T2 Biosystems Inc (TTOO) 2016 Q3 法說會逐字稿

Greetings and welcome to the T2 Biosystems Third Quarter 2016 Nine Month Financial Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Matt Clawson, from Pure Communications. Please go ahead, sir.

Thank you, operator. Good afternoon everyone. Thanks for joining us for the T2 Biosystems 2016 third quarter and nine months results conference call. On the call this afternoon to discuss results and operational milestones for the period ended September 30, 2016 are President and CEO John McDonough; Chief Financial Officer, Shawn Lynch; Senior Vice President, Corporate Development, Rahul Dhanda, and Chief Commercial Officer, David Harding. The executive team will lead off the call with some prepared remarks, followed by a question-and-answer period.

I would like to remind everyone that comments made by management in response to questions 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 9, 2016. 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 President and CEO, John McDonough, for his opening comments. Good afternoon, John.

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

The third quarter proved to be a solid one for T2 from a financial, strategic, and operational standpoint, and our results further demonstrated the power of the T2 technology and the immense potential it holds for creating a new global paradigm for patient care.

During the quarter, we were able to increase our revenue to $1.1 million while decreasing operating expenses to $11.1 million. We also ended the quarter with approximately $75 million of cash and cash equivalents on the balance sheet, leaving us well funded to achieve our future growth milestones. Shawn will provide a more detailed look at the quarter later in the call.

Beyond our results and more importantly, 2016 continues to prove to be a transformative year for T2 as we have recently taken a number of strategic actions to position us for long-term sustainable growth.

Back in July, we launched a multiyear agreement with Bayer to provide our T2 magnetic resonance technology platform or T2MR for Bayer's research and development efforts in blood coagulation disorders. In September, we announced a $40 million equity investment by Canon USA that will fund the Company's continued growth through the launch of the T2 bacteria panel. And today, we announced a collaboration with Allergan to develop a novel diagnostic panel to detect gram-negative bacterial species and antibiotic resistance for patients with serious bacterial infections, including infections that lead to sepsis.

These partnerships represent the important third party endorsements of the game changing nature of our technology and T2's strategic direction. They'll be an important part of our go-forward growth strategy and we're actively working to expand the pipeline, which we'll keep you updated on as we move forward.

Before I turn it over to Rahul Dhanda, Senior Vice President of Corporate Development, to provide some further details around the Allergan announcement, let me say that we're extremely excited about this partnership. Together, we hope to help address the serious and urgent threat to public health that antimicrobial resistance is creating by more quickly diagnosing sepsis and enabling the rapid delivery of lifesaving medicines to the millions of patients at high risk for infection, while also providing significant cost savings to hospitals.

Rahul?

Thanks, John and good afternoon everybody. As stated in the release, the announced partnership with Allergan will expand T2 Biosystems' sepsis pipeline and will include the first direct from blood diagnostic panel to detect antimicrobial resistance.

Antimicrobial resistance may develop when a bacteria has repeated exposure to antibiotics, forcing the survival of only those strains that cannot be treated by typical antimicrobial drugs. One of the most dangerous trends is resistance to an entire class of antibiotics known as carbapenems because these are often the therapy of last resort for series gram-negative infections according to the CDC. And our panel is being developed to specifically identify carbapenem resistance.

Under the terms of this agreement, Allergan will pay T2 $4 million in milestone payments related to the development of the bacterial resistance panel and an expansion of the T2 bacteria test panel currently under development. We have retained exclusive worldwide distribution rights for all products developed through this partnership. Allergan has the option to cooperatively market T2 Biosystems' menu of substance diagnostics to targeted hospitals around the world through Allergan's leading physician facing institutional sales force.

We also believe it is Allergan's intent to use a T2 bacteria panel in their development in clinical trial efforts. We look forward to working with the Allergan team and believe that together we can make a difference for patients around the world.

With that, let me turn it back over to John.

Thanks, Rahul. Before getting into the discussion around the customer commitments received in the third quarter, I want to take a minute and walk through the announcement you will have seen in our earnings release this afternoon related to the change to our key reporting metric. As we discussed last quarter, as T2 continues to grow and gain more experience, we'll be reporting on what percentage of the market universe we are penetrating with our closed customer accounts and how it grows over time. We sized the T2Candida marketing opportunity in the United States at 6.75 million high-risk patients and the T2Bacteria market opportunity at 8.75 million high-risk patients.

We've been targeting the top 450 hospitals in the United States, which represents about one-third of that market. We estimate the European market size at over 3 million high-risk patients. We now see the critical indicator of future revenue is the number of high-risk patients within our customer base, not the number of contracts. We started reporting these figures last quarter and as we indicated then, view this number as a more accurate measure of the growing total opportunity within the expanding T2 product portfolio, especially as we work to bring T2Bacteria to market next year.

As a result and going forward, we will be migrating our key reporting metric completely from the number of signed contracts to the number of hospitals and the estimated annual number of symptomatic high risk patients and hospitals and hospital systems under contract. And while we will continue to report the number of contracts we have secured in a quarter, we are less focused on that number as we have learned that sales cycles within hospital systems are unpredictable and the number of contracts on its own does not paint the full picture of the health of the business.

During the third quarter, we were able to sign commitments that will provide access to approximately 43,000 patients considered to be at high risk for sepsis infections. That number represents six commitments from a total of 10 hospitals and hospital systems for these options of the T2Candida panel and the T2Dx instrument, five in the United States and one in Europe. One of the closed accounts is with a hospital system that includes two affiliated hospitals and will provide access to approximately 25,000 high-risk patients per year. The European account is with a large hospital in Spain that will provide access to over 8,500 high-risk patients.

We continue to be very encouraged about our ongoing progress in Europe, where we remain well ahead of our initial expectations and continue to benefit from the significant market opportunity that exists due in part to the anti-fungal drug-pricing environment. On a worldwide basis, we now have a total of 125 hospitals and hospital systems with access to the T2Dx system and the T2Candida test. Those hospitals provide access to an approximate 345,000 patients considered to be at high risk of sepsis infections, which is approximately 150% higher than the number reported at this time last year.

As we have often indicated, customer success stories are an important driver in securing our next phase of growth. Last week at ID Week, three T2Candida customers had presentations that demonstrated the power of our technology and the impact it is having at their institution. One example I want to highlight is the Henry Ford Health System in Detroit. Henry Ford presented data that demonstrated through the implementation of the T2Candida technology, the hospital was able to save approximately $2 million over a 12-month period as a result of reduced patient stays.

These savings are right in line with the hospital economic savings we have been discussing with the investment community and this is the largest case study to date that demonstrates the economic savings associated with accurate and rapid species specific diagnostic tests for the detection of Candida alone. In addition to the news from Henry Ford, Riverside Community Hospital in California and Huntsville Hospital in Alabama reported positive results from the implementation of the T2Candida technology.

At Riverside, they were able to discontinue antifungal therapy in accordance to clinical status in all patients and provide 100% of the patients the necessary treatment within nine hours. And at Huntsville, our technology was able to reduce the average duration of antifungal therapy and the average time to de-escalation of antifungal therapy.

During the quarter, we continued patient enrollment in the ongoing T2 bacteria clinical trial and remain on track for completing the clinical trial and filing for market clearance with the FDA by mid-2017. We continue to work hard to see if we can shorten this timeline. We're also making good progress on T2Lyme. As we have done with T2Candida and T2Bacteria, we'll be conducting preclinical studies in 2017, which is expected to lead to an FDA clinical trial in 2018.

On the sales front, we're making a change to our direct sales efforts in the United States, ahead of the T2Bacteria launch anticipated in 2017. The change also comes as a result of both the Allergan cooperative marketing partnership and continued unpredictable sales cycles and associated high customer acquisition costs. We'll be reducing our sales force for an interim basis by about a third and will be focusing the ongoing efforts on institutions and hospital systems that have demonstrated a commitment to sepsis monitoring.

Our primary objective will be to continue to build the customer base at a rate consistent with what we have realized this year while working very closely with these accounts so that they become the future success stories that will drive adoption of T2Candida, T2Bacteria, and our resistance panel. We believe this reduction is the right action for the business and we will reassess the size of the sales force as we get closer to the T2Bacteria launch next year.

As we move forward, partnerships, a growing number of customer success stories, and the continued expansion of our diagnostic product portfolio, we expect sales cycles to accelerate and more accounts to actively engage, but the timing for acceleration is difficult to predict and may not happen until the launch of T2Bacteria.

With that, let me turn it over to Shawn to take you through the quarterly results and our outlook. Shawn?

Thanks, John. Total revenue for the second quarter was approximately $1.1 million, which consisted of $580,000 in product revenue compared to $245,000 in the third quarter of 2015, primarily from sales of T2Candida and instruments and $504,000 in research revenue. Total operating expenses excluding cost of product revenue, for the quarter, were $11.14 million, compared to $11.4 million for the third quarter of 2015. Cost containment has been a focus area for us ahead of the T2Bacteria launch and we are pleased with these results.

The net loss applicable to common shareholders for the third quarter was $12.8 million or a $0.51 loss per share, compared to $11.6 million or a $0.57 loss per share for the third quarter of 2015. Our balance sheet remains strong. We ended the quarter with approximately $75 million of cash and cash equivalents with an additional $5.4 million available under our equipment lease, credit lease facility. Looking ahead, we are targeting an increase in the number of high-risk patients and customer facilities by 150,000 patients over the next 12 months, ahead of the launch of T2Bacteria.

In the fourth quarter, we are anticipating higher product revenue from the testing of more patients with T2Candida than was realized in the first three quarters of 2016, primarily as a result of additional hospitals going live and the increased use of the T2Candida panel at institutions that are already testing patients. Additionally, total product revenue could show flat to nominal growth due to fewer instrument sales expected in the fourth quarter, while research revenue is expected to be comparable to what we saw in the third quarter.

We expect total operating expenses for the fourth quarter of 2016 to be between $11.3 million and $11.8 million. These expenses are expected to include approximately $1.7 million in non-cash expenses, which are primarily depreciation and stock compensation expense. We anticipate the total number of common shares outstanding will be approximately 30.4 million in the fourth quarter and for the full year, we're forecasting weighted average shares outstanding of 26 million.

With that, I would like to turn the call back over to John for some closing remarks.

We believe the future is very bright for T2 Biosystems. At our core, we are working to deliver diagnostic products that fundamentally change clinical decisions in a way that saves the lives of patients and delivers a strong economic return to the hospital system. There is a paradigm shift occurring within hospitals with regards to how they approach patient care and our technology is allowing our customer hospitals to be at the forefront.

Through our this year, we work to be partners in this inevitable change by helping those pioneering institutions reduce the patient length of stay in the intensive care unit and the hospital, reduce the patient mortality rate, increase the long-term quality of life for patients, and lower the re-admittance rate for patients. Our technology can be a game changer as demonstrated by Henry Ford and others, and our product pipeline will help drive further adoption.

Partnerships such as the ones with Bayer and Allergan and the investment by Canon not only provide third party validation but also will help accelerate the growth profile of T2 through the launch of T2Bacteria and T2Lyme. The market opportunity is clear as well. Sepsis continues to be one of the leading causes of death in the United States and the most expensive hospital treated condition, costing the U.S. healthcare system over $23 billion per year. We have the right team, the right approach, and we are squarely focused on entering into the next phase of growth for T2.

With that, I'd like to turn the call over to the operator for questions. Operator?

(Operator Instructions) Our first question today is coming from Isaac Ro from Goldman Sachs. Please proceed with your question.

Given your comments regarding the reduction in the salesforce, I was hoping you could maybe spend a little bit of time talking about, with the remaining assets that you have, where you're most focused, and if you could frame that in terms of driving increased penetration and utilization on existing installations or just driving a larger install base, just rank ordering the key priorities they have now as you go to market with a little bit of a smaller effort.

Yes, you bet, Isaac. Great to talk to you and a great question. So as we look at the priorities going forward, we believe we can continue to close accounts at a rate very consistent with what we've been closing at. Importantly, continuing to grow the number of high-risk patients in the customer base. Having said that, really the number one priority would be driving successful customer implementation. As we've been talking about for a couple of quarters, we really think that what drives the future growth of both T2Candida and for that matter will prepare for the launch of T2Bacteria is having the kind of successful customer success stories that we're now seeing enter the marketplace.

The story from Henry Ford that was released just last week is phenomenal. In a six-month period of time, they were detecting over 50 patients, reducing length of stay and a side by side study by four days in the hospital and even bigger than that, seven days in the ICU, that translates into over $2 million in savings. It's almost perfectly consistent with the economic savings model that we've been talking to investors about over the course of the last two years.

So more of those stories is clearly the most important thing, number one. Two would be continuing to close the customer base and we're hopeful maybe we can do better. What would drive that would be the impact of these customer success stories, the impact of the types of endorsement we're getting from Allergan and potentially other third party relationships.

And then thirdly, which I put on the list, maybe not in the next 90 days but as we get beyond that, the third element for our sales focus will be preparing for the important launch of T2Bacteria next year.

Thank you. And maybe just a follow-up. If I try to take a balanced view here, obviously, the ramp in your installed base has taken a little bit longer than we would have hoped for a year ago. But at the same time, you point to some of the success stories you've had, some of the feedback you've gotten from customers that's clearly showing value here and you obviously have a pretty solid balance sheet to work with.

So as you look at the next 12 months and try to help analysts think about how your go to market strategy is going to change, is there maybe one or two things here that you think will really be different about how you go to market to try and achieve greater or a faster pace of success?

Yes, absolutely. It's really taking -- the customer success stories do two things for us, Isaac. One is obviously that really impacts adoption rates in a really significant way. I think everybody understands that but the second and perhaps equally important part of these customer success stories is so what do they do to be successful and what do we learn there that we can apply to the next account.

In addition, they had reform, you had really exciting stories coming out of Riverside Hospital back at ASM. We had several as well, the Lee Memorial Health System being one. All of the learnings, and in fact these folks talk to each other, how do you implement, what patients do you tap, how do you ramp up patient testing volume. All of these learnings will help really drive and hopefully accelerate the adoption of the testing of patients within our closed accounts.

We were on a very, very nice path, something we were thinking and hoping would be talking about now but it's still a little bit too early. We were seeing a very nice penetration of growth and testing within our accounts that had gone live but as we had talked about in Q1 and Q2, the number of those hospitals was just too small. We didn't have enough information to want to report. But what we saw happening was very nice double-digit quarter-to-quarter growth out of those accounts that were growing and testing patients. And that was all being driven by the success that they were having.

Unfortunately, the product issue that we had with the manufacturing issue that had us pull some product back from the field at the end of June -- which is completely behind us -- it impacted growth in Q3. We can see that. July and August, we saw a modest very low double-digit decline in volume. Good news is they're all back, in fact, in total doing even better than that the month of September and appear to be right back on track as we enter the fourth quarter.

But we're seeing a nice steady cadence of growth and yes, the way we approach accounts, the way we go into the customer base, a system, aid them in patient selection criteria we think will really influence not just the number of accounts closing but the number of patients being tested.

Got it. And then last question for me and I'll get out of the way is T2Bacteria, you mentioned you're on track with the clinical trial and filing for next year. Can you talk a little bit about what you've learned about what it will take from a commercial standpoint to drive adoption? Obviously, you've got a lot of experience selling T2MR for Candida, but if you look toward the bacteria opportunity, the hope had been that that would open up a much bigger market for your platform. And I'm wondering, as you go through the process on the regulatory front, how you're thinking about the investment and focus that you want to apply for bacteria.

So on the regulatory side, I think it's very comparable to what we're doing with Candida and what we did with Candida. So there's a lot of learnings that are being applied. So we feel very comfortable with that process. I think there's a number of huge advantages of getting the bacteria product into the market, not the least of which is that many people inside of hospitals, especially folks within the lab, they really understand bacterial substance inherently more than they understand Candida based sepsis. And once you get them to do the work on it, they understand Candida is a big problem, probably an equal problem with bacterial sepsis but there's an education that goes on that in part leads to accelerated sales cycles and maybe even some skepticism and people wanting to wait for T2Bacteria.

So I think T2Bacteria is going to break that barrier in a significant way. Second of all, it's going to provide a more complete solution to the market, the combination of T2Candida and T2Bacteria will enable 95% of sepsis patients to be put on the right drugs within the first six to 12 hours and that's the holy grail, right. It's all about getting patients treated more quickly and then thirdly and obviously is that the bacteria product enters the market, that will mean more testing of patients. That will help accelerate the ramp of patients to be tested within an institution.

Got it. Thank you very much.

Thank you. Our next question today is coming from Steve Brozak from WBB. Please proceed with your question.

I wanted to follow-up on this because you had obviously mentioned a couple of things in terms of the reception that you're getting and all the validation you're getting from partners and facilities. What are the -- what's the feedback -- what's the validation that you're getting from the individual clinicians? And specifically, I know it's going to be anecdotal but what are you hearing about success stories as far as the patients that were treated that you just had ID Week that just came through. What can you tell us about that? And I've got one follow-up after that please.

I'm going to let David Harding take that question because there was a great presentation at ID Week last week from the head clinician at Henry Ford and others. So David, do you want to take that one?

Yes, absolutely. So what are the kinds of impacts we're seeing with patients, it's really quite striking, right. So on the patients who are detected positive, what the evidence is showing and some of these posters indicated is that we are identifying patients who otherwise would not have been identified with a Candida infection until several days later. That enabled the physicians to get the drug treatment on board more quickly and really get that patient treated effectively.

This is a tremendous benefit for the clinicians and obviously for the patients but that then leads to these tremendous savings in ICU time reduction. So that is a huge benefit and clearly what we're seeing on the negative side, right, when a patient is tested and comes out negative is a reduction in the use of antifungals. And as we all know, antifungals are quite costly. We're also minimizing the impact of resistance. When we don't treat people who don't need to be treated that minimizes overall resistance in the system and in that individual. So these are great impacts.

The other more subtle things that we're seeing are sometimes a blood culture will only detect a single organism. In many cases, where there are multiple infections, the T2 test will pick up each of those infections and allow the patient to be treated with the right combination of drugs, whereas they might have been missed with the standard blood culture.

So the net-net of it is length of stay improvement, certainly reduction in antifungal cost, and a more rapid time to treatment that is ultimately leading to a better patient outcome.

And along those lines, obviously, the Allergan partnership is one that they're validating you guys but they're also looking to increase their presence and their business model. Do you see a continuation of these types of licensing deals or these types of collaborations going into the future where other pharmaceutical biotech companies use your technological platform to advance themselves and at the same time, obviously, further your success? And I'll hope back in the queue after that. Thank you.

Go ahead, Rahul.

We do. In fact, I think when you look at the deal that we've done with Bayer, the deal with Allergan, it's all part of a pipeline we've been cultivating over quite a bit of time and continue to cultivate. And as we continue with -- working with and developing that pipeline, we anticipate we'll see more of these. Now, it's not something that we can predict. It's certainly something though that as we find the right opportunity for us and the right opportunity for the partner, we will pursue it and we will develop more of these opportunities.

I'd also add on top of that, sometimes you're going to hear about them too and sometimes you won't. So for example, there was a pharmaceutical product that entered a clinical trial this year and we're baked into their FDA protocol in terms of being able to use the T2Candida test to enroll patients. And in fact that's aiding in the drive of adoption within certain hospital accounts because -- and why is the pharmaceutical company doing that? Well, it makes common sense. If they can detect patients quicker, they will get through the enrollment of the clinical trial quicker because a lot of times, and we know this, if you wait a couple of days to get the positive blood culture, the patient is so sick you can't even get them to sign a consent.

And then secondly, most importantly, what we really enable is for drugs to be more effective. So if you can get the patients enrolled earlier that drug is more likely to get cleared. So it's already been happening. What we're doing with Allergan is really, really exciting. It moves us into the whole world of susceptibility testing, which is something we've been talking about as a plan for us to want to go down that path, resistance being the issue it is, and being able to go directly off of a blood sample.

We see the big benefit of that. Of course, it's a bigger benefit to identify the species because we're picking up 50% of patients that get completely missed by a blood culture. But adding susceptibility we'll get another 10% that might be delayed in getting to their right treatment. So there's a huge benefit to that and we're excited about working with Allergan and the potential to be working with their salesforce in the future as well.

Great. Thank you again.

Our next question today is coming from Bryan Brokmeier from Cantor Fitzgerald. Please proceed with your question.

Hi, good afternoon. So you mentioned the susceptibility testing. Is that the changes that you're talking about to the T2Bacteria panel that the Allergan agreement is having? Or is there some other change that is causing that expansion of the panel?

No, there's actually two things going on here. So separately, we're going to build a susceptibility panel for gram-negative resistance and then separately we're going to expand the T2Bacteria panel, which has six species on it today. We're not expanding it at the time of the launch of T2Bacteria, so nothing we're doing here has any impact on the timelines or anything with our T2Bacteria product. But what you'll see in the future is you can almost think about it as version two of the T2Bacteria panel that will expand the number of species that we're detecting directly from a blood sample and that will just be an enhancement to the cartridge and the reagents that we provide with version one of the T2Bacteria panel.

Okay, and could you elaborate a little bit more on how the Allergan collaboration is impacting your near term commercialization efforts? You've talked about that as being one of the reasons that you're reducing the salesforce.

Yes, great question. So there's really two elements to it and I'll tell you what we're planning for and then what we're working towards. So what we're planning for is that in the short run, we get a very significant endorsement from Allergan and that's invaluable as the Henry Ford story and the Riverside story and it's just more support around the strength and the power of what we're doing with all of our sepsis product lines. What we think is likely to happen in the future and it could happen sooner -- we're going to assume it happens a little bit later because it's just a prudent way to plan the business -- is that Allergan we think will likely be promoting our products at certain targeted hospitals around the world including inside of the U.S. and that that will just expand our presence and expand the number of opportunities that we pursue. It's very much of a cooperative marketing relationship. It's something they're excited about and for all logical reasons it's good stewardship within hospitals and Allergan is certainly one of the leading institutions for training hospitals on how to treat patients.

And having what we're doing at T2, being a part of that algorithm and a part of what they're educating people about is just good medicine, and they know that. And obviously, our panel is identifying pathogens where their drugs can be just extremely powerful and effective. So when that all will happen, we'll see how it plays itself out. Hopefully sooner rather than later, but our expectation is that it's probably lighter early on and more helpful down the road.

And while the high-risk patient population that you talked about is attractive, how have hospitals that are in routine use been using the system and how can you further drive that increase in utilization?

So they're all using it a little bit differently. They're all starting with some sub-segment of what I'll call the high-risk patient population. And what we're seeing, as I mentioned earlier, we were seeing very nice growth and we think we're back to seeing that kind of growth in their usage of the product in terms of going online. But they all go through a process of setting that initial patient selection criteria through their initial unit test. And then they roll it out and the really good ones know how to manage, and monitor, and see the impact and then they expand testing, and they educate their clinicians, et cetera.

Most of them start by testing patients that are in the intensive care unit. That's usually a part of where they start and often they go beyond that as well. And we think we can impact that in a pretty significant way as it gets further and further demonstrated that what they really should be doing is screening all of their high-risk patients and that's our objective. We never assume we'd ever get 100% penetration of all high-risk patients but they should and that's our objective. And the more and more data that's brought to market by these accounts that are testing patients and demonstrating the impact, the more we're going to move in that direction. The data that we're seeing in the market from places like Henry Ford, not to keep referring to that one, but if you run the economic model, they're seeing about an eight times return on investment relative to the price they're paying for tests. That's just absolutely extraordinary and where this is a reagent (inaudible) where they don't even have to buy an instrument up front, that means they're getting that return on investment like weeks after going live, maybe days.

So that's what ultimately going to drive usage, that and of course the impact you can have on patients' lives and helping hospitals really believe that through these success stories is what's ultimately going to drive further acceleration of testing patients, and more adoption broadly across more hospitals, across the United States in Europe and places we'll go in the future beyond that.

And are those customer -- the presentations from Henry Ford and Riverside, are those results that might be published at some point? Or are they really just presentations and case examples that wouldn't be in any sort of peer review journal?

We're hopeful. That's not for us. We're pretty hopeful and believe they'll try to get it into a peer review publication in the future and so I think you will see that. The data was released in poster presentations last week and sometimes if you've seen these poster presentations, and I'm sure most of you have, they don't often go into calculating dollars. But what you can see is it's very easy to calculate the dollars yourself. So if you looked at it, for example, you'd see that on average, patients are spending seven fewer days in the intensive care unit. Well, the average cost of a day in the intensive care unit is over $4,000. Patients are spending four fewer days in the hospital. They get into specifics in reduction in antifungal usage.

So the data is all there in a poster format, which from our standpoint is more than good enough as you go from one new opportunity to another in terms of talking to hospitals. But for those on the phone that might want to see the data themselves, you've just got to kind of pull that data and do a Google search on the average cost of a day in ICU and you'll get to the numbers real quick.

Okay. Thanks a lot.

Thank you. Our next question today is coming from Mark Massaro from Canaccord Genuity. Please proceed with your question.

Thanks guys for the question. My first one is on the Allergan deal and a little surprising to see Allergan but I guess we were surprised to see your other partner as well. My question is there -- Allergan is more known for aesthetics and ophthalmology, two areas in particular, though they are diversified.

So can you maybe comment on how long you had been talking to Allergan, their existing capabilities in infectious disease, and then related to that, what their commercial channel is today that would overlap with yours?

You bet, Mark, and we aim to keep surprising as long as it's all good. But Rahul, why don't you take that one?

Nice to talk to you, Mark. The conversations with Allergan have been, I think -- they've been extensive and they've been tracking us and we've been aware of them because they do have some very effective gram negative therapies like AVYCAZ that are successful in the market and they've built a very strong channel, in fact one of the largest in the anti-infectious space. So they've dedicated themselves and have been very, very committed to the area and developing more therapies in the area.

And I think if you look at their pipeline and whatnot, you'll see that they're committed to expanding on the gram negative targets that they have as well as gram positive. So it's not as surprising as it may seem in terms of the fit because they really do have a commitment not just to delivering anti-infectives but also to delivering entire solutions around anti-infectives, being a stewardship partner.

And I think what they really represent is an indication of the fact that there are a need -- there is a need within the space for anti-infectives in particular to have better diagnostics, to guide the use of the therapies. And that trend is bigger than just the Allergan opportunity. So I think it extends into the broad anti-infective category. And so I think it's representative of the kind of deal we can do and it's representative of the opportunities we have ahead of us. We hope to find and work with the right fitting companies as we have with Allergan going forward and I think the channel itself is just one of many that we can leverage if we consider following the model forward.

Okay. Great, that's very helpful. And do you know roughly what the size of their salesforce is in the infectious disease space?

We do but that's probably not for us to disclose. I mean we're not sure what they've disclosed but they have a very powerful and large physician-facing hospital based sales force and I'll let you find that out yourself. They're an important partner and probably not for us to talk specifically about.

Okay. Fair point. And then maybe for you, John, as we think about the bacteria panel, you mentioned you have intentions to increase the size of that panel. Can you just walk me through how that can be done in terms of clinical trials and submissions to the FDA. Is there anything you need to do differently relative to your original forecast with your clinical trial work as you pursue FDA clearance there?

Thanks very much for asking that question. So just to clarify, the first T2Bacteria product that's coming to market will not include the expanded Allergan panel. We are not changing that timeline for FDA clearance. So there's nothing new we're doing vis-a-vis that panel and this does not disrupt that in any way, shape, or form. What we'll be doing then, probably in parallel honestly, we'll start building the probes to the effect, you know, the additional species associated with this contract. And we will then enter some kind of an FDA trial for it. It perhaps could be done on a more limited basis. Perhaps there's a way to get that to market a little bit quicker but we don't have a timeline on that. You shouldn't expect to see that in 2017, that's for sure. As we get closer to understanding what that timeline might look like, we'll certainly be back with that along with the gram-negative panel that we'll be developing to let you know what those timelines might be.

But don't expect to hear too much in the next couple of quarters but rest assure, we're off and working on it and really excited about it. It really broadens and expands the full sepsis solution we're bringing to market and we know customers are going to be excited about it as well. And I'll just point to we're not done. There's more to come. It's just there's so much more opportunity for us beyond what we're talking about today and we look forward to talking about that in the future as well.

Great. And maybe my last question. You closed six customer commitments in the quarter and I know that you're shifting the focus of your metrics to high-risk patients. Is it reasonable to think now that you're kind of hovering in that mid-single digit contract number that that is likely to continue until you get Bacteria onto the market? Or how should we think about the number of possible contracts?

Well, I think what -- what I would encourage you to think and everybody has to build their own models, and I'll just tell you the way we're building it. We think we can add 150,000 high-risk patients to the customer base over the next 12 months. Think about that as adding 150,000 patients, hopefully more, but the 150,000 would be the target. And honestly, if we've got that in one contract I'd be as delighted as if it came in 30,000. Probably not going to come in one contract, although there are opportunities where you'd actually cover that number and then rest assured, we keep going and beat the number.

But the number of high-risk patients is far, far more important. And you're right, I think expecting the same cadence that we've been at, I think that's the right expectation to have. That's what we would say. We added just under 50,000 high-risk patients here in the third quarter and we've been running kind of right between that 30,000 and 50,000 high risk patients per quarter. And if we maintain that pace that's about 150,000 over the next 12 months. And we feel very good about the opportunities we're pursuing so we can deliver on that. And as that number evolves or changes, we'll come back and let you know. But on a quarter-to-quarter basis, I think you've got the right expectation, Mark.

Sounds good. Congrats on the Allergan deal.

Thank you very much.

Thank you. As a reminder, it's star one to be placed in the question queue. Our next question is coming from Paul Knight from Janney Montgomery Scott. Please proceed with your question.

Hi, this is actually Carolina Ibanez-Ventoso on for Paul Knight. I was wondering if you can provide more details on the data that you presented last September on the Lyme disease diagnostic including the initial label sensitivity, specificity and the performance of the test against existing ECR and anti (inaudible) based assays.

Yes, you bet. We're really excited about the progress we're making with the Lyme disease panels. So thank you very much for that and our objective is to enter preclinical studies next year and that should set us up for an FDA clinical trial probably right as Lyme season is upon us in 2018. So the data that we were able to present was very, very exciting. We were able to detect and demonstrate for the three different species that are on the T2Lyme panel, a limited detection of less than 10 cells per Ml. We were even all the way down to the five cells per Ml range.

We also had 21 clinical samples where we demonstrated that T2MR was detecting E-positive versus PCR that are only picked up one. So we had some really strong clinical data and kind of the bottom line of this is that we've demonstrated that for Borrelia, which is the primary cause of Lyme disease here in the U.S., the others that are on the panel are more geared towards Europe, we're showing far superior sensitivity to PCR.

And of course, remember, the issue here is that according to the CDC, about 90% of Lyme disease patients go completely undetected and so the fact that we were able, admittedly in a small sample size, to see an 8X improvement relative to PCR is very, very encouraging data and having the limited detection below ten cells per Ml for each of the species, that's really indicative -- very consistent with the data that we have been able to demonstrate around all our sepsis diagnostic pathogens as well.

Okay. That was helpful. Thank you. And you've been optimistic in the past also on the prospect of securing original agreements with distributors in Europe to increase your coverage there. What is the current situation on this?

You should expect -- what's going on in Europe is very, very exciting. We're way ahead of where we expected to be at this point. We closed another large hospital in Spain in the quarter. We think we can continue to see a nice perhaps even growth in the number of accounts that we're closing in Europe as we enter 2017 and a part of that, you should expect to see more distributors coming on board as well.

Okay, thank you.

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to Mr. McDonough for any further or closing comments.

Well, we're really excited about the developments in the third quarter, the addition of the Allergan partnership that we announced today not to be lost in the shuffle here with the significant endorsement and investment from Canon USA that we closed back in September. That puts us in just an extraordinarily strong financial position and I just want to point out that probably the most important development in the quarter are the customer success stories.

I think everyone should understand that we have a unique, and novel, and compelling value proposition. We've been talking to you about it as a public company now for about two years. That value proposition is not a lone impact. It's playing itself out in the market and we're really excited to go forward with all of these tremendous endorsements behind us and look forward to the introduction of T2Bacteria next year where we think we can really accelerate the business. So thank you all for taking the time to dial in and we look forward to reporting back next quarter.

Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.