T2 Biosystems Inc (TTOO) 2017 Q4 法說會逐字稿

Greetings, and welcome to the T2 Biosystems 2017 Fourth Quarter and Year-end Financial Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I'd now like to turn the conference over to your host, Chris Brinzey. Thank you. You may begin.

Thank you, operator, and good evening, everyone.

Thanks for joining us for the T2 Biosystems 2017 Fourth Quarter and Year-end Financial Results Conference Call.

On the call to discuss the results and operational highlights for the period ended December 31, 2017, are President and CEO, John McDonough; Chief Financial Officer, John Sprague; and Chief Scientific Officer, Tom Lowery. The executive team will open the call with some prepared remarks, followed by a question-and-answer period.

Before we begin, I'd 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 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, Chris. Good evening, everyone, and welcome to our fourth quarter and year ended December 31, 2017, earnings call.

Before getting into our results, I want to welcome John Sprague, our new Chief Financial Officer. We are pleased to have John join the T2 team. And we think John's proven capabilities in building out finance teams, along with his experience leading M&A, equity and debt financing, and strong accounting background will be the perfect fit for T2 during this period of growth, as we evolve into becoming a multiproduct commercial company.

Thanks, John. I'm excited about joining the T2 team.

Thanks, and welcome aboard. Let me begin with a brief agenda for today's call. As we have done in our past calls, I'll begin my prepared remarks with a high-level summary of our financial results for the fourth quarter and year-end 2017, review our key business drivers in the quarter, and provide an update on recent business highlights. I'll then turn the call over to John, who'll discuss our financial results in detail and review our financial guidance for the first quarter of 2018.

Following John's review, I'll share some closing remarks, before we open the call up for questions.

We are pleased with the progress we made in the fourth quarter and in 2017, as we set the stage for what we believe will be an exciting year for T2.

Starting with our financial results. During the fourth quarter, we reported total revenue of $1.7 million and product revenue of $1.3 million.

Product revenue exceeded the high-end of Q4 guidance by almost 18% and total revenue exceeded the high-end of Q4 guidance by almost 42%.

Overall, product revenue grew an impressive 76% from the third to the fourth quarter of 2017, with year-over-year growth of 125%.

The strength in the fourth quarter revenue was primarily due to an increase in sales of the T2Candida Panel and an increase in sales of the T2Dx Instrument. T2Dx Instrument sales included revenue from instrument orders received in the third quarter that were not shipped until the fourth quarter.

That being said, we're seeing a strong build in our new customer sales pipeline, which we believe is being driven by the anticipated FDA clearance of the T2Bacteria Panel, and growing acceptance of the T2Dx platform, driven by customer success stories and publications of data.

The building of the sales pipeline is demonstrated in the growth in the number of proposals delivered to potential customers.

In the fourth quarter, a total of 24 proposals were delivered, including 14 proposals to new customers. The 24 proposals compares to 8 proposals delivered in Q3.

We continue to measure our progress using metrics that were highlighted on past calls, including the growth in the number of high-risk patients at 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 fourth quarter, we increased the number of high-risk patients at hospitals under contract by approximately 45,000, ahead of the 30,000 high-risk patient target we had set on our last earnings call. The estimated 45,000 high-risk patients are a result of closing 7 new hospital contracts, including 2 additional contracts for the use of the T2Bacteria research-use-only, or RUO, product in the United States; and one T2Bacteria contract in the EU.

Additionally, two contracts with existing customers were amended in the fourth quarter to include T2Bacteria, once FDA cleared.

As of December 31, we have 10 T2Bacteria RUO customers; 4 of the T2Bacteria RUO placements are with existing T2Candida customers, and 6 are with new customers. One of the placements is with an almost 1,000-bed teaching hospital that operates 6 academic and community hospitals. Another placement is with an almost 900-bed acute care facility that operates 7 academic and community hospitals in more than 100 total locations throughout the region.

It is our intent to provide 2018 financial guidance after receiving FDA market clearance for the T2Bacteria Panel. At that time, we will also provide guidance on the number of hospital accounts expected to be closed, and we will provide a new metric on the number of instruments expected to be placed at hospital sites this year.

As of December 31, 2017, we had 66 -- 67 instruments placed or contracted to be placed, covering 157 hospitals in the United States and Europe. We estimate that each instrument is capable of running over 3,000 T2Candida and/or T2Bacteria tests per year.

Additionally, as of December 31, those contracts and instrument placements provide access to an estimated 495,000 high-risk patients that could be tested with T2Candida and T2Bacteria, which both run on the T2Dx Instrument.

Moving on to an update on the status of the T2Bacteria Panel. As most of you on the call know, last September, we submitted our 510(k) application to the FDA, requesting market clearance of the T2Bacteria Panel. We had hoped to have received a decision from the FDA as early as by the end of 2017; but we appear to be on a more typical time line of 6 to 9 months, as the approval process within the FDA appears a bit different than what we experienced with the Candida submission. This time line will have us on a path to FDA clearance in Q2.

Our discussions with the FDA continue to be productive and cooperative. And based on the strong data from our clinical trials and the benefit of the T2Bacteria Panel for patients, we believe that FDA clearance can be achieved within this typical time frame.

As part of the review, we have removed the Acinetobacter baumannii or AB species from the T2Bacteria Panel due to a combination of factors; in part, because there were no patients shown by blood culture to be infected with AB in the pivotal study. This is consistent with the U.S. statistics that AB represents about 1% of all sepsis cases, which translates to an incident rate of about 0.1% of all patients tested.

We anticipate future studies to demonstrate performance for AB in the U.S. population. We do not expect this to impact the commercial adoption of the T2Bacteria Panel in the United States. AB will remain a part of the T2Bacteria panel that is CE Marked and offered in Europe, and other countries that accept the CE Mark. AB has a higher incident rate infection in Europe, representing an estimated 3.6% of healthcare-associated infections.

As a reminder, the T2Bacteria Panel submission includes a 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 any diagnostic product 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 confirmed infections. Of those, T2Bacteria detected 98 of the infections, while the blood culture which was drawn concurrently with the T2Bacteria blood draw detected only 39 patients.

The average time to results of the T2Bacteria Panel was 5.4 hours compared to 71.7 hours for blood culture-based species identification.

We're enthusiastic about the commercial interest in the T2Bacteria Panel as evidenced by the now 10 hospitals under contract to use the T2Bacteria as an RUO panel. As we prepare for the commercial launch, we recently completed a market study with an independent market research firm. The study included input from over 300 hospitals, including lab directors, clinicians, hospital administrators and others.

Here are some of the highlights from the study. Sepsis is viewed as a high priority for over 96% of the hospitals in the survey. The addition of T2Bacteria has the potential to significantly drive adoption of the T2Dx platform. 94% surveyed said they would use T2Bacteria to test patients at the time of first blood draw for sepsis alert, suspected sepsis or bacteremia patients.

The clinical performance of the T2Bacteria Panel in the FDA clinical trial was rated highly. 90% believe the T2Bacteria Panel will reduce patient mortality and morbidity, enable 90% of patients to be on the right therapy within 6 hours, and enable therapy to be adjusted or deescalated rapidly.

Lower pricing will have little impact on T2Candida adoption or testing volumes. Lower pricing for T2Bacteria, as compared to T2Candida, in the range of $150 per test is important, however, because of the expected significantly higher testing volumes as compared to T2Candida.

This data supports our belief that once T2Bacteria is FDA cleared, we will see a significant uptick in the hospital adoption of the T2Dx platform, being driven by the unmet needs addressed by T2Bacteria.

At the same time, we believe that most hospitals that adopt will utilize both T2Bacteria and T2Candida, although the testing volumes for T2Bacteria are likely to be in the order of 10x greater than T2Candida or even more, because patients will be tested closer to the time they're suspected of a sepsis infection.

We believe that from the patient and healthcare perspective, the combination of T2Bacteria and T2Candida together offers the health system the potential to positively impact patients' lives by allowing a faster and a more targeted therapeutic approach to treating patients, while potentially savings institutions millions of dollars each year.

Now, I'll turn the call over to our Chief Scientific Officer, Tom Lowery, to discuss some of the recent data and customer success stories. Tom?

Thanks, John.

As we prepare for the launch of T2Bacteria, a key focus of ours remains utilizing the increasing number of customer success stories to broaden and enhance the awareness of the T2 sepsis solution.

Overall in 2017, hospitals presented 19 posters or presentations at leading industry conferences, highlighting the attributes, benefits and potential use of the T2Dx instrument and the T2Candida and T2Bacteria Panels.

Most recently, in November, we presented data on the T2 Sepsis Solution at the Association for Molecular Pathology Conference that was in Salt Lake City, Utah. The presentation by Dr. Ononye of Northwestern's Feinberg School of Medicine highlighted the potential clinical value that may be achieved during a T2Bacteria Panel by comparing diagnostic results to blood culture results.

The study of 61 patient samples demonstrated that T2Bacteria correctly detected and identified bacterial infections 72% of the time, which exceeded any individual method tested in the study, and compared favorably to blood culture, which identified only 40% of the cases.

Additionally, T2Bacteria was able to confirm 9 infections missed by blood culture. This reported performance of T2Bacteria detecting confirmed infections faster and more sensitively than other methods is consistent with other studies using T2Candida, underscoring the clinical value of the T2MR based approach for detection of bloodstream and invasive infections.

In February, a study called DIRECT2 was published in the Journal of Clinical Infectious Diseases. A study called STAMP was published in the Journal of Clinical Microbiology. In the DIRECT2 study, the T2Candida Panel detected almost twice as many confirmed infections with blood culture, in patients receiving antifungal therapy. Lead author, Dr. Cornelius J. Clancy, Associate Professor of Medicine in the University of Pittsburgh's Division of Infectious Diseases, concluded that T2Candida is an important advance in the diagnosis of candidemia and may usher in a new era in which rapid molecular testing for invasive candidiasis will serve as an adjunct to microbiologic cultures.

In the STAMP study, blood culture diagnostic results were compared to the T2Candida Panel for monitoring the clearance of an infection, where the patient is being treated with antifungal drugs. The study demonstrates that the T2Candida Panel can detect the ongoing presence of a candida infection, while blood culture often yields false negative test results because the administration of antifungals can impede the growth of cells the blood culture requires to detect an infection.

The authors of the study concluded that the T2Candida Panel can be an effective tool for reliably identifying patients that have cleared an infection, which can reduce the unnecessary and expensive use of antifungal therapy.

Lastly, we were pleased to announce earlier today that T2 has been awarded the CARB-X grant. CARB-X is jointly led by BARDA, the government agency of U.S. Health and Human Services; and the Wellcome Trust, a global charitable foundation based in the U.K.

The CARB-X mission is to drive antibacterial innovation and combat the growing threat of antimicrobial resistance. The award is for the development of new tests that expand the T2Dx instrument product line by detecting over 25 bacterial species and resistance targets, with a focus on blood-borne pathogens on the CDC antibiotic-resistant threat list.

The award, including options, totals $2 million. In the future, we look forward to telling you more about our plan and progress in the development of this expanded panel.

We are honored to be one of the first diagnostic companies funded through the CARB-X initiative. And we believe this is further validation of our T2MR technology, which is protected with over 60 issued patents, and more to come; and our company's ability to create products that impact patient care.

CARB-X was also excited about the potential of our technology to accelerate clinical trials and to help bring new antibiotics to the market, representing a significant synergy for all of their portfolio pharmaceutical development companies.

With that, I'll turn it back to you, John.

Before turning the call over to John Sprague for a complete overview of our quarterly financial performance, I'd also like to provide a brief update on our pipeline and development efforts. I am happy to report that we successfully concluded our preclinical study for our T2Lyme diagnostic panel, and are on track to commence the FDA clinical trial this spring.

We expect this clinical trial to roll into 2019, and are hopeful to have a submission for the FDA sometime next year.

The T2 Gram-negative Resistance Diagnostic Panel being developed through a partnership with Allergan also remains on track, and we plan to deliver initial product to Allergan by the end of this calendar year.

Our partnership with the Centers for Disease Control and Prevention regarding a new effort that will use the T2Dx instrument in an investigational-use-only T2Candida auris panel as a means of rapidly detecting the superbug Candida auris in hospitals around the country is progressing well.

Existing laboratory methods that detect Candida auris, including culture, suffer from prolonged detection times -- 17 days at the CDC -- and low accuracy, which exacerbates the challenge in the fight to contain the superbug.

The T2Candida auris diagnostic panel has an average time to results of approximately 4 hours. Instruments are installed at the CDC, and we believe the validation work taking place at the CDC is going well.

With that, let me turn the call over to John, who'll review our fourth quarter and full year 2017 results in greater detail. John?

Thank you, John. Fourth quarter 2017 financial results.

Revenues were $1.7 million, a 55% increase over last quarter's revenues of $1.1 million and an 87% increase over last year's fourth quarter revenues of $910,000 and 42% over the high range of guidance.

Product revenues, primarily T2Candida Panel and T2Dx Instrument sales, were $1.3 million, a 76% increase over last quarter's product revenues of $739,000 and a 125% increase over last year's fourth quarter product revenues of $579,000.

Research revenues were $325,000 compared to $369,000 last quarter and $331,000 in last year's fourth quarter.

Cost and expenses, excluding cost of product revenue, were at $9.8 million, a decree of 14% over last quarter's cost and expenses of $11.4 million and a 16% decrease over last year's fourth quarter cost and expenses of $11.7 million.

Costs and expenses were 14% less than the low range of guidance. We are reducing our research and development spending, as we are increasing our commercial sales activities.

Operating margins were a loss of $14.5 million, a 17% increase over last quarter's $12.4 million operating margin loss and a 12% increase over last year's fourth quarter operating margin loss of $12.9 million.

We adjusted the carrying value of T2-owned T2Dx Instruments and incurred a non-cash charge of $2.4 million.

Weighted average shares outstanding were 35.9 million this quarter compared to 31.4 million in the last quarter and 30.5 million in last year's fourth quarter.

Full year 2017 financial results.

Revenues were $4.7 million, a 15% increase over last year's revenues of $4.1 million.

Product revenues, primarily T2Candida Panel and T2Dx Instrument sales, were $3.4 million, a 100% increase over last year's product revenues of $1.7 million.

Research revenues were $1.2 million compared to $2.3 million last year, and [were less] due to the timing of milestone payments received from partners.

Cost and expenses, excluding cost and product revenue, were $46.8 million, a 3% decrease over last year's cost expenses of $48.1 million.

Operating margins were a loss of $54 million compared to last year's operating margin loss of $50.9 million.

Weighted average shares outstanding were 32.1 million this year compared to 26 million last year.

Our cash and equivalents were $41.8 million at the end of 2017. We believe we have sufficient cash and financing sources for the next 12 months of operations.

2018 outlook.

The following forward-looking statements reflect estimates based on information as of March 6, 2018, and are subject to uncertainty. Additional information is available under the heading Forward-Looking Statements.

As John mentioned earlier, we'll provide guidance for the year of 2018 upon FDA T2Bacteria approval.

For the first quarter of 2018, we expect total revenues to be $1.3 million to $1.6 million, and product revenue to be $900,000 to $1.1 million, and research revenues to be $400,000 to $500,000.

We expect to close at least 6 new contracts in the first quarter, which includes at least 6 new placements on T2Dx Instruments that provide access to a minimum of 35,000 high-risk patients.

We also expect first quarter 2018 operating expenses, including cost of product revenue, to be $10.7 million to $11.2 million, including noncash stock-based composition and depreciation expenses of $1.8 million.

Going forward, with the T2Bacteria clinical trial completed, and as we continue our focus on commercial revenue growth, we expect operating expenses in Q2 and for the remainder of the year to be in a range of $9 million to $10 million, a reduction of approximately 20%.

The reduction in expenses will not impact our investment in sales and support of revenue growth, and allows us to fully fund our product development pipeline, including the work associated with the CARB-X grant Tom mentioned earlier.

Our weighted average shares outstanding of 32.1 million may be impacted by stock option exercises.

Thank you, and back to John for closing remarks.

Thank you, John.

In summary, we're pleased with our operational progress over the course of 2017 and the progress in the fourth quarter. I'd like to thank everyone on T2 Biosystems team for their hard work and their focus on our mission of improving the lives of patients around the world. Together, we believe we achieved many significant milestones over the course of the last year.

We are squarely focused on driving the commercial adoption of our products and driving revenue growth through adoption of our platform and testing of 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 U.S. We believe the market clearance of T2Bacteria will accelerate the adoption of our instrument platform and drive a substantial increase in the number of tests being run at hospitals. We believe this in turn will drive instrument placements, which will lead to substantial revenue growth.

We're excited about the prospects of what we believe will be a very productive and exciting 2018. 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 is from Stephen Brozak with WBB.

Let me dive right in here, because one of the points on the CID study that was talked about was that you were comparing to standard of care. And in looking at the notes on the standard of care, companies like Thermo Fisher, Becton Dickinson were listed as, "standard of care." Can you just quickly describe what the difference is with standard of care and why T2 is unique in terms of differentiating itself or disrupting itself from the standard of care? And then I've got two more questions to follow please.

Steve, thanks very much for the question. I am going to let Dr. Tom Lowery take that one.

Yes, Steve. So it's a great question. The biggest difference here is that standard of care all relies on culture. And blood culture has a variety of issues that were evident in the CID study as well as in other studies. First is the low clinical sensitivity. Second is that if a patient is on therapy, even if the infection hasn't cleared, you can get false-negative results, and it also takes a long time to get a negative result to know if your patient is cleared. So all those really came to the forefront of the CID study showing how our test, because it's direct from blood, doesn't rely on culture, and it has higher clinical sensitivity, that these patients can be diagnosed much faster and more sensitively.

All right, and along with that appreciation, in remembering, I guess, there was the Cidara agreement that you had. You're now talking again about the Allergan collaboration. And now we've got CARB-X. Is this the kind of model we can start to think about in terms of going out there and adding to your bottom line, and also adding to the power of the business franchise in terms of these collaborations?

Yes, Steve. That's a good -- that's a great question. We are definitely seeing an uptick in interest from the therapeutic companies in using our products in clinical trials and clinical studies. And we do expect that, that level of interest will increase with T2Bacteria being added to the mix. There are more antibiotics in development than antifungals. And so the number of opportunities accelerates with the clearance of that product. So I think it will be an important part of our model. It certainly drives studies; it drives revenue; but also, it drives instruments being placed at hospitals that run those studies.

Okay. And my -- one last question and I'll hop back in the queue. You've got these 2 journals that come out. You've got a lot of other publications that are attesting to the strength. What are you now starting to hear from the infectious disease docs, from the general medical community? Because obviously, you've had a situation where you've got all this experience on the fungal side. They are obviously testing it for research purposes on the bacterial side. But what are the clinicians saying? And also, how does it compare with what the administrators in these hospital systems are saying now too?

Sure, I'll talk about the clinicians and what they're saying. And I'll let John talk about the administrators. So what we're hearing now with these, as each one of these studies come out, they're just building evidence of the clinical utility; and helps answers, answer really the questions that we had a year, 1.5 year ago of people asking, how do I use a test like T2Candida? How do I use test like T2Bacteria most effectively? So these studies are proving out the hypothesis that we had years ago on how a direct from blood test can really help in treating the patients. We're also hearing enthusiasm, as John mentioned on the call, about the breadth of menu of the T2Bacteria and how many patients that will help address and detect more rapidly to put them on appropriate therapy much earlier.

And from the administrator side, Steve. There are a couple of factors in play. One would be, that as Tom mentioned in these studies, while some of these studies are T2Candida specific, they -- the administrators, and for that matter, even some in the infectious disease, they are able to understand that T2Bacteria offers the same advantages. So these studies, even if they're T2Candida or they're T2Bacteria, there is a positive effect in terms of an understanding and appreciation of the other product; in that case, T2Bacteria.

The other thing we're seeing from administrators for sure -- and it's really demonstrated in the number of proposals that we saw go out the door in the fourth quarter -- is that the addition of T2Bacteria enables us to offer a much more complete sepsis solution for hospitals, enabling over 90% of patients to potentially be put on the right targeted therapy in as fast as 6 hours. And that broader appreciation of a more complete sepsis solution is definitely pushing along sales cycles and expanding the number of hospitals that are in the pipeline in total.

Our next question is from Patrick Donnelly from Goldman Sachs.

So in the past, you've talked about adding to the sales force in anticipation of the FDA approval for Bacteria. With this slight time line pushout, can you just give us an update on your commercial strategy? How you see the size of the sales force progressing? Where you guys are now?

Yes. We like the size of the sales force where it is. It won't grow too much. I mean, we're expecting a T2Bacteria clearance here relatively soon in Q2, the normal sense of Q2. So as we look between now and the end of the year, I wouldn't expect it to grow by much more than about another half a dozen people; and for perhaps more of that to be post FDA clearance than before.

Okay. And then just maybe on the pushout from 3Q into 4Q, can you just help us think about how -- what the magnitude there was? And also, when we're thinking about guidance with the step down in product revenues, is that largely just from the delayed 3Q revenue making 4Q optically look a little higher?

No, you're looking at roughly between $250,000, $300,000 of instrument sales that came in in Q3 and went out in Q4. And that is going to happen from time to time is that -- that -- those instrument sales, the orders will come in. But to book the revenue, you've got to have the instruments in. You've got to get the instruments shipped. And so sometimes we'll be faced, if you will, a backlog going from one quarter to the next.

John?

Yes, we will get some lift from the new revenue recognition rules which are in place for the first quarter already, in that we'll be able to recognize instrument sales on a shipment and only have to defer a small portion representing the actual installation itself as a separate deliverable.

Okay. That's helpful. Maybe just one last quick one. Just on the Cidara partnership. Maybe an update there, what the impact was in the quarter. And then just any updates on conversations around securing additional similar partnerships in the future would be helpful.

Yes. There really wasn't much of an uplift from Q1, not measurable or reportable in terms of the Cidara partnership in Q1 nor did we expect it -- rather in Q4 -- nor did we expect it. There is a very active pipeline, though, of opportunities with Cidara. In fact, we met with a team out of J.P. Morgan, and I think everybody is excited about the potential impact that it could have.

In terms of the pipeline, there is a really good pipeline of opportunities, new opportunities -- some on the Candida side, but more on the bacteria side. But likely, closing those partnerships will come post FDA clearance because obviously, they want to see their products in the markets before they're going to go to the FDA and ask the T2Bacteria to be a part of the study.

Our next question is from Mark Massaro from Canaccord Genuity.

I hopped on a little bit late here, but I just want to reiterate, John. The pushout on bacteria now for Q2 of '18. Based on your prepared remarks, it seems like the bulk of the pushout is a result of taking one of the targets out of the panel. Can you just confirm that and then speak to whether or not there are any other aspects -- material aspects of the FDA is pushing back as they contemplate approval of the bacteria panel?

Yes. Honestly, Mark, I would not say that being in this more 6- to 9-month time line is because of one species being off the panel. I would just say that the back-and-forth with the FDA is more delayed than what we experienced the last time. There were some cases they were asking for some more data that sometimes it takes us a week or two to get back to them with. There hasn't been anything unreasonably requested or anything we're not able to respond to. And we think we're pretty close to the end of that process, although we can't totally predict that. But we do appear to be pretty close to the end of that process.

And I think it's just more questions and a little bit more delay between when we get back to a response and when we get a response back from the FDA. And it's more traditional; while the last time, it was really rapid. We would answer a question on a Thursday at 5:00, and we'd have a response on a Friday at 5:00. And it hasn't been that way this time. And it's probably unreasonable to think that anyone would move that fast. But they did move that fast last time.

Great. And I know there's certainly a lot of clinical value -- maybe this is a question for Tom -- a lot of clinical value in ultra-rapid ID of Candida and Bacteria. But for those on the line that maybe question the clinical utility of rapid ID without AST, can you just speak to what you're hearing hospitals who are expecting to adopt Bacteria? Just the clinical value of identification alone? And maybe related to that, can you speak to whether or not developing AST capabilities is perhaps something that might be available out of T2 in the next couple of years or so?

You bet. Happy to. I think the best example and evidence for the benefit of the test without AST -- and I'll come back to your question about what we can do in the area of resistance. The best example is the trial data, that we've had about 1,500 patients in our trial, and we've gone back and analyzed those patients to evaluate how many patients were on antimicrobials at the time of the blood draw on the trial. And the blood draw on the trial was when a T2 blood draw was taken and a blood culture blood draw was taken. And over 60%, 65% of patients were actually on antibiotics at the time of that blood draw.

Now what's really mind blowing is that the patients who were confirmed true infections in the trial, 2/3 of those patients were not on effective antibiotics. So despite over 800 patients being on antibiotics in this trial, the patients who were actually truly infected, they weren't on appropriate -- 2/3 of them weren't on appropriate antibiotics. That represents, despite a huge use of empiric antimicrobials and [ami-pros] trying to get patient on the right therapy -- that represents the real value of being able to have a rapid ID. Because those patients can get on effective therapy right as soon as they get the T2 result, which has already been shown in studies to be delivered 40 times faster than blood culture.

So I think that's the real significant value. Because the Antimicrobials Stewardship Committee, they already know what therapy they are going to use when they have a species ID. We are just accelerating that time frame dramatically, and helping really improve the quality of care much earlier in the time period of care when typically patients are only on empiric therapy.

Right, so just to add on to what Tom was saying and to summarize that. So there were over 800 patients on antibiotics, for the targets on the T2Bacteria Panel -- over 800 patients. And yet, there were 102 confirmed infections. That means 700 patients didn't need those drugs. What that really means is that the treatment of patients, Mark, is not driven by AST. The treatment of patients today is driven by empiric therapy. It's not -- it's not driven by blood culture; it takes too long. These decisions are being made without any AST results, without any blood culture results even for ID, because it takes too long. So the real cause of resistance is the fact that 800 patients are on antibiotics and only 100 need it.

But the -- as much as the empiric therapy is the best everyone has had before T2, it's not very good either. Because even though there were 800 on antibiotics for the targets on our panel, it covered like 33 out of the 100 infections that really existed. So even the guessing game is not that good. So 60% that were on the drug only covered 1/3 of the infections. So the value of T2 would be to reduce the use of these antibiotics for sure. But more importantly, it's the 67 -- 65 to 70 patients who were not on targeted therapies, would have been without any AST results based on the T2 results.

Now in total of these 102 infections, statistically, maybe 10 of them you would have changed the results based on an AST result, maybe 10. And in the case of T2, we would've changed the result for 65 to 70. So the value of ID continues to be proven to be more than 5x greater than the value of AST. Of course, all of it together would be the best solution of all. And we're working on that too.

And that is the second part of your question, so the part of CARB-X grant is to have over a dozen targets that will be resistance targets. So your classic carbapenem resistance genes, your other resistance genes -- that will be a direct from blood identification, of knowing that the patient is infected with a pathogen that has a resistance capability, so like [MK-A] and so forth. And so that will definitely then round out the capability of being able to know very early, right off the top, that your patient has not only an infection with a given species but also that, that species is resistant.

Excellent. That's all very, very helpful. And I guess my final question, you might have said this already, but of the 7 new hospital contracts in Q4, how many were U.S. versus Europe? And then maybe related to that, post FDA approval of Bacteria, is it fair to think that we should expect a significantly larger degree of placements coming from the U.S. than in Europe?

Yes, so it is 4 U.S., 3 Europe, of the 7. And yes, we do believe that we will see more placements in the U.S. going forward than in Europe. Although I will say we have a pretty exciting pipeline in Europe as well -- and when we cited even proposal numbers, those were all U.S.-only numbers, not international. So it will be an interesting horse race. I will say that our Head of International wants to beat the U.S. and I love the spirit of the competition.

And if I can ask a follow up to that. Do you expect U.S. utilization per box to trend above EU utilization per box?

No we don't. But the revenue will, Mark, because obviously, there is a distributor involved and usually there is like a 30% discount. So if you look at revenue utilization, yes. If you look at it in terms of per test utilization, we would expect them to be comparable.

Our next question is from Puneet Souda from Leerink Partners.

So the first one is related to the pushout of the approval. Has FDA provided you any sense here that the rest of the targets beyond AB are safe? And could there be any questions on those targets as well?

We don't have any reason to believe that there would be any questions on other targets. They never tell you -- if they told them they were approved, then we'll be able to say they were approved. So you never get quite that kind of a straight answer, but we're pretty confident -- as confident as we can be -- that there won't be any other changes. We think we've had that discussion already.

Okay, that's helpful. And so -- and could you provide a time line of the $2 million distribution with the CARB-X grant? What's your sense there? How that could flow through into revenue through the year? And what's your thinking on the time line on that?

It's likely going to be about 1 year for $1 million, and -- for the first million and then another year for the second million. If you took the $2 million and just spread it out equally, that would be pretty close. It's based on hours worked, so it might be slightly different than that. But that would be a good, safe place to build a model.

Okay, and then the last one on the sales process. Has anything changed in terms of the sales process itself with the 6 new T2Bacteria accounts that you mentioned or in the ER setting? Is the sales cycle shortening here? What is your sense? Do you have any other strategy in mind in terms of the sales approach differently than the T2 Candida approach that you had taken in the past?

Yes, absolutely, and thanks for asking that question because we probably haven't emphasized it enough. There has been a lot to talk about. Yes, boy, the pipelines really seem to be accelerating to me. They really appear to be being driven by T2Bacteria. I also -- we are -- have changed some of the approaches to market. We're talking about the T2Bacteria RUO products. We're talking about T2Bacteria in the emergency department. We are getting a super-strong reception to rapid adoption in the emergency department and the value proposition there.

And again, we had 24 proposals go out in Q4. We have been averaging for the last 2 years, 7 to 8 proposals a quarter. And that's just a tremendous leap. Part of it is definitely we have a terrific sales force that's been further trained and developed and enhanced under the leadership of Steve Hagan over the last 12 months. But the T2Bacteria is really making a big difference in terms of interest in the platform. And we really think we are going this see a big accelerator here, post FDA clearance.

Our next question from Paul Knight from Janney Montgomery Scott.

Hi, this is Carolina Ibanez-Ventoso. Thanks for taking the questions. One clarification on the grant award you got from CARB-X. Can it be used towards the panel you are developing with Allergan or is it an independent project? Because both programs seem to be focused on the same identification of Gram-negative bacterial species and resistant markers.

Yes, that is a great question, Carolina. There is some overlap, right? The CARB-X panel is significantly bigger. It's a 20-plus member panel that's being developed to run on the T2MR platform, and the Allergan is a smaller panel than that.

Tom?

Yes, the Allergan work is just a small subset, it covers [more or less] genes, and there's much broader as it sits under the umbrella of CARB-X.

Okay, and then my second question on the development of the T2Lyme Panel. You reiterated the start of the clinical trial this spring. Does this mean that you already met with the FDA and the protocol for the study is already designed? And if this is the case, when could you -- are you planning to reveal more details on the clinical trial design?

Yes, so we have -- have had several discussions, multiple discussions with the FDA and communications about the trial design and got a lot of great input there. We do have protocol for the trial that we are starting. We are currently -- we'd have to get back to you on when we are going to reveal sort of the design of the trial itself. It's pretty intricate design in order to get good reference methods for Lyme disease than you can probably imagine. So it's [on, yes].

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

My first question is just to clarify, have you already submitted all the additional documents, data required by the FDA for T2Bacteria Panel?

Yes, we had a complete submission to the FDA. They continue to ask questions; so if the questions come in, there is more data being submitted to them. So I can't say they have everything at the moment, but we think we are going pretty close to them having everything that they are requesting.

At this point can you provide additional color whether it could be kind of early second quarter or late second quarter approval?

I'm going to refrain from that one. We are certainly hopeful for earlier rather than later, but we don't control the FDA. And I think we're on a 6- to 9-month time line, and we'll just stick with that. We feel really good about Q2.

Okay. And so far, do you have a target for install base of the instruments by the end of 2018 or do you -- will you have that after the approval of the T2Bacteria panel?

Yes, we will differently have that as a part of our 2018 guidance, which we will deliver once we have T2Bacteria FDA clearance. We just want to know that day, because obviously the timing of clearance we think will impact the adoption rate.

Our next question is from Matthew Cross from Jones Trading.

You've mentioned that a couple of locations had already opted in to receive a T2Bacteria setup following clearance by the FDA. And I was wondering if this was something that was offered broadly to your current T2Candida customers or if this was done kind of more on a case-by-case basis; and then also if the number of these adoptions was in line with your own expectations prior to clearance.

Yes, great question. So it hasn't been offered broadly, but it is in the process of being offered broadly. So we didn't do a mass mailing. We are doing it through our sales force and we started that process late in the quarter. No, we are excited. That was quicker than we would have expected. We weren't sure -- in a lot of these institutions, they want to see FDA clearance before they are going to add a product to a contract. And we think we'll see some more of these this quarter -- in Q1 that is -- and up to and prior to the FDA clearance. So we feel very good that it is off to a stronger start than we would have expected.

Okay, great, yes, that's good to hear and looking forward to seeing how that progresses. And then I was also curious if you could update us on what next steps might look like for the Gram-negative panel with Allergan? I think you mentioned delivering product to them, but what does T2's involvement look like next for that program? Or what's the next, I guess, key event that we should be paying attention to?

Yes, so the next key event to pay attention to would be delivering the product to Allergan. That we think will be before the end of the year. And then the step after that would be: what are our plans to take that panel through an FDA pivotal study? And we haven't laid out that plan yet. It's a little bit too early to do that. But that will be the key event following the delivery of the product to Allergan.

This concludes today's question-and-answer session as well as the teleconference. Thank you for your participation. You may disconnect your lines at this time.