T2 Biosystems Inc (TTOO) 2015 Q2 法說會逐字稿

Greetings, and welcome to the T2 Biosystems 2015 second quarter financial results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host Matt Clawson of Pure Communications. Thank you. You may begin.

Thank you, operator. Good afternoon, everyone. Thanks for joining us for the T2 Biosystems second quarter call. On the call this afternoon to discuss results and operational milestones for the second quarter ended June 30, 2015, are President and CEO, John McDonough, Chief Financial Officer, Marc Jones, and Dr. Tom Lowery, our Chief Science Officer. John and Marc will lead off the call with some prepared remarks followed by a question-and-answer period.

I'd like to remind everyone that comments made by Management in responses 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' filings with the SEC, the Risk Factors section in its registration statement on Form S-1, as well as other risks and uncertainties detailed in subsequent SEC filings. 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 CEO, John McDonough, for his opening comments. Good afternoon, John.

Thank you, Matt, and good afternoon, everyone. Thank you for taking the time to join us on our call today. We had another very successful quarter and I'm happy to report that all aspects of our business made substantial progress since our last call.

Before we get into the details, I'd like to take a moment to briefly comment on the second piece of news this afternoon which is the transition of the CFO role from Marc Jones to Mo Castonguay. We are fortunate to be As the press release indicated, Mo will become the CFO at T2 Biosystems later this week. able to look back and forward with equal enthusiasm surrounding the finance operations, the CFO role, and the overall financial stewardship of the Company.

Marc has been a great partner to me for years and was the absolute perfect executive for the Company as we grew. He helped the Company prepare for and complete the IPO process. He built the finance team and implemented the necessary systems, infrastructure, policies and procedures required of a public company. However, Marc intends to stay focused on companies that have similar needs at the earlier stages than those we are looking forward to now.

The good news is that we were able to attract an exceptional executive to take on the CFO role, and to bring his own stamp to T2 Biosystems by creating very real value towards our mission. Mo has both an outstanding record of experience as a public company CFO in rapidly-growing companies, and a sterling reputation among investors, analysts and business colleagues alike. I am certain that you will enjoy working with Mo and I know he looks forward to meeting you all in the coming weeks and months.

Marc will do the call with us today giving us a proper send-off as CFO. I know I speak for everyone at T2 Biosystems when I say we are very excited to have Mo aboard, but we also hate to see Marc go. He has served the Company very well and we wish him all the best.

Okay, so back to the second quarter results. Marc will give you the details but we are pleased to report that in the second quarter our financial metrics remained on track in terms of revenues, operating expenses and earnings per share. We are also particularly pleased with the progress we continue to make engaging with the hospitals on our target list, presenting our technology and its value proposition, and finding them the contracts.

As we noted in our press release today, at the close of the quarter on June 30, we have signed contracts for T2Candida implementations, and T2Dx instrument placements with ten customers which includes nine hospitals in the United States and one lab in Europe. Eight of these customers closed during the two months following our Q1 call. Four of those placements are with a single hospital system that will be placing T2Dx instruments in each of the hospitals in their network for testing patients at high risk of sepsis. All ten of these customers have the opportunity to test a high volume of high-risk patients, and all of the account closes are at price points that are consistent with the range we have stated. We expect that five or more of our initial ten customers will complete both the installations and their verification process which we expect to typically take three to six months during the third quarter. As that process is completed, orders for T2Candida and revenue will commence. We expect a six to twelve-month ramp in the volume of testing patients within each hospital since they are likely to roll out implementation by patient type and physicians within their institution will need to be trained on when and how to order the test.

At the beginning of the year we stated that we targeted closing contracts with 30 hospitals by the end of the year. We also stated that we anticipated that two-thirds or more of those would close in the second half of the year due to expected six to twelve-month average sales cycles, and that our sales force will be growing through the year. With one third of the target number closed by June 30, we feel very good about our progress towards our annual goal. The average sales cycle for the closed accounts range from three to ten months which is slightly better than expected, especially at this early stage of our commercial launch. Based on all the data we have with our customer prospect pipeline at this point, we remain confident of our target to close 30 customers this year. At this point due to customer confidentiality agreements, we cannot provide details or names for the hospitals, but I can tell you that they include very large metropolitan hospitals and leading academic centers including some that are at the very top of our targeted 450 hospital list. We will hopefully get clearance to name some of these accounts soon and will share that with you when we can.

There is no doubt that the T2Candida economic study conducted by IMS Health, an independent healthcare economics firm and published during the second quarter in Future Microbiology has proven to be a very effective tool for our sales force. It's worth repeating that IMS charted the financial impact of our T2Candida panels over a one-year period at a typical 500-bed hospital which is the average size of the hospitals on our prospect target list. The study estimated that adoption of T2Candida for testing 5,100 high-risk patients could save a hospital approximately $5.8 million annually and prevent 60% of the candida-related deaths each year. The economic study includes data that supports that the cost of patients who do not survive in a hospital is 2.7 times greater than the cost of survivors. As a point of reference, the typical hospital on our initial target market of 450 hospitals have the ability to test over 5,000 high-risk patients at least one time per year and look very similar to the hospital profile in this study. This publication is assisting in advancing the sales pipeline and is supporting our product pricing due to the fact that the reimbursement method for high-risk patients provides for all cost savings from the use of T2Candida that drop to the bottom line of the hospital.

A number of investors have asked us about the hospitals where we conducted clinical trials, so I'll note that we have now closed contracts with two hospitals which are part of our FDA clinical trial with the remaining being actively engaged in the sales process as well. We are pleased with the continued enthusiasm of the clinicians at each of these clinical sites, but as expected and discussed previously, the sales process at the large academic centers can take longer due to their internal processes.

We have now engaged in discussions with about 40% of the top 450 high volume hospitals in the United States. We continue to see that the value of our technology and our T2Candida products specifically are attracting the attention of our targeted hospital account, and we are consistently learning about situations the clinicians are encountering where our product might have had a profound impact on their patients. As we have discussed in the past, it's also worth noting that even with our very clinical and economic value proposition, getting a contract reviewed and approved by a hospital is a challenging process given today's healthcare environment. We typically get enthusiastic clinical support followed by lab support, but the review at the administration level can be a lengthy process. Again, that timeline is what we expected and is required to convince hospitals of our economic value proposition. As we build our customer base in more publications and testimonials (inaudible) on the positive economic and healthcare impact of our product, we remain confident that the sales cycle will shorten and become more consistent. This is a metric we are keeping a close watch on.

In terms of sales reps in the United States, we added four people in July, bringing us up to 13 active reps. We remain on track to achieve our targeted sales force of 15 by the end of the year.

On the strategic front, our planned multi-year partnership with Canon US Life Sciences which we announced in February of this year is progressing on schedule. To recap, we are jointly developing a diagnostic test panel that can rapidly detect Lyme Disease, a bacterial infection caused by three different bacterial species and spread by ticks. By applying T2MR very similarly to what we are doing with sepsis, we believe we can have a significant impact on patient care while saving our customers and the healthcare systems substantial time and money. The current testing standards have very low sensitivity with data that suggests that 90% of patients never get diagnosed, with more than 360,000 people affected by Lyme disease each year in United States according to the CDC, and 3.4 million tests are performed annually.

Finally, our developments on T2Bacteria and T2HemoStat are on track. We are very excited about the market opportunity for T2Bacteria which will identify the most significant bacterial species related to sepsis. The market opportunity for T2Bacteria will include most of the high-risk patient population (inaudible) with T2Candida, but will also include many patients presented with signs and symptoms in the emergency room. Remember, like T2Candida, T2Bacteria will be the first and only diagnostic panel that can provide species-specific diagnostic results in three to five hours directly from a blood sample. All other diagnostics for species identification require a blood culture which is time consuming, labor intensive and misses 30% to 70% of infections because the cells may not grow adequately to be detected by blood culture. We are lining up clinical (inaudible) for our FDA pivotal trial now and expect to commence the clinical trial in about six months.

I'd like to say a few words about our Hemostasis products that are in development where we expect to launch our first FDA pivotal trial in the first half of 2016. Hemostasis diagnostics is an area where we are getting more and more excited about as we demonstrate the capabilities of our platform and how it can address a growing clinical need and possibly provide clinical data in drug development. In general clinical questions that our platform answers relates to assessing the risk of a patient bleeding uncontrollably due to clotting too much or too little, and thrombosis which is the formation or presence of a blood clot in a blood vessel such as a vein or artery.

In addition, our results can aid in the development of new therapies while directing the use of current ones. Unlike other Hemostasis diagnostic platforms, T2MR is capable of detecting all of the key Hemostasis parameters needed to make this call including measuring platelet activity, fibrinogen, clotting time, fibrinolysis, and other key parameters from a single small blood sample in about 30 minutes. The initial target market is screened at ten million trauma patients that present annually in the United States with signs and symptoms of this disorder. Today, the diagnostics needed to assess these patients are typically run on separate instrument platforms and can take hours or even be sent out tests, therefore, clinicians are typically making treatment decisions based only on what they see and their intuition rather than using data that fully characterizes a patients risk of bleeding. In other words, they're in a very similar position to the infectious disease doctor who today is waiting for blood culture results and has to make an immediate educated guess on how to treat sepsis patients.

Published data supports that mortality rates related to hemostasis disorders could be reduced by 50%, transfusions could be reduced by 50%, and significant costs could be saved if accurate and rapid diagnostics were available. We believe the initial market opportunity for screening trauma patients alone is about $500 [million] in the United States, and we may be the only platform that can truly address the needs of screening these patients just as we are in the field of sepsis diagnostic. We are on track to enter our FDA clinical trials in the first half of next year, and once FDA-cleared we'll be targeting many of the same hospitals that we are targeting with T2Candida and will be targeting with T2Bacteria.

In all, we believe we have an unmatched platform that is highly protected. We plan to launch many applications based on T2MR and these first products are just the beginning. We estimate the total addressable market including T2Candida, T2Bacteria, T2HemoStat and T2Lyme is more than $3.7 billion annually. With that, I'll turn the call over to Marc for the financial details. Marc?

Thanks, John. As John indicated, we made solid progress in the second quarter. While we did not record product revenue as initial T2Candida customers were in the installation and verification period, we did record $564,000 of research revenue. Through the second quarter of 2015, revenues were primarily generated from research and development agreements, including our agreement with Canon. The Company did not record any revenue in the prior year second quarter.

Total operating expenses for the 2015 second quarter were $11.1 million compared to $7.1 million for the year earlier period. The increase in operating expenses was mainly associated with research and development activities for additional applications of T2MR, expansion of marketing programs, build-out of the US commercial infrastructure, and increases in share-based compensation charges and incremental expenses related to being a public company.

The net loss for 2015 second quarter was $11 million or $0.54 cent loss per share compared to $9.2 million after adjustments for accretion of redeemable convertible preferred stock, or a $6.35 loss per share for the 2014 second quarter. The increased loss is principally due to the increased operating expenses which I just covered.

The loss per share calculation reported for this year's second quarter was impacted by the overall increase in common shares outstanding resulting from our August 7, 2014 initial public offering. Specifically for the second quarter of 2015, we had 20.3 million weighted average shares outstanding compared to 1.5 million weighted average shares outstanding in the second quarter of 2014.

The Company's balance sheet as of June 30, 2015 had total cash and cash equivalents of $53.3 million which includes the impact of $20 million in proceeds from two draws on the July 11, 2014 debt facility. In addition to the cash on the balance sheet, we were able to draw an additional $10 million from our debt facilities through December 31, 2015.

Before I turn the call back to John for his final comments, I'd like to reiterate the outlook John laid out in our Q1 2015 call. We anticipate the ramp of our product placements in hospitals will be weighted to the second half of the year as our sales force ramps and our pipeline expands. Also supported by experience with the ten hospitals we have closed, we continue to expect 80% of our target hospitals to choose a [regent] rental model where we will place a T2Dx instrument at the hospital in exchange for an upcharge or consumable, with the remaining 20% opting to purchase the instrument.

When we close a contract with the hospital, we anticipate that it will take three to six months to install and verify the performance of the T2Dx instrument. This is completely consistent with the timeframes realized by other diagnostic platforms when they are initially installed.

We continue to anticipate that it could take an additional six to twelve months for a customer to ramp the testing of their high-risk patients as they most likely will start after the completion of verification by testing a segment of the high-risk patient population, and then grow the patient base systematically. We estimate the average annual revenue per hospital could be as much as $1 million among the top 450 accounts if they were to test all of their high-risk patients.

We anticipate total Q3 2015 operating expenses to grow approximately 10% over Q2 which includes approximately $1.7 million in noncash expenses which are primarily depreciation and stock compensation expenses. We expect only marginal growth in expenses from Q3 to Q4 of 2015.

Finally, I'd like to thank all of the folks on the call with whom I have met and spoken to over the past few years. It has been my honor and distinct privilege to serve as T2 Biosystems' CFO, and to build a financial organization that you can all be proud of and rely on. I wish only the best of luck to John, Mo and the entire team going forward. With that, I'll turn it back over to John.

Thanks, Marc. To summarize, the key take-aways from the quarter -- we hit our commercial and financial targets as the selling process remains absolutely on track, and we also are making important progress on other aspects of our business. As of June 30, we have signed contracts for T2Candida implementation and T2Dx instrument placements with ten customers, and we believe we are on our way toward achieving our goal of 30 by year-end. We're doing a bit better than our expected six to twelve-month sales cycle, and we remain confident that our sales cycle timeframe will continue to shorten as our customer base grows.

The economic model of T2Candida as developed by IMS, an independent healthcare economics firm that's proven to be a wonderful way for our sales force, and we look forward to producing additional data and value demonstrations both via studies and soon in real world analysis of dollars and lives saved at early-adopting facilities.

The enthusiasm coming from the accounts in our sales pipeline and our growing base of adopting facilities could not be more encouraging. It is rare to offer a new diagnostic technology that is more accurate than the current standard of care while being 30 times faster. It is also rare in this environment to find a new technology that doesn?t pose a trade-off between patient care and cost. So being able to benefit by both is a very exciting proposition for these leading facilities.

Finally, please remember the T2 Biosystems' story is all about our T2MR technology. We have applied the T2MR technology to sepsis diagnostics. First, with T2Candida and soon with T2Bacteria. We are very excited about our future applications in the field of Hemostasis which we believe can be game-changing and believe we have an opportunity to make a significant impact on patient care with our Lyme Disease diagnostic panel. In all cases, we are applying T2MR to unmet needs and medical diagnostics where our customer results may change clinical decisions in ways that can save patients' lives while taking significant costs out of the healthcare system. We will continue to expand our T2MR pipeline in this manner, both directly and through select strategic partnerships. Now I'd like to turn the call back to the operator for questions. Operator?

(Operator Instructions). Isaac Ro of Goldman Sachs.

Good afternoon, guys. Thank you. One to start with, the comments you made in terms of converting some accounts here this quarter and some of the outlook for not just the six months between now and year-end, but also into 2016. In general, I noted you mentioned that you've touched about 40% of the top hospitals you're going after. Is that number kind of governed by the size and reach of your sales force, or is there a reason why you haven?t reached out to a broader audience of the top hospitals?

Yes. Hi Isaac. This is John. Yes, the 40% is completely limited by the size of the sales force. As you know, we started the year with -- we started with FDA clearance with two reps. We added a group in March. We were at nine for most of the second quarter, and we're really pleased -- you know, we need 15 reps to really cover the top 450, and then you need time for those reps to be able to get in touch with those accounts. So very pleased with the 40%. Obviously, very pleased with where we're at in closing accounts.

I got it, I got it. And then maybe to follow up on the comment that you made about the potential opportunity in those hospitals, I think you mentioned something like $1 million if they were used sort of to full capacity, if you will. Can you give us a sense of framing how much that kind of a spend would be relative to what total spend in diagnostics is in those types of institutions? It just seems to me like $1 million would be a large number, even for something like sepsis. I'm just curious if you have a sense of how much, as a percentage of total diagnostics that might account for.

Yes, I mean, it's not an insignificant number. When you go into some of the bigger hospitals, you might be in the order of 1%, but I think your question, in thinking about it from a lab perspective and not thinking about it from a hospital perspective, and I think it's a misunderstood topic. The question is are hospitals willing to spend $1 million to save $3 million, $4 million, $5 million, $6 million. And the answer to that, the proof is in the pudding. Yes. Of course they will. And I can't think of another diagnostic that provides that kind of return on investment. And what drives all of that, remember, is that these patients are covered under VRG code. I think that's not understood either. Most diagnostics are (inaudible) by CPT code and therefore it's just all about the lab P&L; it's not about the hospital P&L. In fact, that would be true for all the post-blood culture speciation products. All of that's an entire product category (inaudible) in market size by the number of positive blood cultures which is about a tenth of the size of all market opportunity. But additionally, they have to tap into existing lab budgets. In our case, we're tapping into a hospital budget. But it's like the sales cycle. They're going to average six to twelve months. We're doing a little better than that but I think we'll still average six to twelve months. But by these patients being under VRG codes, all of the profit goes to the bottom line of the hospital. So the key question is can you convince hospitals they're going to save that kind of money, the only returns (inaudible).

Got it. That's very helpful context. Appreciate all that. Thanks, guys.

Paul Knight with Janney Montgomery Scott.

Hey John. The ten placements you mentioned, is the one counted as four? Is the four counted as one? That's my first question.

Yes. It's counted as four. It's four separate hospitals. But in fact they're all in (inaudible).

And then on the -- what was your timeline on the bacteria roll out? When do you want to see the clinical trials -- a large trial on bacteria?

Yes. We expect that clinical trial, Paul, to look a lot like the T2Candida trial. Some of the work we need to do based on our discussions with the FDA though, the really good news is a lot of the studies that we need to outside of the trial are significantly less than what we needed to do with T2Candida. In part, that's because with T2Candida, we were also getting clearance for the instrument. That's now cleared so we don't have to do that again.

So our expectation for the trial is that we start that trial in roughly six months, that if it follows the same course as T2Candida, that trial lasted roughly eight months, was 30 days to put it all together, and then it took just under four months to get FDA clearance. So the entire timeline from starting trial to clearance was about 13 months. I think that's the right expectation to have here. Now there's some opportunities to maybe speed that up. Maybe we can run the trial a little bit quicker because we've done it before. Maybe the FDA moves a little bit quicker, but on the other hand, Paul, they moved really quick the last time so I don't think it's the right expectation to expect it to be faster.

And then Lyme would be after Bacteria, correct?

Hemostasis likely would be after Bacteria. Interestingly, those trials might be starting within three or four months of each other. I don't think we yet completely understand what the nature of the Hemostasis trial would be so the potential for that trial (inaudible) quicker, but I think if that's true the opposite might be that the FDA teams will move a little slower on clearing Hemostasis-related product so I might expect that one to sit in front of the FDA a little bit longer, maybe in a more traditional timeline than what we are seeing with our sepsis products.

Okay. And then lastly, your number of sales, the key bullet, the end of Q1 was what again?

We had nine at the end of Q1, we had nine at the end of Q2, but 13 at the end of July.

Okay. Got it. Thank you.

Kevin Penn with Leerink Partners

Hi. I'm filling in for Dan Leonard today. Could you just provide a bit more color on when you think the customer placements will convert into product revenue?

Yes. So we expect from the signing of the contract to the time that, if you will, an instrument goes live meaning they're testing patients, we expect that to be a three to six-month period. There's a very brief, I'll call it a one to two-week installation period, and then it's followed by a verification where customers typically call it validation period which is something they need to do for any new diagnostic instrument. They bring in the lab. And it's that validation period that can push things out into as long as six months. Now early returns are appearing positive but we don't have enough data yet on that. We're hopeful we can keep hopefully a little bit closer to the three-month than the six-month, the earliest returns are looking good. Hopefully on the next call we can have a number of accounts that have gone live and talk about those periods are looking like.

Thanks, that's helpful. And on (inaudible) placement, could you give us more detail based on the intended testing population?

Yes. The intended testing population -- and it's a great question, Kevin, because I think that sometimes that's misunderstood as well. So broadly speaking, within some of these hospitals, if you're to look at the typical hospital, 450 hospital target list, they're running about -- blood cultures on about roughly 25,000 patients a year. And out of those 25,000 patients, they're running cultures on about 5,000 what we call high-risk patients which is our target market. You know, roughly 20% (inaudible), and the number of cultures that are being run in an institution. But the high-risk patients are defined typically as patients who are in the intensive care unit who present with a fever, transplant patients who present with fevers, cancer patients, basically the immuno-compromised population. They're all inpatient and there's about 5,000 out of that 25,000 of them who get tested potentially with T2Candida.

Alright. And it sounds like you guys have identified ways to speed up the sales cycle. Could you give more detail on how you've done that?

Well, to give credit where credit's due, we hire out some sales people, that's for sure. We built a great team. We've got great leadership under Glen Magnusson. We're focusing really heavily on clinical data and presenting the clinical data in terms of sensitivity, specificity, economic data. We have a very now simplified economic model where we can go into every hospital and very quickly input their real statistics to show what the economic savings would be, all based on the data that came out of the IMS study. And I think there's two big things that I think probably helped us a lot in Q2 in speeding up sales cycles. One definitely was the IMS publication and having a more simplified model for putting economics together. But the second one was more and more data in understanding among hospitals and the people we're selling to that our advantage, if you will, versus blood culture, although I hate saying because we're not selling anyone (inaudible) in blood culture. We're not competing with blood culture, but we are probably complimentary with blood culture in terms of giving a rapid diagnostic for candida.

But that our advantage is not just three to five hours versus two to six or more days which I think those people, they get that. But perhaps the biggest advantage of all is we're picking up more infections that blood cultures. The sensitivity of blood culture as it relates to candida specifically ranges in studies from 30% to 50%, and it's only a little bit better for bacteria, although it is a little bit better for bacteria. You see numbers like 50% to 60%. And those (inaudible) studies as we saw in our FDA clinical trial, when you look at real infection, our sensitivity is consistently in the order of 90%. And so we're not impeded by this problem of cells not growing which sometimes just happens and sometimes happens because patients are on drugs. And that is a huge, huge, huge advantage.

Among high-risk patients, the institutions on average run four blood cultures. And they run four blood cultures because they know the sensitivity is just not good, and the FDA moves quick in clearing out products because they know this is a prime problem with the sensitivity problem, and they saw the data from our clinical studies. So it's a real big deal to have the sensitivity advantage. I think that's becoming more understood, certainly among the accounts that have closed. And when you ask the question what happens to a patient who doesn?t get the (inaudible) and doesn?t get treated, the answer you'll hear from the clinicians is they die. If you don't treat a patient with sepsis, you're not going to battle this one on your own. You need help. And going back to the IMS study which was a really important data point, the IMS study cites the fact that the cost of patients who die is 2.75 times greater than the cost of patients who survive. And the reason for that is that unfortunately when a sepsis patient dies, it's typically not quick. It's slow, they spend more days in the ICU and they're really expensive days.

That's really helpful. Thanks very much.

(Operator Instructions). Steve Beuchaw with Morgan Stanley.

You had mentioned a sales force of 15 to kind of cover the top 450 accounts. Is that how we should be thinking about the sales force going forward, maybe beyond 15?

Yes, we haven?t talked about what our plans are (inaudible) for '16 at this point, so maybe to a large extent, how we plan for 2016 will be driven by what we're learning here in 2015. So our objective right now is to get to 15 by the end of the year. We certainly anticipate not having any less than 15 as we enter next year, but we will consider all options in terms of appropriate sales force size should be next year as we put our plans together and we'll communicate that as that comes together.

Great. And then just one more. How does thinking about kind of these earlier ten adopters, were there any themes or characteristics that were emerging, and kind of maybe that four hospital system that really motivated them to put a machine in each hospital?

I think that the major theme is they tend to be institutions, especially the ones where the sales cycles are quicker where there are -- really kind of associations between the clinicians and the lab itself. And they really understand the unmet need. They typically -- the ones that have moved quicker, understand the cost of treating these patients.

In some cases you can go in there, they know exactly what the economic benefit will be once you say what it is we do. And they just seem to be a little bit further ahead of the curve (inaudible) you see a typical adoption curve of a new product entering the market, not everyone can get it real quick and it's going to be so important to keep getting publications in the market and getting customers talking about the impact we're having on patients that (inaudible).

Great. Thanks so much.

Karen Koski with BTIG.

Thanks, you guys. Can you hear me okay?

Absolutely.

Excellent. Congrats on the progress this quarter. I know commercialization is still early, but can you kind of speak anecdotally as to what you've learned so far and what's surprised you? And given the step up from kind of one US contract to eight in the second quarter, it's pretty meaningful. Have you changed the terms of the contract that you're offering at all?

No. We haven?t. (Inaudible) implementation in terms of how we've been rolling out are consistent with the business plan we've put together as we've (inaudible) public. So (inaudible) [natural acts] in terms of contracting or anything like that.

In terms of what we've learned, honestly Karen, I don't think we've learned anything negatively like the sales cycles are -- I still think even though we're in the three to ten-month range, I also recognize that it's possible to have a twelve-month sales cycle when we're only nine months away from FDA clearance, right. So statistics would say that some of the sales cycles are going to be longer as we get further away from FDA clearance. So I think the six to twelve months is what we're going to see. We knew from the outset that convincing hospitals of the economic value is going to be the key to this, and that's why we are contracting with IMS Health well over a year ago to put that study in place.

And I think that positively, I'll honestly say that I'm surprised, we're surprised that you'd even think about having a three-month sales cycle at this stage of the game, at all. So that's some that have gone quick and that's been very surprising in a very positive way, but that's been good news.

I think we have confirmation and consistent confirmation. There's no pushback on mortality so there's a real belief that, generally speaking, there's a real belief that our products can cut this mortality rate by 50%, 60%, 70% within these hospitals. That is really not debated. And one of those key take-aways in the IMS study which is why we highlighted it and I'll highlight it again, because we didn?t even understand this until the study came out but the fact that the cost of patients who don't survive is 2.7 times greater than survivors, that helps a lot when people already believe we've got to reduce mortality and now you can put a cost on that -- put a price tag on that.

And I could also say and I can say this based on my own interactions with hospitals, they get that when you tell them that. They say boy, that makes a lot of sense. And so all of that, you know, all the pricing and everything like that is 100% consistent with the pricing that we expected going in. So I think on our roadshow we talked about that average pricing, the $200 to $250 of test range and all of that is being confirmed through all of the contracts as a [way of cost].

Okay. Can you give us a range as the number of minimum samples that hospitals are signing?

I'd rather not do that for purposes -- you know, we don't want to get into specifics on pricing or contract terms. We don't want that affecting future contracts.

Fair enough. And then last quarter I think you mentioned that 25 hospitals had completed an in-depth ROI analysis. I would guess that some of these hospitals were the ones that signed in the quarter. Shall we think that the others are still in the pipeline, and if so, what's kind of been the average time post the favorable ROI analysis to signing a contract?

Yes, good question. Yes. Some of them have closed and I'm going on memory. The vast majority of them are still in the pipeline. If not, all of them are still in the pipeline. I think all of them are still in the pipeline. And that timing, it's sort of the TBD. It's anywhere from 60 days to a little longer it's going to be because some of them are still in the pipeline so I can't predict that. You've finished the economic analysis and you get the lab on board, and then it goes to Hospital Administration and that's where you go through round two of the economic model. And sometimes it takes the lab a little while to put everything together to bring it to Hospital Administration or they have to prime at some committee meeting on some date, and it can take some time to get through that process.

Okay. And then just last question, thinking about the hospitals that have adopted, have you found that there's a specific champion at these hospitals, whether it be in Critical Care or Infections Disease or Administration? Or has it just really been across the board?

I would say it's a split between the lab and/or Infectious Disease. Now at the end of the day, sometimes you don?t need IV prep -- having said that, I don't think I can think of any instance where we haven?t had IV on board. But you do have to get the lab on board because ultimately the lab knows how to run the purchasing process within an institution. They're the ones who have to take the proposal to Hospital Administration. And so the IV though is a critical point in the sales cycle. If you -- I've said this and I'll say it again for everyone on the call -- if you or anybody else just randomly calls lab directors and asks about what it is we're doing, you're going to get a high hit rate of maybe I don't see a lot of those, that seems like a high price, because they don't understand these patients under VRG codes, they don't understand that in a typical hospital, the 5,000 high-risk patients and maybe only 100 candida infections, but they're spending in the order of $10 million a year treating patients or aggressively treating patients with drugs who don't need it. But a lab director doesn?t know that. So you've got to get the IV typically. Critical Care sometimes too, Transplant sometimes too, although they tend to be influencers, less involved in IV and the lab.

Okay. Thanks very much.

Mark Massaro with Canaccord Genuity.

Hey guys, thanks for taking the question and, Marc, good luck with your future endeavors.

Thank you, Mark.

First question, John, the three to ten-month average sales cycle seems to be a broad range. So could you maybe talk about the disparity in that range and maybe talk about maybe the hospital system is more likely to adopt in three versus ten. What are the swing factors in that range?

Yes. I think the real swing factors in that range, Mark, are probably two-fold and I'll put them in this order. One is just getting access to and developing that economic model that the lab feels comfortable with. And many of these institutions, especially the academic ones which were the ones involved in our clinical trial, they don't have the data. That would be frightening to hear but they don't know. They don't know how they're treating patients. They don't know what it costs. And so they have to find out what is the average length of stay in the hospital. How many candida patients do they see? It's not uncommon that you go in and ask a lab director how many candida patients did you see last year and they'll say 30. And at the next meeting it's 60. And at the next meeting it's 100. And they don't have access to the data. And so getting that data together, getting everybody comfortable with it is really probably the single-greatest driver in the length of the sales cycle. When you go in and they know it and they got it and they understand it, it moves much quicker.

The other impact though, not to knock it off and be -- these labs are under tremendous pressure. It's pretty common to hear their budgets are being cut by 10%. They don't have us back, and so sometimes it just takes longer because they don't have time. And many of them are getting closed down because of that fact which is not certainly unique to see too. I think it affects anyone selling products; the hospitals or the labs.

Great. And of the nine customers you've signed up in the US, how many of them were part of the pivotal trial?

Yes, we had closed two accounts that part of the clinical trial.

Okay. Great. And then have you laid out expectations of when you'd like to commence the clinical trial for the Lyme Disease?

We have not, Mark. It's still a little too early in the development cycle to lay out that timeframe.

Okay, and maybe just my final question. As you think more broadly about the Company, can you talk about some of -- in the wake of the Canon deal, what other types of partnerships are you considering, maybe as it relates especially to the Hemostasis area? Is there any uptick in interest from maybe pharmaceutical companies or any other types of companies where you think there may be attractive partnership areas?

Great question. So yes. I mean, Hemo, there's a tremendous amount of interest in Hemostasis. There's tremendous amount of interest among many companies who would like to get better diagnostic (inaudible) get involved and even development, commercialization, international. We're currently aggressively going down that path but we're considering all options as we develop the product and ultimately we'll make a decision based on where we think we can get the biggest return on investment. But there's also a tremendous amount of interest among pharmaceutical companies in terms of -- and even what we're doing, I'll call it a research stage, for looking at drug resources and looking at different effects that our platform appears to be able to measure that other platforms can't. So we're pretty excited about the opportunities for Hemostasis, so incredibly, but potentially even more in select research opportunities like the pharmaceutical companies.

Great. Thank you.

You bet.

Thank you. I'd now like to hand the floor back over to Management for any closing remarks.

Well, thank you all for dialing in today. We're excited with our results. Once again, we'd like to thank Marc Jones for his tremendous contributions over the last several years, and we look forward to reporting back on our results in the next quarterly call.

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