T2 Biosystems Inc (TTOO) 2015 Q3 法說會逐字稿

Greetings and welcome to the T2 Biosystems 2015 third-quarter financial results 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. Please go ahead.

Thank you, Stacey. Good afternoon, everybody. Thanks for joining us for the T2 Biosystems third-quarter call. On the call this afternoon to discuss results and operational milestones for the third quarter ended September 30, 2015, our President and CEO, John McDonough; and Chief Financial Officer, Moe Castonguay. John and Moe 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 and 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' annual report on Form 10-K, filings with the SEC, the risk factors section and 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 the call today. We had a very productive quarter. I'm pleased to say that all aspects of our business are making substantial progress and that the hospital community, through their adoption of our platform, is demonstrating their confidence that time and sensitivity are indeed the critical factors in impacting the substance crisis in hospitals.

Our new CFO, Moe Castonguay, will give you the financial details in a moment. But, all of our financial metrics remain on track. Revenues, operating expenses, and earnings per share were all consistent with our expectations. We're also especially pleased with our progress on the other important commercial metrics. Engaging the hospitals on our target list, presenting our technology and its value proposition, signing them to contracts, announcing the utilization commence following system initiations that are first adopters.

As of the close of the third quarter, on September 30, we have signed contracts for T2Candida implementation and T2Dx instrument placements with 19 customers, including 18 hospitals in the United States and one live in Europe. That means we added 9 more during the third quarter. As of the end of September, 6 of the accounts are online, ahead of the 5 we projected to be online on our last call. Meaning, the installations and verification processes are complete and hospitals are already testing patients at high risk successes.

Orders for T2Candida and revenues have commenced. We have stated in the past, that the time from contract signing to the customers' verification period to testing patients, was expected to be three to six months. I'm happy to report that we are tracking right in that range and that the method we suggest to customers for verifying testing procedures is being adopted by virtually all accounts. This is important because it speeds up the time that customers come online, accelerates the impact we can have on patients, and allows the revenue ramp for testing within a hospital to start sooner.

Looking to year end. We're excited to say that we are on track to close contracts with 30 hospitals by the end of December, as forecast. We said from the start, that two-thirds or more of the contracts would close in the second half of the year. Our confidence in achieving the goal of 30 is based on the 19 closed contracts as of September 30, the contracts already closed in Q4, and a very active sales pipeline.

Through conferences and presentations at industry forums, customers are beginning to identify themselves, and are beginning to share their positive experiences with T2Candida. Physicians are openly discussing their successful clinical outcomes with T2Candida and with T2Dx at conferences and on panel discussions. For example,, a thought leader and HMaiken Arendrupead of Mycology, Microbiology, and Infection Control at Statens Serum Institut, a leading research and laboratory services organization in Denmark, shared data on several patient cases, including our identification of candida infections that blood cultures completely missed. She also had a major publication in the New England Journal of Medicine on October 8, 2015 that identified T2Candida as the most sensitive and specific diagnostic test available for disease diagnosis.

At the ICAAC Conference in September, the Co-Director of the Antimicrobial Suture Program, with one of our customers that just went live in September testing patients, discussed cases were T2Candida detected patients early and how the hospitals and patients are benefiting from the reduction of the use of antifungal drugs based on negative T2Candida test results. Another case highlighted where blood culture came out positive and our test turned out negative, only to find that T2Candida was correct, saving the patient from pulling a line which could have had a negative impact on the patient. Yet another concern about relying solely on blood culture as a basis for sepsis diagnostics. Another story from a hospital that came online in September showed that, of the first 25 patients tested, 4 were positive and were treated early which could never have happened without T2. While that hit rate is certainly above the reported averages, it does hint at the power of the technology.

Combining the clinical benefit of those four patients getting the right drugs on board days before they might have otherwise with the cost savings of avoiding unnecessary drugs for the other 21 patients, this system is essentially paying for itself right out of the gate. I think people are generally aware that time is our key differentiator. Our taste -- tests take three to five hours versus all competitive tests where the blood needs to be cultured and can take days. That's a huge advantage in terms of success for a patient and a decrease in expense for the health system.

But, we're not just about early detection. It's also just as important to understand that we also offer distinct advantages in terms of sensitivity and accuracy. That's becoming apparent as testimony from physicians now using our products come in. We're picking up sepsis cases that have been missed by blood culture completely. We're not just providing speed at the expense of accuracy or sensitivity, we are providing benefits in speed, accuracy, and sensitivity. That's the point we consistently underline to our customers and potential customers.

This point was further demonstrated in a publication in Future Microbiology in August that analyzed data across multiple studies from 55 patients with proven candida infections. T2Candida detected 96% of the patients, where blood culture detected only 60%. Percentages that are very consistent with our T2Candida FDA clinical trial and percentages that are frequently reported for blood culture. For us, seeing our systems in use, making the difference that we expected, is very rewarding. As is hearing the early physician users up on a podium talking about our products. We believe this continuing evidence, and now real-world data, will drive usage within these hospitals and adoption by new hospitals.

As we move from early adopters toward the mainstream market, hearing from customers will make it easier for others to adopt, and there's already evidence that this will drive sales. For example, we have begun discussions with one acute care network that has a significant number of candida patients. They were considering bringing T2Candida into one of their hospital lab facilities that supports 12 local hospitals when they heard about the Lee Memorial experience at the ICAAC conference. Based on that experience, they quickly moved to adoption and the entire sales cycle took less than 90 days. This acute care network has three other lab locations that support hospitals at other areas of the country. Success with this first location is expected to lead to adoption at their other lab facilities.

As you know, along with T2Candida, we also have other products in different stages of development. Including T2Bacteria, T2HemoStat, and T2Lyme. T2Bacteria is being created to rapidly and accurately identify the most significant inadequately treated bacterial species related to sepsis. 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 and is time consuming, labor intensive, and misses 30% to 70% of infections. Like T2Candida, the market opportunity for T2Bacteria is large. But, it will also include many patients that present with signs and symptoms in the emergency room.

In terms of timing for T2Bacteria. We plan to present data on the full panel at the AMP Conference in Austin, Texas later this week. Regarding the start of our FDA clinical trial for T2Bacteria, it is our expectations that before the end of this year, we will start collecting patient samples for clinical trial sites with a goal of submitting data to the FDA sometime in the third quarter of 2016. It's difficult to nail the timing precisely. The turnaround time, from FDA submission to FDA clearance, for T2Candida took four months. Since we'll be seeking a 510(k) clearance for T2Bacteria, perhaps it may be a little bit quicker.

On the commercial front. It bears noting that every T2Tx instrument we make this year and next, can potentially be immediately leveraged when T2Bacteria is approved. The install base of customers we are building today, hospital by hospital, will only get more valuable with the addition of new products. The T2HemoStat program and timeframe remain unchanged this quarter and continues to draw growing interest among trauma surgeons and other specialists, facing the dual problems of bleeding and clotting and a baby boomer population that is prone to blood thinning drug regimens.

Finally, on the strategic front, we're making progress in our partnership with Canon US Life Sciences to develop a diagnostic panel for Lyme disease, a bacterial infection caused by three different bacterial species and spread by ticks. Like sepsis, that market is wide open. The current testing standards have very low sensitivity. Data suggests 90% of patients never get properly diagnosed. T2Lyme will run on the same instrument as T2Candida and T2Bacteria, and will also save our customers in the healthcare system substantial time and money while saving and improving lives. Progress on that front has resulted in additional interest from other blue-chip companies that have identified T2MR applications in other fields. We will continue to update you as these programs get off the ground. With that, I'll turn the call over to Moe, who will cover the financial highlights.

Thanks, John. As John indicated, we made solid progress in the third quarter, including recording our first commercial revenues from testing patients. Most of the initial T2Candida customers are still in the verification period, however, we did record $245,000 of product revenue from early placements. In addition, we recognized $804,000 in revenue related to research partnerships in the quarter, bringing total revenue to $1.05 million.

The Company did not record any revenue in the prior-year third quarter. We expect our margins to gradually improve over the next year as our volume grows. We are in the early stages of ramping the manufacturing operations and have not yet obtained economies of scale. As a result, our product margins are not meaningful and are not reflective of what our margins will be when we reach meaningful commercial scale.

Total operating expenses, excluding the cost of product revenue for the third quarter 2015, were $11.4 million compared to $7.8 million for the year earlier period. The increase in operating expenses was mainly associated with the growth of our sales organization, expansion of marketing programs to drive customer awareness, and research and development activities for additional applications of T2MR.

The net loss for the third quarter of 2015 was $11.6 million, or, $0.57 per share compared to a net loss of $8.8 million after adjustments for accretion of redeemable convertible preferred stock, or, $0.71 per share for the third quarter of 2014. The third quarter 2014 loss per share was directly impacted by the weighted average common shares outstanding from the date of our IPO on August 7, 2014 to the end of the third quarter of 2014. Specifically, for the third quarter of 2015, we had 20.3 million weighted average shares outstanding compared to 12.4 weighted average shares outstanding in the third quarter 2014.

The Company's balance sheet as of September 30, 2015 had total cash and cash equivalents of $40.1 million. 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. Additionally, in October 2015, we entered into a $10 million equipment lease facility to help fund our 2016 capital equipment purchases and T2Dx instruments used by our customers in our reagent rental program.

Before I turn the call back to John for his final comments, I'd like to reiterate the outlook John laid out in our second quarter call. As anticipated, the ramp of our product placements in hospitals will be weighted into the fourth quarter as our sales force ramps and our sales pipeline expands. It is also important to note that all nine instrument placements made in the third quarter of 2015 were under our reagent rental program. Based on a trend for this year, we expect 80% to 85% of our target hospitals to choose a reagent rental model where we will place a T2Dx instrument at the hospital in exchange for an upcharge in the consumables with the remaining hospitals choosing to purchase the instrument.

When we close the contract at a hospital, we anticipate it will take three to six months for installation and verification and that it could take an additional 6 to 12 months for a customer to ramp the number of their high-risk patients being tested. In Q4 2015, we anticipate slightly lower research revenue with growth in product revenue over Q3 as more hospitals roll out their testing of high-risk patients.

Although we expect Q4 2015 product margins to improve, the lack of scale will not produce gross margins that will have a meaningful impact on our overall operating results. We anticipate total Q4 2015 operating expenses to increase 8% to 9% over Q3 of 2015 and for cost of product revenue to increase based on increases in product sales. Total costs and expenses in Q4 will include approximately $1.9 million in non-cash expenses which are primarily depreciation and stock compensation expenses. With that, I'll turn the call back over to John.

Thank you, Moe. Let me summarize the key takeaways from the quarter. We continued to hit our targets in terms of revenue, expenses, earnings per share, and most importantly at this point, hospital contracts for our T2Dx instrument and T2Candida diagnostic panel for detecting sepsis. We're at 19 and should knock down our goal of 30 by the end of the year. 6 contracts are online as of September 30 and generating revenue.

Patient stories are starting to come in and physicians are beginning to share anecdotally at conferences and on panels the value they're seeing from our products. Seeing all of these results make this an especially exciting time for all of us. If we continue to execute as we have, we believe we can continue to build momentum. Not only with T2Candida, but with new diagnostic panels in development for bacteria, hemostasis, and Lyme disease.

As we look out to all these initiatives on the horizon and continue to build towards commercial expansion outside of the United States, I am pleased to report that David Harding is joining the Company in the role of Chief Commercial Officer. David has an extensive background in commercial operations, including roles in marketing, international operations, and general manager at Hologic and Cytyc where I had the opportunity to work with David in the past. His primary role will be to execute the development of an integrated and global commercial team to lay out multiple technology launches and then to scale those businesses. David brings great experience to the team, strategic and operationally, as we expand our business globally and with the addition of new product lines in the future.

One final thought, there's been lots of chatter recently among investors and analysts in the diagnostic space over reimbursement news and CMS pricing that was unfavorable to many large molecular diagnostic companies. We are pleased to say that we are in a market where we are not impacted at all by those developments. Our products are covered under DRG codes where hospitals get a fixed sum reimbursement for the patient.

All of the economic savings associated with our products drop to the bottom line of the hospital. Our reimbursement codes and models are all intact and stable. In fact, if those DRG codes were under review, that would probably help us as hospitals would have to look for ways to reduce their costs for treating patients. This is what we do.

Last week, we were honored to receive the Prix Galien award for the T2Candida panel which was named the Best Medical Technology Product. There is only one selection of this category annually, and it's probably the most prestigious product award recognizing breakthroughs in science and technology that can make a difference in the lives of patients.

Selected from a group of industry leaders, including products in the blood culture space and successful products that have been in the market for many years, we are both humbled and honored to receive this recognition. I would like to extend our thanks, appreciation, and respect for the scientists and engineers at T2 Biosystems that have created this breakthrough platform and product. It is exciting times for all of us as we start to see patients being impacted by our work and for our mission to begin to be fulfilled. With that, I'll turn the call over for questions. Operator?

Thank you, we will now be conducting a question-and-answer session.

(Operator Instructions)

Isaac Ro, Goldman Sachs.

Good afternoon, guys. Thank you.

John, I want to ask a question about your full-year guidance. Those 30 contracts, you've been very consistent all year on. Calling for that to close as expected.

You talked a little bit about the reasons behind it with regards to your pipeline and all that. And, I was curious if you could put a little more color around the pipeline? Whether it's for this quarter or, let's say, the next six months?

Are there any pipeline opportunities that you can point to where you have potentially multi-system orders, something that would really catalyze an entire health system? I'm just curious if you could put some more color on the quality and dynamics around the pipeline?

Yes, Isaac, great question. For sure, we're seeing strong development on all fronts. Both with the networks, but also, with the large single hospital systems as well.

As you recall in Q2, we actually closed a network that has led to adoption. And, in fact, grow out in four -- in a four hospital system.

I noted on the call, an acute care center that closed this quarter where Candida is just a huge issue. In fact, the number one species in this particular institution of all of the species associated with sepsis, Candida is ranked number one as the biggest problem. And so, this particular hospital services a dozen hospitals in this local city.

We call this one contract because we're just installing it in one hospital location. But, in fact, there are 12 hospitals that we'll be supporting. And, they have three other such locations around the country. Which there will be the potential to roll out into -- given what we hope and expect to be success with the rollout in this first institution.

And, there are many others even bigger than that. That are certainly in the pipeline that could lead to an acceleration in the closing of hospital contracts for that and all the reasons I mentioned earlier.

We feel really, really good. Are -- we have, in my opinion, the best sales force in the industry. They've done a great job to this date and have built a great pipeline entering the fourth and we continue to reiterate our confidence in hitting that 30 number.

Certainly, our confidence today to hit 30 is at an all-time high. When you start the year and you think you're going to get to 30. It all feels reasonable. It feels a whole lot better to have 19 close at the end of September; see the kite -- kind of pipeline in front of us and to have the confidence of what the future might hold.

Appreciate the color there Thank you.

Moe, a question for you on the gross margin side. We obviously overshot our assumptions on Q3 gross margin. And, appreciate your comments earlier in the prepared remarks.

But, maybe, if you could give us a little more color around your comments for fourth quarter? And, why gross margin looks like it'll be on a, maybe, lower trajectory than we previously thought? And, I have one last follow up tied to that.

On -- well, as we indicated, it's basically because we haven't really attained economies of scale. And, although we do expect increasing revenues from both consumables and instruments. It won't achieve sufficient volume to have a meaningful impact on our results.

Okay, great, and maybe a last one for John or Moe. Given the gross margin trajectory here and then if we also lay in the assumptions you're making on the year-over-year growth in OpEx. If we take those run rates into next year.

How should we think about maintaining financial flexibility? You guys have, I think you have something on the order of $40 million or so in cash exiting the quarter. So, just looking at into 2016, how are you guys thinking about the financial flexibility? Thank you.

Yes, Isaac, this is John and Moe can jump in. I mean, we feel very good.

We've got $40 million of cash in the bank. We now have two separate $10 million debt facilities, so, making total capital available of $60 million. And, if you look at the historical growth -- burn rate, that puts us in a pretty strong position as we go through the fourth quarter and enter 2016.

Got it. Thanks a bunch. Appreciate it.

Thank you.

Steve Beuchaw, Morgan Stanley.

Good afternoon, everyone. This is Liza Garcia on for Steve Beuchaw. Thank you for taking the questions.

I was hoping, maybe, you should -- could discuss a little bit about how we should be thinking about the rate of engagement on the top 450 accounts? Hello?

Yes, and I was pretty sure when you started talking that you weren't Steve. (laughter) But, I wasn't sure.

(laughter)

I just told Steve -- but, the rate of engagement is accelerating. I mean, we're about -- it takes, as we've said in the past, about six months as a salesperson comes on board to go through training to get to speed and start building a pipeline.

I won't -- we're not going to keep reporting, as we've said in the past, as we move towards the adoption phase we're going to get out of reporting on status of pipeline and a whole lot more fun and exciting to not be reporting on closed contracts. But, we've seen a rapid growth.

We still haven't reached out and touched all 450 of the top accounts, but, we've hit, certainly, a majority of them at this point. And, that's being driven by a bigger sales force, being out and attending two major conferences already in the last 60 days.

We're at both the ICAAC conference, IDWeek; we'll be at AMP this week. And, each time we come out of one of those the pipelines keep growing in terms of reaching out to our target accounts.

Great. And, if I could just get in one more. If we're thinking about pricing, how would you say this quarter did -- signings from this quarter have come on, relative to expectations?

So, I know, great question and I'm glad you asked it because we get asked that question from time to time.

This quarter gave us more conviction that the guidance we've been providing from the beginning is solid. We expect average pricing to be in the $200 to $250 range. And, if you do any initial poll and ask somebody about price, they'll think the price is a little bit high. That's good news. Because, if they didn't, then we'd probably want to increase the price.

When we go through the sales cycle and we're able to take people through the economic benefits of our product, pricing is not, repeat, is not an obstacle in getting these contracts closed.

Great. Thank you so much.

Paul Knight, Janney Montgomery.

Hello John, can you -- and also, David, I guess, talk to the headcount on sales force? Where you want to be in Q4?

And, the follow up with -- to that, would be David's arrival, I guess, you're what, thinking next steps international? And, what should we look for on international expansion? And, when?

Sure, this is John. I'll let Moe take the size of the sales force question and then I'll come back on international.

So, we ended the third quarter with 13 sales reps. We currently have 15.

And, on the international front, we did bring on board, this quarter, a head of international operations in addition to that. Of course, as I mentioned in -- on the call, David Harding joined us in the role of Chief Commercial Officer. David has actually excessive experience in building international operations.

So, our objective is to start to establish a foothold in Europe in 2016. We will likely do that through appointing a couple of distributors in some of those European markets. And, probably, and, we'd be hopeful to have some distributors in place sometime in the first half of 2016.

Thank you very much.

Dan Leonard, Leerink Partners.

Hi, it's actually Kevin Chen in for Dan today. And, thanks for taking my questions. So, my first one.

So, lately it's been, it seems like, to be a more challenging operating environment for hospitals. And, I was just wondering if you can give any color on what kind of impact that has on your sales process, if any?

Yes, and that's a good question. I mean, this -- there's nothing that's changed there certainly. The operating impact of hospitals and selling into the hospitals, that's been challenging for quite some time. We have not had any surprises in terms of that challenge.

And, I think, the really good news for us is that's really impacting hospitals, is that they're under tremendous pressure to save money and a huge part of the T2Candida story is about saving money. Of course, impacting lives first, but that translates into economic savings.

So, it can impact us in terms of timing to get things done. Maybe a contract takes longer. Or, maybe, we're going to see at some point an installation or a verification before going live taking longer.

So, if -- certainly, if the environment was better, things would be accelerated. But, I would say the environment is what we initially expected. So, we haven't been surprised. Or, had to change our expectations based on anything we're learning about the hospital environment.

Great, thank you. And then, just one follow-up.

So, the stories are starting to flow in. Could you provide some qualitative color on the patient population being tested at each hospital accounts?

Yes, the patient population being tested in the hospital -- in these accounts are pretty much following the model that we've outlined. It's the high-risk patients. Patients who are symptomatic in the intensive care unit, cancer patients, transplant patients. On average, the top 450 accounts, we're seeing about 5,000 of these high-risk patients per year.

And, as they roll out, I think it's expected, we're seeing that most will start with some subset of that patient population. For example, they might start in the ICU or they might start in transplant.

Some, and this one is really logical and at the place we even recommend hospitals to start. They will basically start saying, we're going to test every patient, that today, we guess at putting on antifungals.

Because, among those high-risk patients on average, hospitals put about 40% on antifungals if the patient hasn't responded to broad-spectrum antibiotics within the first 24 hours to 48 hours. Because, remember, in that period, they're still waiting for the blood culture results. That they're on a -- the patient's on an antibiotic. If they -- their condition has not improved, 40% of the time, they'll put them on an antifungal.

And, we've seen several institutions say, okay, we're going to start by taking that 40% -- it differs by institution. It might be 20%, it might be 60%. And, we're going to assess them with T2Candida instead of putting them all on an antifungal drug. That's become, somewhat, of a common place to start.

Okay, and just one last one. So, how many -- could you remind us, how many clinical sites that you plan to sign up for the bacteria at clinical trials? And, how many at the site --?

Yes, we have not specifically stated how many T2Bacteria clinicals -- trial sites there will be. But, you should expect it to be somewhere between 9 and 12.

And, how many have signed -- you haven't spoke to -- how many have signed up already?

We have not. We do have some signed up already. We're in that process as we speak. But, no, we -- we'll give that information at another time.

Great. Thank you very much.

Thank you.

(Operator Instructions)

Mark Massaro, Canaccord Genuity.

Hello, guys. Thanks for taking the questions.

So, last week you put out a press release, I believe, with three hospital systems that signed up for Candida. Can you, maybe, clarify why you named those three systems? Obviously, you have a lot more than three. And, can you comment on when we might learn of some of the other larger systems?

Yes, sure. So, we put out that press release. And, you should expect, in terms of, whether it's website postings, tweeting, other marketing programs.

We're going to focus as much as we can, whenever we can, on what customers are using our products and what their experiences may be. Because, that's really what's going to drive the next wave of adoption.

It's really hard to get those first 10 customers, those first 19 customers, when none are online. And, they can't -- everybody likes to, kind of, turn and not be the first. And so, it gets a whole lot easier when you can talk about other customers. So, the real purpose of that release is to get that information out, so that other customers can see that there were others using the product.

In terms of other names. Yes, it's seems stuff that we can. We may name them through press releases as we did.

If you attend conferences you'll definitely see that many customers are now getting up on podiums talking about the usage of the product. Talking about clinical data. And, that's going to happen with high frequency.

They're not always going to be really comfortable putting their name in a press release or even on a call like this. Even though they may have been willing to speak at a conference.

And, it's almost, you got the left hand and the right hand. The clinicians are comfortable going to the conferences. But, if you ask for approval it's really tough to get it. But, we'll continue to do that.

And, with the three in the press release. If that you were at any of the conferences recently, you would have picked up at least another three that had been talking about their experience. And, unfortunately, we can't even name all of them on this call.

Very good. Thank you.

And, John, you commented on folks that are waiting to run the three to five hour test before blasting a broad-spectrum antifungal. I know it's really early, but, can you just speak to the prevalence of waiting the three to five hours as opposed to administering an antifungal and hoping for the best?

Yes. So, in terms of the incident rate.

You're generally going to see an incident rate of Candida infections in the order of 5% of the patients being tested. It can be a little lower or a little higher. There is an institution by institution difference.

Interestingly, the incident rate of Candida, and I'll -- I say this based on anecdotal information. Because, this data's never really been published. But, as we go from hospital to hospital and ask them what the incident rate of Candida infections are, among those they choose to blast with an antifungal versus those they don't, it's the same.

They don't have data that shows, that somehow, they can pick an enriched patient population to get to a higher number. They believe, interestingly -- they believe they're doing that.

And, they actually, while they don't have data, they would say, we know blood culture is -- has really low sensitivity and we think because we've blasted them with an antifungal, blood culture may not be picking up infections that we're treating. And, indeed, that might be the case because the blood culture sensitivity is in that order of 50% to 60%. And, that would only mean, by the way, that the incidence of Candida, which most people would believe, is much higher than what gets reported and that would be one of the major reasons for it.

And, keep in mind, if 5% of the patients that are being blasted with antifungals, only 95% needed, that means you -- when you test those patients, 95% of them never get a toxic antifungal at a cost of $50 to $100 a day. And, a hospital saves a lot of money and the patient really benefits by never having these toxic drugs in their system. So, there's a big health care and economics advantage to getting a rapid negative test result in those situations where you otherwise would've treated with an antifungal.

Okay. Great.

And, my last question has to do with the IMS model that you're equipped with. And, was wondering if you could, just, maybe, anecdotally talk about how the model is helping you close accounts? And, could you share with us what you're close rate has been to-date?

Yes. So, the IMS model is a critical part of just about every sales cycle. As the sales cycle progresses, building that economic model for the hospital, for the lab, usually to take to hospital administration, is the last major step in moving towards getting a contract in place. And, it's at that point in the process where the pricing issues, if people have them, go off the table.

Generally speaking, when we build those economic models, we're able to take a hospital's specific data, the number of patients they see, their specific costs. We're able to input in the model and deliver back to them with the IMS model would suggest they would save. It's not uncommon for those models to show three to five times return on investment in terms of the cost of testing patients versus the return that they'll realize.

I would also say, by the way, it's not uncommon by the time you get to the end of the sales cycle that someone along the way will apply some degree of conservatism and maybe even cut those economics in half and that still doesn't negate the sale. I'm not aware of any situation where we've delivered an economic model that has not led, ultimately, led to a sale.

But, having said that, there's a lot of economic models that are out there in the hands of hospitals and we're probably not going to have 100% success rate. But, they're -- in each case, when we get there, and we've got the hospital's data in the model and they've gone through the effort of doing that. Because, this is, obviously, a pretty qualified account for them to put the investment in to get the data for that model. We certainly have a high -- a very high probability of that account ultimately closing.

Great. Thanks very much and congrats on a nice quarter.

Thank you, Mark.

There are no further questions. I would like to turn the floor back over to Management for closing comments.

I'd like to thank you all for dialing in this evening. I know it's a busy period of time. But, we're very excited by our progress and look forward to reporting back to you again next quarter. Thank you.

Thank you. Good night.

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