozak, WBB Securities, LLC, Research Division - Senior Equity Analyst [27]

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Good afternoon, John, and welcome aboard, Darlene. Congratulations.

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Darlene Deptula-Hicks, [28]

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Thank you.

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Stephen Gilbertpaul Brozak, WBB Securities, LLC, Research Division - Senior Equity Analyst [29]

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I will jump right in here. Because obviously, with ECCMID having just taken place. Can you give us any color in terms of what the clinicians are looking at for all these resistant pathogens? And where you see your advantage there? Because obviously, the empirical treatment, as mostly practiced, should appeal to your strengths in terms of going out there and being able to highlight pathogens. And can you give us feedback on that? And I've got two follow-ups after that?

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John P. McDonough, T2 Biosystems, Inc. - CEO, President and Director [30]

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With that, I'm going to let Rahul take that question.

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Rahul K. Dhanda, T2 Biosystems, Inc. - SVP of Corporate Development [31]

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So in terms of what we're seeing is faster and more accurate information is what they need to drive their decision making. And in terms of how resistant pathogens play in, I think what they want to know is as soon as possible, how do they focus in on the therapy? And to answer that, the first step is the pathogen identification. And frequently, what we discovered in our discussions with the clinicians is that they're not making changes in their prescribing patterns after the identification of the pathogen, they already doing in fairly rare instances. Still, I don't want to diminish the value of resistance because it is very important to be very targeted on that. But what the practice has -- what the practice is and the practice will probably continue to be, is making the thoughtful decision based on the identification and I think where we plan to that is that we obviously are focused on those pathogens that tend to exhibit resistance other than Candida or the other untreated pathogens based on resistance or delay in therapy so that would be both Candida and the bacterial panel targets. And so giving that information earlier, let's them focus their therapy earlier on those targets that are most important to them in their clinical care.

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Stephen Gilbertpaul Brozak, WBB Securities, LLC, Research Division - Senior Equity Analyst [32]

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Okay. And the follow-up on that question would be obviously, with -- we talked about it briefly on the last quarter's call. But with Candida auris having been identified as a brand-new species. And with culturing, frankly, just at a very -- at a de minimis way of approaching it, something like that. How does it lend itself towards your ability to go out there and to be able to identify these new pathogens and/or understand these pathogens better? And I've got one question after that?

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Rahul K. Dhanda, T2 Biosystems, Inc. - SVP of Corporate Development [33]

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I think one of the -- so the Candida auris and similar emerging pathogens, I think you're right. There is -- it actually raises more awareness around the problem that needs to be solved and we're very clearly aware of value of how it is that we can address those needs. And so as those things emerge, they become part of contemplation of the pipeline and if you recall some of our past pipeline disclosures, looking at an expansion of the Candida panel is something that we will be developing. That it is something that when we hear these data, it becomes compelling for us to consider how to best address that need. And so we see these as opportunities for us to further distinguish ourselves in the market by being able to add that kind of unique value with pathogens that are emergent and resistant but they're also incredibly compelling you to blood culture.

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Stephen Gilbertpaul Brozak, WBB Securities, LLC, Research Division - Senior Equity Analyst [34]

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Okay. And obviously, with the Allergan collaboration, it's going as well as -- I'm sure you would -- you'll eventually start to talk more about it into the future. But there are obviously a lot of other pharmaceutical and biotech companies that have built franchises around diagnostic complements to their products. How does that -- can you give us some color on what your thoughts are into the future? Because it isn't just, obviously, companies that produce antifungals or antibiotics. But there are other potential practical applications here. Could you just give us some idea because, obviously, greater acceptance breeds greater understanding and greater thought processes with these potential collaborators in the future. If you could just tell us about that? And I'll jump back in the queue.

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Rahul K. Dhanda, T2 Biosystems, Inc. - SVP of Corporate Development [35]

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Yes. So I think, that's exactly the right thinking about how we should and will be developing partnerships. The advantage of speed and accuracy is, obviously, not limited to just the antimicrobial field. There's a lot of other applications that -- where we could basically help target therapy towards the patient who needs it at the right time. And that would be as expensive as the applications on hemostasis that we've been developing. But we're also aware of the fact that there is problems about sensitivity and other spaces that range from oncology towards autoimmune diseases and beyond and those are the conversations we're having. I think what's compelling to us, however, is to make sure that we have the right kind of partnerships where they kind of yield that we do at Allergan with there is value-added at both sides that allows us to fully perform on the pipeline. It's how we think about focusing on that.

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Operator [36]

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(Operator Instructions) Our next question comes from Paul Knight with Janney Montgomery.

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Paul Richard Knight, Janney Montgomery Scott LLC, Research Division - MD, Head of Healthcare Research and Senior Analyst [37]

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A question on T2 and that is, it will be detecting gram-positive and gram-negative with this FDA application.

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John P. McDonough, T2 Biosystems, Inc. - CEO, President and Director [38]

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Yes.

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Paul Richard Knight, Janney Montgomery Scott LLC, Research Division - MD, Head of Healthcare Research and Senior Analyst [39]

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And your sensitivity, specificity or is there any benchmarks that you think you need to have? Or is it performing like sepsis?

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John P. McDonough, T2 Biosystems, Inc. - CEO, President and Director [40]

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Yes, we expect the performance characteristics to be in the range of T2Candida from both the sensitivity and specificity standpoint. And most importantly, the sensitivity of blood culture for bacterial infection ranges between 50% and 65%. And usually closer to 60% of bacterial infections. And remember our T2 Candida panel has 91.1% sensitivity and we would expect sensitivity in that range. So we have a huge time advantage, we know that, in terms of getting the result. But I think everyone should really take heed of the sensitivity advantage that's bringing itself out of customer sites, I can now say, around the world.

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Paul Richard Knight, Janney Montgomery Scott LLC, Research Division - MD, Head of Healthcare Research and Senior Analyst [41]

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And you mentioned the -- what ratio is it that you think, at a hospital, those wanting the bacteria aspect of the technology versus Candida? I mean, is it 2:1, 5:1, could you describe it in that -- in those means?

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John P. McDonough, T2 Biosystems, Inc. - CEO, President and Director [42]

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Yes, that's a great question, Paul. If you answer the question from the standpoint of who should they test. The bacteria panel is probably 1.3 patients for every 1 patient for T2Candida. But if you flip it and say what are they really doing. I think it's very, very different than that. I think with the Candida panel there has been a tendency to test patients right at the time they would deploy antifungal drugs empirically, which might be 24, 48, 72 hours after the onset of the infection. They're doing different things than that. But I would say, if you were to characterize where the test is being used, that's what it is. And would test there, you're testing much fewer patients than 1.3:1. So it would be not be surprising to see a 5x or more testing of bacterial infections out of the gate. Certainly, if you're testing patients in the emergency room, you're not waiting for empiric therapy, you'd be screening a large percentage, if not all of the symptomatic patients. And I also think there's going to be a quicker trigger to run the T2Bacteria Panel on inpatients because of the empiric treatment paradigm that's deployed for bacterial infection and the difference to how Candida infections are treated.

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Paul Richard Knight, Janney Montgomery Scott LLC, Research Division - MD, Head of Healthcare Research and Senior Analyst [43]

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Yes, bacteria seems to be a common situation. Now, regarding the last question is really regarding the cost of features. You mentioned $25,000, is per patient or hospital? How was bacterial comparing to sepsis on these cost studies? I know sepsis was roughly 600 to 800 per patient. Is it the same on bacterial? How are those metrics looking and working out?

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John P. McDonough, T2 Biosystems, Inc. - CEO, President and Director [44]

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Yes, So the $25,000 in savings and there are slight variances depending upon the pathogen based on published literature. But the $25,000 in savings is per patient protected. So if you can get a patient on the right antibiotic in that first critical 12-hour period, length of stay reductions in both the ICU and in the hospital, on average, would save about $25,000 per patient.

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Paul Richard Knight, Janney Montgomery Scott LLC, Research Division - MD, Head of Healthcare Research and Senior Analyst [45]

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Okay. And then last. It will cover these 25 major bacterial pathogens that goes still above the technology?

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John P. McDonough, T2 Biosystems, Inc. - CEO, President and Director [46]

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The specific panel is picking up the 6 bacterial infections that covers about 95% of bacterial infections not covered by broad-spectrum antibiotic drugs.

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Operator [47]

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I would now like to turn the floor over to John McDonough for closing comments.

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John P. McDonough, T2 Biosystems, Inc. - CEO, President and Director [48]

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Well, we are very excited with the progress we have made in Q1. We're seeing strong success commercially with the use of our products and customer sites. We're excited about the pipeline as we entered Q2 and the progress with of the T2Bacteria clinical trials and we look forward to reporting back at the end of the next quarter with continued progress and further updates specifically as it relates to T2Bacteria. So I would like to thank you all for dialing in today. Thanks.

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Operator [49]

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This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.