Executives: John McDonough - President, Chief Executive Officer Marc Jones - Chief Financial Officer Dr. Tom Lowery - Chief Science Officer Matt Clawson - Pure

Communications
Analysts: Isaac Ro - Goldman Sachs Paul Knight - Janney Montgomery Scott Kevin Chen - Leerink Partners Steve Beuchaw - Morgan Stanley Karen Koski - BTIG Mark Massaro - Canaccord

Genuity
Operator: 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.

Matt Clawson: 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 out 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’ filings with the SEC, the Risk Factors section, and its registration statement of From 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.

John McDonough: Well, 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 Moe Castonguay.

As the press release indicated Moe will become the CFO at T2 Biosystems’ later this week. We are fortunate to be able to look back and forward with equal enthusiasm surrounding the finance operation, the CFO role and the overall finical 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 necessarily 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. Moe has both an outstanding record of experience as a Public Company CFO in rapidly growing companies and a sterling repetition among investors, analyst and business colleagues alike. I am certain that you will enjoy working with Moe and I know he looks forward to meeting you all in the coming weeks and months. Marc will do the call with us today give us all a proper sendoff as CFO. I know I speak for everyone at T2 Biosystems when I say we are very excited to have Moe 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 remains 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 had signed contracts for T2Candida implementation and T2Dx instrument placements with 10 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 placemats 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 10 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 10 customers will complete both the installation 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 12 month ramp in the volume of testing patients within each hospital as 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. As 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 12 month average sales cycles and that our sales force will be growing trough 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 is ranged from three to 10 months, which is slightly better than expected, especially at this early stage of our commercial launch.

Based on all the date we have with our customer prospect pipeline at the 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 hospitals list. We are hopeful to get clearance to name some of these accounts soon and we’ll share that with you when we can. There is no doubt that the T2Candida economic study conducted by IMS Health and Independent Healthcare Economic 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 panel 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 costs 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 in our initial target market of 450 hospitals have the ability to test over 5,000 high risk patients at least one time per day 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 methods for high risk patients provides for all cost savings from the use of T2Candida to 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 product specifically are attracting the attention of our targeted hospital accounts and we are consistently learning about situations that clinicians are encountering, where our product might have had a profound impacted on their patients. As we have discussed in the past, it’s also worth noting that even with our very strong clinical and economic value propositions, 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 and more publication and testimonials emerge on the positive economic and healthcare impact on our products, 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 multiyear partnership with Canon U.S. 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 in the healthcare system substantial time and money.

The current testing standards have very low sensitivity with data that suggest that 90% of patients never get diagnosed with more than 360,000 people affected by Lyme disease each year in the United Sates according to the CDC and 3.4 million tests are performed annually. Finally our developments of T2Bacteria and T2HemoStat are on track. We are very excited about the market opportunity for T2Bacteria, which will identity the most significant bacterial species related to sepsis. The market opportunity for T2Bacteria will include most of the high risk patient population that has been in testing with T2Candida, but will also include many patients presenting 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 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 cultures. We are aligning up clinical sites for our FDA pivotal trail 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 trail 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. The general clinical question that our platform answers relates to assessing the risk of a patient bleeding uncontrollably due to clothing too much or too little and thrombosis, which is the formation of 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 screening the 10 million trauma patients who 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 defend out test. Therefore clinicians are typically making treatment decisions based only on what they see and their intuition, rather than using data that fully characterizes a patient’s risk of bleeding.

In other words, they are 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 maybe the only platform that can truly address the needs of screening these patients, just as we are on the field of sepsis diagnostics. We are on track to enter our FDA clinical trials in the first half of next year and once FDA is cleared, we will 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.

Marc Jones: 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 U.S. commercial infrastructure and increases in shared-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 loss per share compared to $9.2 million after adjustments for accretion of redeemable convertible preferred stock or $6.35 loss per share for the 2014 second quarter. The increased loss was 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 our experience with the 10 hospitals we have closed, we continue to expect 80% 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 of the consumable, with the remaining 20% opting to purchase the instrument. When we close the 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 12 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 non-cash 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, Moe and the entire team going forward.

With that, I’ll turn it back over to John.

John McDonough: Thanks Marc. To summarize the key takeaways 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 had signed contracts for T2Candida implementation and T2Dx Instrument placements with 10 customers and we believe we are on our way towards achieving our goal of 30 by year end. We’re doing a bit better than our expected six a month, 12 month sales cycle and we remain confident that our sales cycle timeframe will continue to shorten as our customer base grows.

The economic model for T2Candida developed by IMS, an independent healthcare economics firm has proven to be a wonderful aid for our sales force and we look forward to producing additional data in value demonstrations, both via and assume 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 cannot 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 does impose a tradeoff between patient care and costs. So being able to benefit by both is a very exciting proposition for these leading facilities.

Finally, please remember that 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 for our test 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: Thank you. [Operator Instructions] Our first question comes from the line of Isaac Ro with Goldman Sachs. Please proceed.

Isaac Ro: Good afternoon guys, thank you.

I wanted to start with the progress you made in terms of converting some accounts here this quarter and sort of the outlook for not just the six months between now and year end, but also into 2016. In general, I know that 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?

John McDonough: 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 add to our group in March. We were at nine for most of the second quarter and we’re really pleased. 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 [indiscernible] we will add in closing accounts.

Isaac Ro: I got it, I got it, that’s helpful.

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 at sort of 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 diagnosis is in those sepsis institutions. It just seems to me like $1 million would be a large number, even for something like sepsis, so I was just curious if you have a sense of how much as a percentage of total diagnostic spend that might account for.

John McDonough: Yes, I mean it’s not an insignificant number, but when you go into the hospitals, some of the bigger hospitals, you might be in the order of 1%.

But I think your question is 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 diagnostics that provides that kind of return on investments and what drives all of that remember is that these patients that are tempered [Ph] under DRG codes, I think that’s not understood either. Most diagnostics are limited in pricing by CPT codes and therefore it’s just, it’s all about the lab P&L, it’s not about the hospital P&L.

In fact that would be true for a post-blood culture speciation product. All of that, that entire product category (A) is limited in market size by the number of positive blood cultures, which is about a tenth of the size of our market opportunity, but additionally they have to tap into an existing lab budgets. In our case we are tapping into our hospital budget. It’s like a sales cycles, they are going to average six to 12 months, we are doing a little better than that, but I think they will still average six to 12 months. But by these patients being under DRG codes, all of the profits go to the bottom line of the hospital.

So the key question is, can we convince hospitals they are going to save that kind of money. The only returns are [indiscernible].

Isaac Ro: Got it, that’s very helpful context. I appreciate all that. Thanks guys.

Operator: Thank you. Our next question comes from the line of Paul Knight with Janney Montgomery Scott. Please proceed.

Paul Knight: Hey John, the 10 placements you mentioned, is the one counted as four or is the four counted as one, that’s my first question.

John McDonough: It’s counted as four.

Its four separate hospitals and in fact they are all being installed as we speak.

Paul Knight: And then on the – what was your timeline on the bacteria rollout. Where do you want to see clinical trials, a large trial on bacteria?

John McDonough: Yes, so 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, well the really good news is, a lot of the studies that we need to do outside of the trial are significantly less than what we needed to do with T2Candida and 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 a roughly eight months.

It took 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 is about 13 months. I think that’s the right expectation I have here. Now there is some opportunity to maybe speed that up. Maybe we can run the trial a little bit quicker, because we’ve done it before.

Maybe the FDA rules a little bit quicker, but on the other hand, boy did they move really quick the last time, so I don’t think it’s the right expectation to expect it to move faster.

Paul Knight: And then Lyme would be after Bacteria, correct?

John McDonough: Hemostasis likely would be after Bacteria. Interestingly those trials might be starting within three or four months of each other and I don’t think we yet really understand what the nature of the hemostasis trial would be, so there’s the potential for that trial, a partner, but I think if that’s true, the offset might be – the FDA seems to move a little slower on acquiring hemostasis related products. So I might expect that one to sit in front of the FDA a little bit longer, maybe in a more traditional timeline, but what we are seeing with our sepsis products.

Paul Knight: Okay, and then lastly, your number of sales people at the end of Q1 was what again?

John McDonough: We had nine at the end of Q1; we had nine at the end of Q2, but 13 at the end of July.

Paul Knight: Okay, got it. Thank you.

Operator: Thank you. Our next question comes from the line of Kevin Chen with Leerink Partners. Please proceed.

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

John McDonough: Yes. So we expect from the signing of a contract to the time that a – if you will, an instrument goes live, meaning they are testing patience, we expect that to be a three to six point period. There is a very brief, call it one to two week installation period and then its followed by a verification – well, 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 and we’re hopeful we can keep that whole period a little bit closer to the three months than the six months. The yearly returns are looking good. Hopefully on the next call we can have a number of accounts that are gone live and talk about what those periods are looking like.

Kevin Chen: That’s helpful. And with early placements, could you give us a bit more detailed breakout in intended testing population.

John McDonough: Yes, the intended testing population – and it’s a great question Kevin, because I think that sometimes this is misunderstood as well. So broadly speaking, some of these hospitals, if you were to look at the typical hospital, 450 hospitals target list, they are running about – blood cultures run about roughly 25,000 patients a year and out of those 25,000 patients they are running cultures on about 5,000 of what we call high risk patients, which is our target market. Roughly 20% and as much as a third of the overall number of cultures that are being run in an institution. The high risk patients are defined typically as patients who are in the intensive care unit who are presented with a fever, transplant patients who are presented with fevers, cancer patients, basically the immune compromised population. They are all in patients and there’s about 5,000 out of that 25,000 that will get past the potentially with T2Candida.

Kevin Chen: Right. And it sounds like you guys have identified ways to speed up the sales cycle. Could you give us more detail on how you’ve done that?

John McDonough: Well, I’m thinking part of the credit soon we hire awesome sales people, that’s for sure. We’ve built a great team, we’ve got great leadership undergoing Glen Magnuson. We are 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 more of real statistics to show what the economic savings would be, all based off the data that came out of that IMS study. And I think there is two big things that I think probably helped us a lot in Q2, speeding up sales cycles. One definitely was the IMS publication and in having a more simplified model for putting economics together, but the second one was more and more of data and understanding among hospitals and the people who we are selling to that our advantage if you will versus blood culture, although I hate saying that, because we’re not telling anyone not to do blood culture. We’re not competing with broad culture, but we are highly complementary with blood culture in terms of giving a rapid diagnostics for Candida. But 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 that we are picking up more infections in blood culture. The specificity of blood culture as it relates to Candida specifically ranges in studies from 30% to 60% and its only a little bit better for bacteria. Although it is a little bit better for bacteria you are seeing numbers like 50% or 60% and those implicitly in studies as we saw in our FDA clinical trial, when you look at real infections, our sensitivity is consistently in the order of 90% and so we are not impeded by this problem of sales not growing, which sometimes just happens and sometimes happens because patients are on drugs and that was a huge, huge, huge advantage that’s 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 it’s not just a time problem, but it’s a sensitivity problem and they saw the data from our clinical study. So, it’s a really 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 detected and doesn’t get treated. The answer you will hear from a clinician is they die. Right, if you don’t treat a patient with sepsis you are 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 sites the fact that the cost of patients who die is 2.7 times greater than the cost of patients who survive and the reason for that is that unfortunately when a sepsis patient dies its typically not quick, its slow, it’s been more days in the ICU, and they are really expense days.

Kevin Chen: That’s really helpful.

Thank you so much.

John McDonough: You bet.

Operator: Thank you. [Operator Instructions]. Our next question comes from the line of Steve Beuchaw with Morgan Stanley.

Please proceed.

Steve Beuchaw: Question. 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.

John McDonough: Yes, no we haven’t talked about what our plans would be for 2016 at this point and just to large extent, how we planned for 2016 will be driven by what we are learning here in 2015. So our objective right now is to get to ’15 by the end of the year.

We certainly anticipated not having any loss in ’15 as we enter the next year. But we will consider all options in terms of what the appropriate sales force size should be next year as we put our plans together and we’ll communicate that as that comes together.

Steve Beuchaw: Great and then just one more, if I was thinking about kind of early 10 adopters, were there any schemes or characteristic that were emerging and kind of maybe even that four hospital system that really motivated them to put a machine in each hospital.

John McDonough: I think the major theme is, they tell that the institutions, especially the ones where the sales cycle are quicker, where there are really tight associations between the clinicians and the lab itself. And they really understand the unmet need.

They typically – the ones that move quicker understand the cost of treating these patients. It’s okay, so you can go in there and they know exactly what the economic benefit will be once they understand what it is we do and they just seem to be a little bit further ahead of the curve. It’s your typical adoption curve or a new product entering the market. Not everyone is going to get it real quick and it’s going to be so important that you are getting publications in the market and getting customers talking about the impact we are having on patients that’s better during the next we have.

Steve Beuchaw: Great, thank you so much.

Operator: Thank you. Our next question comes from the line of Karen Koski with BTIG. Please proceed.

Karen Koski: Thanks. Can you guys hear me okay.

John McDonough: Absolutely.

Karen Koski: Excellent. Congrats on the progress this quarter. I know commercialization is still earlier, but can you kind of speak anecdotally as to what you’ve learnt so far and what surprised you? And given the step-up from kind of one U.S. contract to eight in the second quarter is pretty meaningful.

Have you changed the terms of the contracts that you are offering at all?

John McDonough: Yes., we haven’t. Our implementation in terms of how these are rolling out are consistent with the business plan we put together before we went public. We haven’t built on natural acts in terms of contracting or anything like that. In terms of what we learned, you know honestly Karen I don’t think we’ve learned anything negatively, right, like the sales cycles are – I still think even though we are in the three to 10 month range, I also recognize that its impassable to have a 12 month sales cycle when you are only 9 months away from FDA clearance, right. So statistics would say that some of these sales cycles are going to be longer as we get further away from FDA clearance, so I think the six to 12 months is what we are 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 within, we’ve been – I’m surprised, we are surprised that you even think about having a three month sales cycle at this stage of the game at all, right. So we’ve had some that have done [indiscernible] and that’s been really surprising in a very positive way. So that’s been good news. I think we have conformation and consistent conformation.

There is no push back on mortality, so there is a real belief that generally speaking there is 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 the key takeaways in the IMS study which is like we highlighted it and I’ll highlight it again, because we didn’t even understand this until this study can out. But the fact that the cost of patients who don’t survive is 2.7 times greater than survivors, boy that helps a lot when people already believe you are going to reduce mortality and now you can put a cost on that or 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, our pricing and everything like that is 100% consistent with the pricing that we expected going in.

So I think on our road show we talked about average pricing in the $200 to $250 a test range and all of that is being conformed through all of the contracts that we have closed.

Karen Koski: Okay. Can you give us a range of the number of minimum staples that these hospitals are signing?

John McDonough: I’d rather not do that for purposes of – we don’t want to get into specifics on pricing or contract terms, because we don’t want that effecting future contracts.

Karen Koski: 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.

Should we think that the others are still in the pipeline and if so what’s kind been the average time post to favorable ROI analysis to signing a contract?

John McDonough: Yes, good question. Yes some of the 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 a TBD, right. Its anywhere from 60 days to however long it’s going to be, because some of them are still in the pipeline. So I can’t predict that.

You finished the economic analysis and you get the lab onboard and then it goes to hospital administration and that’s where you go through round two of the economic model and sometimes is takes the lab a little while to put everything together, to bring it to hospital administration or they have to time it to some committee meeting on some days and it can take some time to go through that process.

Karen Koski: Okay and then just last question, thinking about the hospitals that have adopted, I mean have you found that there is a specific champion at these hospitals, you know whether it be in critical care or infectious disease or administration or has it just really been across the board.

John McDonough: I would say it’s a split between the lab and/or infectious disease. At the end of the day sometimes you don’t need IDs, but having said that, I don’t think I can think of any incidents where we haven’t ID onboard. But you do have to get the lab onboard, because ultimately the lab knows how to run the purchasing process within an institution.

They are the ones who have take the proposal to the hospital administration and so the ID though is a critical point in the sales cycle. If you, I’ve said this and I’ll say it again for anyone on the call; if you or anybody else just randomly called lab directors and asked about what it is we were doing, you are going to get a hit rate of maybe I don’t see a lot of those, well that seems like a high price, because they don’t understand, they don’t even understand these patients are under DRG codes, they don’t understand that in the typical hospital that has 5,000 high risk patients and maybe only 100 Candida infections that they are spending in the order of $10 million a year treating patients or aggressively treating patients which drugs if they will need it, and the lab director doesn’t know that. So you got to get the ID. Typically critical care sometimes to transplant, sometimes to – although they tend to be influencers less involved in ID and the lab.

Karen Koski: Okay, thanks so much.

Operator: Thank you. Our next question comes from the line of Mark Massaro with Canaccord Genuity. Please proceed.

Mark Massaro: Hey guys, thanks for taking the question and Marc good luck with your future endowers.

Marc Jones: Thank you, Mark.

Mark Massaro: First question John, the three to 10 month average sale cycle seems to be a broad range. Can you maybe talk about the disparity in that range and maybe talk about, maybe the hospital systems more likely to adopt in three versus 10. What are the swing factors in that range?

John McDonough: 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. It might be frightening to hear, but they don’t know, they don’t know how they are 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 the lab director how many candidemia patients did you see last year and they’ll say 30, then in the next meeting its 60 and then in 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. And the other impact, not to knock it off would be, these labs are under tremendous economic pressure. It’s pretty common to hear their budgets are being cut by 10%, they don’t have staff and so sometimes it just takes long because they don’t have time and many of them are getting get slowed down because of that fact, not certainly unique to see two.

I think it affects anyone selling products at the hospitals or at the labs.

Mark Massaro: Great and of the nine customers you’ve signed up in the U.S. how many of them were part of the pivotal trial?

John McDonough: Yes, we have closed two accounts that were part of the clinical trial.

Mark Massaro: Okay, great. And then have you laid out expectations of when you’d like to commence the clinical trials for the Lyme disease.

John McDonough: We have not Mark. It’s still a little bit too early in the development cycle to lay out that timeframe.

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

John McDonough: Yes, it’s a great question.

So yes, I mean there is a tremendous amount of interest in hemostasis. There is tremendous amount of interest among many companies who would like to get rid of diagnostic business; they would like to get involved in even developments, commercialization, international. We are not currently aggressively going down that path, but we are considering all options as we develop the product and ultimately we’ll make good decisions based on where we think we can get the biggest return on investments. But there is also a tremendous amount of investors amount pharmaceutical companies in terms of – and even what we are doing, I’ll call it a research stage for looking at drug responses and looking at different effects that our platform appears to be able to measure that other platforms can’t. So we are pretty excited about the opportunities for Hemostasis, both clinically but potentially even more in select research opportunities like the pharmaceutical companies.

Mark Massaro: Great. Thank you.

John McDonough: You bet.

Operator: Thank you. I’d now like to hand the floor back over to management for any closing remarks.

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

Operator: Thank you. This concludes today’s teleconference.

You may disconnect your lines at this time and thank you for your participation.