T2 Biosystems Inc (TTOO) 2017 Q3 法說會逐字稿

Greetings, and welcome to the T2 Biosystems' Third Quarter 2017 Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Darlene Deptula-Hicks, Chief Financial Officer for T2 Biosystems. Please go ahead.

Thank you, and good afternoon, everyone. I am Darlene Deptula-Hicks, the Chief Financial Officer of T2 Biosystems, and welcome to our Third Quarter 2017 Financial Results Conference Call. With me today is John McDonough, President and CEO.

Before we get started, I'd like to remind everyone that comments made today by management will include forward-looking statements. Those include any statements which do not relate to matters of historical facts. Forward-looking statements are based on estimates and assumptions as of today, and are subject to risks and uncertainties that may cause the actual results to differ materially from those expressed or implied by those statements, including the risks and uncertainties described in T2's Annual Report on Form 10-K, which is filed with the SEC on March 15, 2017. 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. John?

Thank you, Darlene. Good evening, everyone, and welcome to our Third Quarter 2017 Earnings Call. Let me begin with a brief agenda for today's call. I'll begin my prepared remarks with a high-level summary of our financial results for the third quarter of 2017, a review of the key drivers that contributed to our performance during the quarter, and also provide an update on recent business highlights.

I'll then turn the call over to Darlene, who will discuss our quarterly financial results in detail and review our financial guidance for the fourth quarter of 2017. Following Darlene's review of our financial guidance, I'll share some closing remarks before we open the call up for questions.

Our operating progress in the third quarter was one of the best we've had as we completed the T2Bacteria Panel FDA filing for market clearance, closed an exciting collaboration with the CDC around Candida auris superbug detection, closed a partnership with pharmaceutical company Cidara for the use of T2Candida and their antifungal clinical trial, and closed a $20 million equity financing. Having said that, let's start with our financial results.

During the third quarter, we reported total revenue of $1.1 million and product revenue of $739,000, which grew 27.4% on a year-over-year basis, and was slightly ahead of revenue in the second quarter of 2017. The third quarter product revenue was negatively impacted by instrument orders received in September that could not be shipped in order to be recorded as revenue in the quarter. Additionally, we saw some delays in orders from customers located in the Texas area that may have been the result of weather. I'm happy to report that those orders did close in October. We expect to realize this revenue in the fourth quarter, and expect fourth quarter product revenue to be in the range of $1 million to $1.2 million and expect a quarter-over-quarter growth rate of 36% to 63%. We continue to measure our progress using metrics that we've highlighted on past calls, including the growth in the number of high-risk patients and customer facilities under contract. We consider this metric to be important as it represents the number of patients that could be tested with T2Candida and T2Bacteria if all high-risk patients were tested at the time patients present with symptoms of infection. During the third quarter, we increased the number of high-risk patients at hospitals under contract by approximately 58,000 patients, ahead of the 40,000 high-risk patient target we've set on our last earnings call. The estimated 58,000 high-risk patients are a result of closing 7 new hospital contracts in the third quarter, all of which were international accounts. We also closed 3 additional contracts for the use of the T2Bacteria Research Use Only, our RUO product in the United States. As of September 30, we now estimate that we have 56 contracts in place, covering 144 hospitals that provide access to an estimated 473,000 high-risk patients that could be screened with T2Candida and T2Bacteria, which both run on the T2Dx Instrument.

We're very excited about the clinical and market developments related to the T2Bacteria Panel. In July, we were pleased to report that we have achieved a CE Mark for T2Bacteria, enabling the commercial launch of T2Bacteria in Europe and other countries that accept the CE Mark. In September, we announced that we submitted our 510 (k) application to the FDA, requesting market clearance of the T2Bacteria Panel. The submission includes the filing with compelling data that demonstrates overall sensitivity of 95.8% and overall specificity of 98.1%. This compares favorably to the reported 50% to 65% sensitivity of blood culture, and therefore, the sensitivity of 80 diagnostic products that is dependent on a positive blood culture. Most importantly, the pivotal study of over 1,400 prospective patients run at 11 different institutions across the United States, identified 102 patients with known infections. Although, T2Bacteria detected 98 of the infections, while the blood culture which was drawn concurrently with the T2Bacteria blood draw, detected only 39 patients. Additionally, the average time to result for the T2Bacteria Panel was 5.4 hours, compared to 71.7 hours for blood culture-based species identification. The T2Bacteria Panel is designed to identify approximately 90% of all Gram-negative infections coming in through the emergency department and approximately 70% or more community-acquired infections presenting in the ED.

We continue to plan for FDA clearance by year-end. To date, we've had informal communications from the same FDA reviewer who reviewed T2Candida, and we expect to hear a formal response from the FDA soon.

We're enthusiastic about the commercial interest in the T2Bacteria Panel as evidenced by the 7 U.S. hospitals now under contract to use the T2Bacteria RUO Panel. At IDWeek in October, there was a presentation by one of our RUO customers, who is the Director of Clincial Microbiology and Molecular Diagnostics at Hennepin County Medical Center in Minneapolis. The presentation highlighted the potential benefits of T2Bacteria, including testing in the emergency department, where the T2Bacteria Panel was shown to cover 85% to 91% of infections presenting in the ED at Hennepin County. The presentation also reiterated the potential for significant reductions in patient mortality, length of stay and hospital readmissions.

T2Bacteria remains a very important product and key driver of future growth for our company. We believe that availability of T2Bacteria, along with T2Candida and the T2Dx Instrument represents a game changer in the market and will be the first comprehensive rapid diagnostic subset solution that combined with the standard of care, may enable approximately 95% of all patients with the sepsis pathogen infections to be treated with the right targeted therapy as quickly as 6 hours after blood is drawn. We continue to see from our commercial activities that the emergency department to be a strong feature to drive initial adoption of the platform within hospitals. In addition to providing a rapid diagnostic result that can enable the timely admission of patients with deadly infections, there is a strong reimbursement structure in place that provides almost $290 of reimbursed -- reimbursement for patients not admitted to the hospital. From T2's perspective, being able to offer the T2Bacteria Panel alongside of our already FDA-cleared T2Candida Panel, which both run on a T2Dx Instrument, enables us to more than double the market potential for our products. From the patient and healthcare perspective, adding T2Bacteria offers the health system millions of dollars of potential economic value and the ability to impact lives by allowing a faster and a more targeted therapeutic approach to treating patients.

A key focus of ours remains utilized in the increasing number of customer success stories to broaden and enhance the awareness of the T2Sepsis Solution. In October, we completed a successful IDWeek conference, which featured 7 poster and panel presentations on our T2Sepsis Solution. In addition to the presentation for the Hennepin County Medical Center regarding their use of the T2Bacteria RUO product, there was an exciting presentation from the Chief of Infection Diseases at the VA Pittsburgh Healthcare System. He presented results of a 14 multicenter trial that evaluated 152 patients with Candida infections. This study demonstrated T2Candida sensitivity of approximately 90%, including patients with Candidimia that were missed by blood culture and specifically patients with Candidimia who are being treated with antifungal drugs that can be missed by blood culture. Also in October, the Henry Ford Health System published a study in the Journal of Antimicrobial Stewardship, assessing the rapid diagnostic qualities of the T2Candida Panel. In the study, patients tested with the T2Candida Panel were treated in a median time of 5 hours, a more than eightfold reduction as compared to that based on blood culture with delayed appropriate therapy by a median of 44 hours. This speed advantage demonstrates that T2Candida is a valuable clinical tool to aid antifungal stewardships goal to deliver timely antifungal therapy for infected patients. Although the study was not powered to evaluate reduction in patient mortality rates, the authors did note that appropriately treating patients within 24 hours of the onset of disease is proven to reduce mortality rates from 41% to below 16%. T2Candida is the only diagnostic method presented in this study with the speed and accuracy necessary to enable therapeutic decisions that might achieve this reduction in mortality.

Before returning the call over to Darlene for a complete review of our quarterly financial performance, I would also like to provide a brief update on our pipeline and commercialization efforts.

In September, we announced a partnership with the Centers for Disease Control and Prevention, the CDC, regarding a new effort that will use the T2Dx Instrument and an Investigational Use Only T2Candida auris Panel as a means of rapidly detecting the superbug Candida auris in hospitals around the country. Candida auris is a multidrug-resistant pathogen recognized by the CDC as a key health threat because of its difficulty to identify and its growing resistance to all 3 major classes of antifungal drugs. Unlike most other species of Candida, Candida auris can quickly spread in a hospital making rapid identification and hospital environmental surveillance a critical component of containing these outbreaks. Existing laboratory methods that detect Candida auris including culture separate from prolonged detection time, 17 days of the CDC. And low accuracy, which exacerbate the challenge of the pipe to contain the superbug. The T2Candida auris diagnostic panel has average time-to-results of approximately 4 hours. Instruments are installed at the CDC and work is currently underway to validate the T2 method, which is expected to take about 90 days. We're also conducting a study in Europe on a test that has demonstrated its ability to detect Candida auris directly in patient blood.

In September, we initiated a partnership with Cidara, a West Coast biotech company to use the T2Dx Instrument along with the T2Candida Panel, to accelerate patient enrollment in its clinical trials evaluating the company's lead antifungal compound, CD101. Cidara approached us following the observation that clinical sites using the T2Candida Panel demonstrated more rapid enrollment in their Phase II trial. Under the terms of the relationship, we will place T2Dx Instruments at Cidara clinical trials sites that choose to participate in the program and Cidara will provide reimbursement coverage to sites for T2 Candida tests that are used to screen patients for enrollment. This relationship highlights both the new ways certain healthcare organizations are leveraging our products and how, we are looking to maximize the market awareness of our products and commercial footprint. We've also successfully included our preclinical study for our T2Lyme diagnostic panel and will be meeting with the FDA soon to outline a clinical trial protocol that we expect to commence in the spring of next year.

Lastly, the T2 Gram-Negative Resistance Panel development efforts through our partnership with Allergan also remains on track, and we plan to deliver initial product to Allergan late next year.

Now let me turn the call over to Darlene, who will review our third quarter results in greater detail. Darlene?

Thank you, John, and good afternoon again, everyone. Total company revenue was in line with our guidance to the third quarter, while product revenue was slightly behind guidance, primarily due to orders received late in the quarter that could not be shipped by quarter-end and research revenue exceeded guidance. Product revenue for the third quarter 2017 of $739,000 increased by $159,000 or 27.4% on a year-over-year basis and was just slightly ahead of revenue reported for the second quarter of 2017. Product revenue for the first 9 months of 2017 of $2.1 million increased by $937,000, or 80.2% on a year-over-year basis. The increase in product revenue was primarily driven by increased sales of T2Candida test, resulting from a combination of increased usage at customer sites and new customers going live in testing patients, as well as sales of T2Dx Instruments.

Research revenue for the third quarter of 2017 of $369,000 exceeded our guidance of less than $100,000. Research revenue in the third quarter and 9-month period [preperatively], declined year-over-year as was expected, due primarily to a decline in revenue recognized under our co-development agreement with Canon Life Sciences (sic) [Canon U.S. Life Sciences], which was offset by an increase in revenue recognized under our co-development agreement with Allergan.

Continuing down the P&L. Total operating expenses, excluding costs of product revenue for the third quarter of 2017, increased by $304,000 to $11.4 million from $11.1 million in the prior year corresponding quarter. This increase in operating expense year-over-year was primarily driven by a $680,000 increase in research and development expenses, offset by a $376,000 reduction in SG&A expenses. Probably more importantly, operating expenses sequentially, were down in total by $1.4 million for the third quarter over the second quarter of 2017, with a $1.2 million reduction in R&D expense, and a $200,000 reduction in SG&A expense. The $680,000 increase in R&D expense quarter over prior year quarter is primarily due to costs associated with our T2Bacteria clinical trial, increased noncash depreciation expense, lab-related and engineering prototype expense, outside services and travel. Research and development expense includes $330,000 and $295,000 of noncash stock-based compensation expense. Sequentially, R&D expense decreased by $1.2 million, primarily due to the completion of our T2Bacteria clinical trial in Q3 this year, and reduced payroll and related expenses. The $376,000 decrease in SG&A expense quarter over prior year quarter is primarily due to reduced payroll and related expenses in Q3's travel expense, offset by increased through the costs. SG&A costs improved $778,000 and $872,000 of noncash stock-based compensation expense. Sequentially, SG&A expenses increased by $200,000, primarily due to the timing of marketing-related spending. The net loss attributable to common shareholders for the third quarter of 2017 is $14.1 million or $0.45 per basic and diluted share, compared to a net loss of $12.8 million or $0.51 per basic and diluted share in the same period prior year. The weighted average shares used to compute earnings per share were 31.4 million and 25 million even shares for the third quarter of '17 and '16 respectively.

Now turning to the balance sheet. At September 30, 2017, we had cash and cash equivalents of $52.9 million, which includes the net proceeds of $18.8 million raised from our recent financing completed on September 15. We also continue to reduce our cash turn each quarter sequentially this year. Management projects that existing cash, together with the additional remaining liquidity on the company's term loan, should provide a cash runway into the first half of 2019.

Let me now turn to review 2017 guidance. We expect Q4 2017 total revenue to be in the range of $1.1 million to $1.2 million, with product revenue in the range of $1 million to $1.2 million, and research revenue to be approximately $100,000. We also project operating expenses, excluding the costs of product revenue, to be in the range of $11.4 million to $11.8 million for the quarter, of which approximately $1.9 million is projected to be noncash expense, which primarily reflects stock-based compensation and depreciation expense. The weighted average shares outstanding for the 9 months ending September 30, 2017, were 30.9 million, and could be impacted in Q4 by stock option exercising, if any.

With that, I'll now turn the call back to John for closing remarks.

Thank you, Darlene. In summary, we're pleased with our operational progress for the first 9 months of the year, and in particular, the significant accomplishments realized in the third quarter. I would like to thank everyone on the T2 Biosystems' team for their hard work and their focus on our mission of improving the lives of patients around the world. Together, we shared many significant milestones, especially in the last 90 days. We're squarely focused on driving the commercial adoption of our products and driving revenue growth through adoption of our platform and testing patients with our game changing products, which includes T2Candida today and T2Bacteria, available in Europe now for clinical use and being reviewed by the FDA for market clearance in the United States. We believe the market clearance of T2Bacteria will accelerate the adoption of the T2 Sepsis Solution and bring significant value to patients and hospital economics. Thank you for your participation in today's call and for your continued interest in T2 Biosystems. That concludes our prepared remarks for this evening. Operator, we'll now open the call for questions.

(Operator Instructions) Our first question today is coming from Steve Brozak from WBB Securities.

There was 1 item that you mentioned that, John, in particular, that you mentioned about how you were using the T2 platform in the emergency room. And that's pretty striking because you're going from something within -- buried within the hospital where obviously, there is a need, but you're moving it to the front of the hospital. Can you tell us as much as you can about that? Because that's actually something that's completely different than we've looked at in the past and it's a different way of going out there and understanding and modeling T2. And I have one follow-up after that, please.

Yes, Steve. Thanks for the question. So in addition to the 6.75 million symptomatic high-risk patients or in-patients in hospital, there's another 2 million, sometimes estimated 3 million patients that are presenting in the emergency department. And about 50% of all sepsis cases are actually community-acquired and are presenting for the first time in the ED. Now those cases are almost always bacterial infections, not Candida or fungal infections. So as we reported in the past, we've never expected and it's rare that the T2Candida tests will be running in the emergency department, but we have a really compelling value proposition in the ED and many of our Research Use Only-customers are in fact, running studies, specifically focused on the emergency department. The challenge in ED is when a patient presents, of course, the rapid question is, do I admit the patient, or do I not admit the patient? If they have sepsis pathogen, they need to be admitted. And there is no diagnostic guide that decision process. And so what really happens today is you have a highly probable sepsis cases they'll admit, but that's a small percentage. And then there is a very large number that go into an observation unit where they're watched for as much as 48 hours. They're not admitted and they're in the holding pattern while they try to figure out if the patient is septic or not. So in those cases, our panel, as reported by Hennepin County, covers about 85% to 91% of all of the sepsis cases presented in the ED. And for those patients that were test-positive, we have a rapid result within a 3- to 5-hour window that was -- on a positive, lead to rapid admission, and more importantly, getting the patient on the right targeted therapy, which a broad spectrum antibiotic probably would not be. So they're being admitted in a way that they should recover more quickly and more likely. For patients who do not get admitted to the hospital, there is a very strong CPT code reimbursement in place. So for any patient not admitted to the hospital that's tested with T2Bacteria, there is about a $290 reimbursement that will go to the hospital and the lab and that's for a test that's likely to be priced. We haven't announced final pricing, but we'll likely to price it under $200 a test. So very strong no-risk value proposition in terms of economics, super-high value in terms of the patient, and really a secondary and big benefit for the hospital, but if you admit the patient, they are likely to spend a lot fewer days in the hospital in the ICU, which provides incremental economic returns. So we're really excited about it and we're seeing a very positive response from the hospitals as we present this -- to them and this noncommercial phase of our discussions with customers.

Again, it's completely different, so I would very much appreciate any future thoughts on how you look to describe it. And looking at the bacterial panel, I understand it's a research-only panel. Can you give us any kind of information, even if it's anecdotal, as to how the different systems are looking at the research panel? And how it compares to the reception that you got for the fungal detection panels? And I'll jump back in the queue.

Yes, you bet. So -- essentially, hospitals that are using it in this research-use-only mode, they're running various studies, sometimes they're doing verification studies and validation studies. Other studies, as I mentioned, of being run in the emergency department. One of the differences that we're seeing, we weren't able to run a research-use-only program with the T2Candida Panel because of that phase of our development instrument weren't ready to be placed in a research-use-only mode while we're waiting for FDA clearance. But because T2Bacteria runs on the same instrument, we're in the strong position to be able to offer this research-use-only mode, which gives us early insight -- it will lead to some early presentations and publications have already seen that with Hennepin County, and also gives us a head start on the commercialization efforts because these customers are likely to move forward with adoption and to adopt more quickly. The performance characteristics of T2Bacteria clinically are proving to be equal to, or slightly, better than T2Candida while we're in this mode. And I will say, we're seeing -- the whole emergency department opportunity, of course, is completely new and different that didn't apply to T2Candida at all. And I would also say that we're seeing initial market feedback of a high interest in screening patients on the front-end with T2Bacteria, where with T2Candida, there is more of a waiting until you would guess empirically that a patient might have a fungal patient, which limits the testing volume for us in that mode. But as you move with the T2Bacteria Panel, the screening, it should lead to much, much higher volumes of testing of patients within hospital facilities.

Our next question is coming from Yi Chen from H.C. Wainwright.

Could you give us an update regarding the launch of the T2Bacteria in Europe? And in your prepared remarks, you mentioned that the T2Candida Panel currently covers, what, 44 hospitals in U.S. So how many hospitals in Europe are currently being covered by T2Candida?

You bet. Good question. So I'll take the second question first. So internationally, and I'll answer internationally, we have 17 hospitals now that are either adopting or now under contract with instruments being installed and verification going on. Those 17 hospitals are all T2Candida customers. Of those 17, there are 7 hospital facilities under contract for T2Bacteria, including 6 of the 7 that were closed in the third quarter call. And of those 7 that are under contract for T2Bacteria, one is leading with T2Bacteria, meaning they're implementing that first and the others sick are beginning with the implementation of T2Candida with the plan to then implement T2Bacteria secondarily. And that more has to do with the timing of when those sales cycles started and the phases of where those products were in their development cycles.

Our next question today is coming from Mark Massaro, Canaccord Genuity.

Max Masucci on for Mark. So you indicated the potential launch T2Bacteria by year-end pending FDA approval. Can you speak to your expectations on how quickly you think you could be signing contracts post-approval? And also, any early feedback from RUO customers will be great.

You bet. Max, so we believe if we get through FDA clearance by the end of the year, we would expect to see some customers on the contract in the first quarter. So we think it can be a relatively rapid time frame to get those initial contracts. The feedback from the Research Use Only customers to-date is all very positive. Some are just under contract, so we either have good news from the accounts there that are using it, or no news because they haven't started using it yet because we're still installing instruments. But not aware of any situation where the validation programs or the studies being run are not achieving the expectations of all those research use customers.

Great. One more. Can you provide some additional color on the source of traction and product revenues in the strength that's implied in the 36% to 63% growth outlined in the Q4 guide? I'm just trying to get a sense for timing and the mix between instruments and consumables.

Yes, you bet. As you look to the fourth quarter, we've guided to $1 million to $1.2 million in product revenue. Some of that growth is expected to be from instrument sales and a healthy growth rate is expected in the order of 20% in growth of consumable sales which would virtually all be T2Candida cartridges. But the international model is a little bit different than what it is in the U.S. Internationally, when an instrument is placed, there is a distributor involved and that distributor purchases the instrument from T2 and then vary replacing it or selling it to a customer. In the U.S., typically, the instrument is being placed under a reagent rental program. So when there is higher instrument sales, it's typically going to be following the closing of contracts outside the U.S. where instruments are being sold in almost -- and at this point in time, in fact, all of the accounts that are -- they're adopting in Europe and outside of Europe.

Great. One more, if I can. On T2Lyme, on your Q2 call, you said that you expect to complete the preclinical study by the end of 2017 and to initiate the FDA trial in 2018. How are we tracking against the original time line?

Yes. We're right on the original time line. We've completed -- in fact, completed the preclinical study for T2Lyme successfully. We now have that data in hand. Expect to be having a meeting with the FDA in, roughly, the next 4 to 6 weeks. And in that discussion with the FDA, we will be working with them to design the clinical trial process, the protocol that will be used. And we should be right on track to start the study next spring.

Our next question today is coming from Paul Knight from Janney Montgomery.

This is Carolina Ibanez-Ventoso on for Paul Knight. T2Candida was launched in 2014 and the number of hospital customers has grown considerably since then. Have you seen any changes in the time customers take in completing the internal verification of the technology and going live after signing a commitment?

Yes, that's a great question, Carolina. No, the time that verifies has been pretty consistent. It's averaging typically between 3 to 6 months. Sometimes they go a little quicker, sometimes they go a little slower. But on average, we're right in that 3- to 6-month range. One of the things we did early on, I think a lot of new products sometimes don't provide, what I'll call a verification kit or a verification protocol to customers initially, and then they'll start with 9-month time that has been decreased over time. Fortunately, we put a verification program in place that we recommend to all customers and to my knowledge, all customers have used that verification protocol, sometimes they add to it. But they always use the verification protocol. And I think that has helped us maintain this 3- to 6-month average.

Okay, that's helpful. And then on your partnership with Cidara Therapeutics. I'm sorry if I missed this, what is the number of patients that you would be screening to enroll in the clinical trial?

Yes. So we don't know how many patients would get enrolled with the T2Candida product. What we do know is that Cidara is running that trial at about 100 different hospitals around the country. We know that they are highly recommending the hospitals to use T2Candida for enrollment in this Phase III trial. In Phase II of their study, hospitals were allowed to use T2Candida. That was a part of the FDA protocol Cidara had put in place, but they weren't recommending the usage. And what they saw in Phase II is that the sites that use T2Candida were enrolling more patients faster. Which, for them, of course, is a big expense or an accelerator of a trial is always a good thing. And hence, they put this program in place with us to be more aggressive. They want their sites using T2Candida but they can't force it. They provide, basically, pay for the T2 cartridges for the sites that will adopt a new T2Candida, but those sites also have to agree to bring in the T2Dx Instrument in order to be a part of the program. So we think we'll see some acceleration and hospital adoption through that program, but it's too early and we really don't know what rate to expect and what percentage of those 100 possible hospitals would adopt. But we're excited to be working with them and we know we provide real value. So hopefully, it will be a healthy number of that 100.

Got it. And then one final question, if I may. The R&D expenses were down in the quarter. Should we expect R&D be at the same level in the first quarter? And how should we think about operating expenses in 2018?

I'll let Darlene take that.

Sure, sure. Yes, we're seeing the right trend here in our quarter-over-quarter reduction in operating expenses. We project for next quarter, fourth quarter, they'll be in the range of $11.4 million to $11.8 million. That trend should hold into the early part of next year. R&D expenses, I would expect, will go up a bit when we start the clinical trials for Lyme. So that will be a timing issue when that starts. I will say that, that trial will likely not quite be as expensive as the bacteria trial due to primarily the fewer patients, we believe will be required for that trial. And then that should sort of stay flat to come down a bit, the remainder of the year.

Our next question today is coming from Puneet Souda from Leerink Partners.

This is Kai Wang calling in for Puneet Souda. I wanted to ask about -- give us a little bit of color on your sales force operation these days, given that your expect market clearance for (inaudible).

Yes, absolutely. So the total size of the sales force today is up -- approaching 20 people. We actually have a sales training going on as we speak in the room right behind me. We will grow that sales team probably by about another 3 to 6 people between now and the end of the first quarter of next year. We're really excited. We're -- the training is focused -- today, it's a bit different than what we would have done -- been doing 6 months ago. Our approach to market is now much more focused on selling a sepsis solution to hospitals as opposed to a Candida Sepsis Solution to hospitals. And so the training is equally balanced between our focus on T2Bacteria, adoption in the emergency department setting, along with the traditional training around T2Candida. And the total value proposition of being able to put hospitals in a position where they could get up to 95% of their patients from the right targeted therapy within the first 6 hours of presentation in the hospital.

Okay. Very helpful. Also, I want to get more color on your partnership with the CDC? Would that partnership -- do you expect broader adoption of T2 due to that?

Yes. So the -- I think the question here, you're fading a little bit, is on the partnership with the CDC, is that correct?

Correct.

Yes. So the -- we're really, really excited about this one and there are many possibilities for this one to grow. So to back up a little bit. The CDC partnership is focused on superbug detection initially targeting Candida RF, which is an emerging superbug that has hit pretty hard in Europe and has entered the U.S. and is growing at a pretty rapid rate. So prior to T2, the CDC has a very large lab down in Atlanta, that every time a hospital detects a Candida or its patient, because of its -- the resistance of this bug to traditional drugs, and because it is highly contagious, meaning if you have a hospital on your setting, there is a very high risk of that spreading to other patients around the hospital. The CDC sends a SWAT team down to that hospital and they come back with samples which they run in this pretty significant lab. I visited it a couple of months ago myself. It takes the CDC about 17 days using very advanced culturing approaches to actually get a result. And it's very labor-intensive. And at this point, they're running hundreds of samples per week in this lab. So the initiative here, we've now installed T2Dx Instruments. They're going through and developing the protocol of how they will both validate and run those samples on the T2Dx Instrument. And keep in mind, the samples are mostly samples coming from the patients' skin because when you have this infection, it’s blood-borne, but it sheds on the skin. So this shows the versatility of our platform where we're actually running skin samples, not just blood samples. And we also have a, by the way, blood-based Candida auris study going on in Europe. So we can detect it in blood, we can detect it in skin, or we even approve it, we can detect it in environmental -- in the environment itself. But they're building this protocol. It will take about 3 months to complete the protocol in their estimation, at which point in time, they would likely switch over and they're using the T2Dx platform instead of these culture techniques and the advantages are clear. We get a result in 3 to 5 hours as opposed to 17 days, and the reduction in labor is substantial. The ultimate objective of the CDC is not to be running all the samples in the lab. They want to push this out to the states. We will ultimately have state labs. We're already in discussion with one and a second one right behind it in terms of potentially moving this platform out to the state level for Candida auris. And in fact, we even have a couple of hospitals that have approached us because they're interested in bringing the test to run within their specific hospital. So the product we have today is investigational use only if not an FDA-cleared product. But it can absolutely be used for the purposes of the CDC and the states. And we're looking at ways to perhaps take a product through the FDA at some point in time in the future. But we're really excited about the impact we can have hopefully in curtailing the spread of this terrible disease and there likely will be opportunities with the CDC in the future to expand the menu beyond Candida auris.

We have time for one final question coming from Matthew Cross from Jones Trading.

I was wondering if you could give us some update on U.S. hospital adoption of T2Candida into sepsis protocols? Have any additional hospital accounts officially included the panel? And what pushback, if any, have you received from these accounts regarding auto ordering?

Yes. That's a great question, Matt. So we're starting to see for the first time, the movement towards T2Candida being adopted in sepsis protocols. We're aware of, at least, one hospital that has actually begun that already. Most hospitals, as they're adopting, they're initially testing patients before they would empirically treat a patient with an antifungal drug, which typically means 48 to 72 hours after patients are symptomatic. And they're typically testing somewhere in the order at that stage of the game, maybe 10% of the total high-risk patient population within a hospital. The logic of doing that is now, the course you're about to give patients antifungal drugs that are going to cost, let's call it, in the order of $1,000, and most of the patients don't need it. And so a rapid diagnostic induces the use of antifungal and for those that are positive, it gives you the species to put the patient on the right antifungal drug. What they all should be doing, and we believe in the future would be doing, is screening the patients, if you will, at time 0 and not waiting 48 to 72 hours, because that's where you can really have the dramatic impact in both costs and patient mortality. And so there are about 4 hospitals moving in that direction. I want the slide moving in that direction. And that's clearly one of our focuses and one of the paths towards driving significantly greater product revenues is getting more patients stuck to that hospitals as they should. T2Bacteria will be very different in this regard because bacterial infections are treated at time 0, and even empirically, when they make changes within the first 24 hours. So as you think about T2Bacteria, it's a different paradigm where, you would think, hospitals will be testing somewhere between 30% and 100% of the patients depending upon whether they adopted at time 0 or, let's say, time 24 hours.

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

We're very excited about the progress operation we made in the third quarter. We're in the middle of the fourth quarter right now and excited about the progress we continue to make and the tremendous hard work that is going on among the team here at T2. And we look forward to reporting back on our fourth quarter results in the February time frame. So thank you all for joining this evening.

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