Executives: Zack Kubow - Investor Relations John McDonough - President and Chief Executive Officer John Sprague - Chief Financial

Officer
Analysts: Paul Knight - Janney Steve Brozak - WBB Max Masucci - Canaccord Genuity Puneet Souda - Leerink Partners Yi Chen - H.C.

Wainwright
Operator: Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the T2 Biosystems Third Quarter 2018 Financial Results Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to Zack Kubow of W2O Group.

Zack Kubow: Thank you, operator and good afternoon everyone.

Thanks for joining us for the T2 Biosystems third quarter 2018 financial results conference call. On the call to discuss the results and operational highlights for the quarter ended September 30, 2018 are President and CEO, John McDonough and Chief Financial Officer, John Sprague. The executive team will open the call with some prepared remarks followed by a question-and-answer period. I would like to remind everyone that comments made by management today and answers to questions will include forward-looking statements. Those include statements related to T2 Biosystems’ future financial and operating results and plans for developing and marketing new products.

Forward-looking statements are based on estimates and assumptions as of today and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied by those statements, including the risks and uncertainties described in T2 Biosystems’ annual report on Form 10-K filed with the SEC on March 19, 2018 and other filings the company makes with the SEC from time to time. The company undertakes no obligation to publicly update or revise any forward-looking statements except as required by law. With that, I would like to turn the call over to President and CEO, John McDonough. John?

John McDonough: Thank you, Zack. Good afternoon, everyone and thank you for joining us as we discuss the progress, results and outlook following our third quarter of 2018.

It feels great to report anticipated levels of progress and activity across the key areas for our business during the third quarter headlined by a continued strong start to the launch of the T2Bacteria panel. We also remain on track with our new products pipeline with several key milestones anticipated over the next 12 to 18 months. I will provide an update on each of these items in my prepared remarks. But first, let’s take a high level look at the financial results and commercial metrics for the quarter. After my remarks, our CFO, John Sprague will provide a detailed review of our third quarter financial results and recap our guidance for the rest of the year.

In the third quarter, we reported total revenues of $2.5 million and product revenues of over $1.2 million. This was in line with our expectations and primarily reflects activity related to sales of the T2Candida panel and the T2Dx Instrument, as recent new placements related to the T2Bacteria panel are mostly still in the implementation phase. Product revenue grew 71% from the third quarter of 2017, including continued increased T2Candida usage on a same-store basis. Sequentially, we are pleased that product revenue was relatively stable compared to the second quarter of 2018 given the summer seasonality we have seen in the past. As it relates to the T2Bacteria launch, we achieved positive results in our first full quarter of selling across the key commercial metrics that will be the indicators of future growth.

During the third quarter, we continued to build momentum with new instrument contracts, securing 11 contracts for the placement of 11 T2Dx Instruments. This will provide an estimated 77,000 new high-risk patients with access to a T2Dx giving us more than 170,000 patients added on the year-to-date basis. We expect that the 11 new T2Dx Instruments that are or will be placed will begin to drive recurring revenue from testing volumes over the next 3 to 6 months. We believe this performance puts us in a strong position to achieve our guidance for 20 to 25 new contracts replacements in the second half of 2018 and our third quarter performance alone has exceeded our goal of adding access to 75,000 patients in the second half of 2018. So, we will exceed that target and believe that we will add at least 35,000 additional high-risk patients in the fourth quarter.

In addition, we had another strong quarter, building our sales pipeline, with 15 proposals delivered in the quarter. Over the last four quarters, which includes the time period pre-FDA clearance during which customer interest began to grow given the pending FDA decision, we have delivered 76 proposals, which is 2x to 3x higher than the prior year and indicative of increased interest in T2Bacteria. To-date, 11 of these proposals have turned into signed contracts and the remaining accounts or proposals remain actively engaged, leading considerable opportunity to secure more contracts in the coming months and quarters. As of September 30, 2018, we have 77 instruments placed or contracted to be placed, covering 170 hospitals worldwide. We estimate that each instrument in the United States may generate approximately $300,000 in recurring revenue every year, once hospitals go live and ramp up testing of patients with T2Bacteria and T2Candida, which we estimate could take 12 to 18 months after the systems go live and begin to test patients.

Let’s turn now to discuss the ongoing launch of T2Bacteria. We continued to be highly active in the market, with our growing sales and marketing teams focused on converting the many hospitals that have expressed interest in our products both before and after our FDA approval this summer into active customers. First, we are working with existing T2Candida customers to add T2Bacteria to their contracts. Our main priorities here had been to engage with customers, outline the contractual and practical processes for adding the T2Bacteria panel and understand their timelines. To-date, 6 existing customers have executed contract amendments to add T2Bacteria and where we see positive feedback from the majority of our other T2Candida customers.

Over time, we anticipate the majority of our customers will add T2Bacteria. Second, our targeted accounts include hospitals that treat a high volume of patients with blood stream infections that can lead to sepsis. And in most cases, our strategy is to gain a foothold at these institutions through the emergency department. There is strong interest from many of these hospitals and we are encouraged that in many cases there is high interest on the customer side that is starting to allow us to move quickly through the sales process. That said it’s important to note that we still assume the average sales cycle for new hospitals will be in the range of 6 to 12 months until we begin to become a more standard testing technology.

Third, our team is working to support customers with installed systems to more efficiently progress through the installation and verification process, which is typically taking 3 to 6 months, including delivery, calibration, training in the beginning of utilization of the platform. This is typical of other new diagnostic platforms as is the gradual ramp in testing volume over time even with fully validated running commercial sites. We are supporting our sales efforts with a variety of marketing initiatives, including e-marketing and educational webinars providing peer-to-peer education. We also are leveraging major industry meetings to showcase our products and to feed and drive the sales process. In early October, we had a strong presence at the IDWeek meeting in San Francisco.

In addition to our in-booth company activity, we have several customer post presentations that were well accepted and strongly reinforced our value proposition. And last week, we highlighted the T2Bacteria and T2Candida panels at the World Antimicrobial Resistance Congress. T2 was featured in a keynote presentation to a high-level audience of top stock leaders and stewardship, infectious disease, government, policymakers and academia. The speakers included infectious disease experts and T2 customers, Dr. Cornelius Clancy, our Chief Scientific Officer, Tom Lowery and a brave sepsis patient, Mary Millard.

Mary experienced tremendous suffering and has incurred approximately $3 million of healthcare expenses to-date from downstream injuries and required ongoing treatments, because of pseudomonas bloodstream infection, a pathogen associated with sepsis that took days to detect and treat appropriately. While she is lucky to be alive for patient in her circumstance today, the T2Bacteria panel could detect that specific pseudomonas pathogen within hours likely allowing for effective treatment and removing a tremendous burden on the patient and on the healthcare system. In terms of the commercial team, we grew the team from 12 to 15 by the end of the third quarter and remain on track to achieve our goal of 16 sales representatives by the end of the year. We have a strong team in place and are clearly benefiting from the top grading of the majority of the team that we completed over the past 12 months. In addition, to support the T2Bacteria launch, we are building a small team of medical liaisons, led by Sandy Estrada who recently joined the team as our Vice President of Medical Affairs.

Sandy is a doctor of pharmacy by training and implemented T2Candida at Lee Memorial Health System in Florida, one for our superuser accounts and the basis for some of the ongoing real-world clinical and economic research. So, Sandy is ideally suited for this role. Her team is leading the clinical conversation with customers backing up a sales force with next-level support in implementation strategies and serving as an important resource for implementing our products once a contract is signed. This team importantly also frees up our sales reps to spend more time on the road visiting facilities, building awareness and securing new customer contracts. We currently have two medical liaisons supporting Sandy and the rest of the commercial team and are planning to hire 2 more in the near-term.

Overall, our sales team is off to a great start with the launch of T2Bacteria and we are proud to be changing the clinical conversations in the economic equation as it relates to sepsis prevention and management. Before turning the call over to John Sprague for the details of our Q3 financial performance, I would like to provide a brief update on our pipeline and development efforts. We continue to enroll patients in our FDA clinical trial for the T2Lyme Diagnostic panel. The study will evaluate the clinical performance of T2Lyme compared to skin biopsy and/or detection of the C6 antigen. We expect this clinical trial to continue into 2019.

In September, we presented new preclinical data suggesting that the T2Lyme panel is more accurate than other diagnostics for identifying Borrelia infections for patients suspected of having early stage Lyme disease. The data was presented at a conference hosted by the Centers for Disease Control and Prevention, the National Institute of Health and the National Environmental Health Association. It showed that the T2Lyme panel was the most accurate diagnostic compared to tissue culture, with a 78% positive percent agreement, PPA and 100% negative percent agreement, or NPA. This compares to a 56% PPA and 92% NPA for the currently recommended diagnostic, 2-tiered serology. The 100% negative percent agreement of the T2Lyme panel indicates greater specificity over serology resulting in less incidents of false-positive results.

We are encouraged by these results and look forward to continuing with our pivotal FDA trials. If approved, we believe, T2Lyme could become the standard of care in an approximately $700 million market and importantly improve patient outcomes by directly detecting the bacteria that enters the bloodstream from a tick bite potentially weeks before it is possible with current testing options. On the development front, we have completed our final Allergan milestone for the T2 gram-negative resistant diagnostic panel, being developed through a partnership with Allergan and also supported by CARB-X. The panel which will officially be known as the T2 CARBA resistance plus panel could be used in the future to determine if a patient is resistant to the first line therapies associated with certain gram-negative bacterial infections. The CARBA resistance plus panel is the first ever direct from blood antimicrobial resistance panel.

This panel detects carbapenem-resistant genes, including KPC, NDM, OXA, VIM and AMP as well as AmpC, DHA, CMY and enterobacter and klebsiella species. We met the Allergan milestone ahead of schedule and now plan to make it available to research customers in the first half of 2019. We introduced this panel on IDWeek and plan to showcase T2 CARBA resistance plus at medical meetings in 2019 and evaluate the timing and requirements for clinical trial to support submissions to the FDA. As a reminder, T2 Biosystems owns exclusive worldwide distribution rights to the T2 CARBA resistance plus panel. We are also making good progress on the development of an additional resistance panel as part of our collaboration with CARB-X.

The panel focuses on additional bacterial species and resistance markers including ESBL in gram-positive resistance. This panel in combination with our T2 CARBA resistance plus panel comprehensively addresses the most serious superbugs in resistance genes on the antibiotic resistance threat list published by the CDC. With that, let me turn the call over to John Sprague who will review our third quarter 2018 financial results in greater detail. John?

John Sprague: Thank you, John. Third quarter 2018 total revenue was $2.5 million, a 127% increase over last year’s third quarter revenues of $1.1 million.

Product revenues primarily T2Candida panel and T2Dx Instrument sales were $1.2 million, a 71% increase over last year’s third quarter product revenues of $700,000. Research revenues were $1.3 million compared to $400,000 in last year’s third quarter. Costs and expenses, excluding cost of product revenues, were $8.6 million compared to $11.4 million in last year’s third quarter and include depreciation and non-cash stock compensation from stock options and restricted stock unit, or RSU grants of $2.4 million in the third quarter compared to $1.8 million in last year’s third quarter increased primarily due to the vesting of performance-based RSUs. Operating margins were a loss of $9.2 million compared to a loss of $12.4 million in last year’s third quarter. Net interest expense and other income net were $1.6 million compared to $1.6 million in last year’s third quarter.

Our net loss was $10.8 million, $0.25 per share compared to a net loss in last year’s third quarter of $14.1 million, $0.45 per share. Weighted average shares outstanding were $43.8 million compared to $31.4 million in last year’s third quarter. Our cash and cash equivalents were $60.2 million at September 30, 2018. We believe our cash and financing sources are sufficient to at least the first half of 2020, providing sufficient runway to demonstrate that the launch of T2Bacteria has changed the commercial trajectory of the company. In October, we updated our shelf registration on Form S-3 to refresh our ability for future security sales of up to $100 million, although we have no intention of selling such securities at this time.

Revenues for the 9 months ended September 30, 2018 were $8.7 million, an increase of 190% over revenues of $3 million for the 9 months ended September 30, 2017. Product revenues primarily T2Candida Panel and T2Dx Instrument sales were $3.5 million, a 67% over last year’s product revenues to-date of $2.1 million. Research revenues were $5.2 million compared to research revenues last year-to-date of $900,000. Costs and expenses, excluding cost of product revenue were $30.4 million compared to $36.8 million last year-to-date and include non-cash depreciation and stock compensation from stock options and RSUs of $8 million year-to-date compared to $5.2 million year-to-date last year and increased primarily due to the vesting of performance-based RSUs. Operating margins were a loss of $31.5 million compared to a loss of $39.5 million year-to-date last year.

Net interest expense and other income net were $4.5 million compared to $4.7 million last year-to-date. Our net loss was $36 million, $0.91 per share compared to a net loss of $44.2 million, $1.43 per share last year-to-date. The weighted average shares outstanding were 39.4 million compared to 30.9 million last year-to-date. 2018 outlook, the following forward-looking statements reflect estimates based on information as of November 1, 2018 and are subject to uncertainty. We reaffirm our guidance as outlined on our second quarter 2018 conference call.

We expect total 2018 revenue to be $10.5 million to $12 million, which implies an expectation of $1.8 million to $3.3 million in revenue in the fourth quarter. Product revenue is expected to be in the range of $5 million to $5.9 million for 2018 and research revenues expected to be in the range of $5.5 million to $6.1 million. We expect revenue to at least double in each of 2019 and 2020 as the customer base grows and the accounts go live testing with T2Bacteria, total revenue in 2020 in the range of at least $50 million. In the second half of 2018, we expect to close contract for the placement of 20 to 25 instruments. We delivered 11 new system contracts in third quarter implying the fourth quarter will include 9 to 14 new system contracts.

On our last call, we estimated these instrument placements were expected to provide access to at least 75,000 patients suspected of sepsis in the second half of the year and the third quarter fully achieved that goal. We believe that we will add at least 35,000 additional high-risk patients in the fourth quarter thereby exceeding our target significantly. The number of high-risk patients is important as it represents the current existing market opportunity for the T2Candida and T2Bacteria panels if every patient at hospitals under contract were tested at the time they showed symptoms of infection. However, as we said in our last call, this metric is becoming increasingly difficult to actively track and report and ultimately will become less meaningful as we expand our installed base and drive adoption into this high-risk population, which will be reflected in our utilization and recurring T2Bacteria and T2Candida Panel sales. Therefore, we will likely discontinue this metric after reporting results for the fourth quarter and full year 2018.

As John mentioned, it typically takes new instrument placements on average of 3 to 6 months to go live and patient testing commences as hospitals are required to validate any new diagnostic tests and instruments. During this period, the company typically receives nominal revenue, unless the instrument has been purchased by the hospital, which in the United States occurs about 15% of the time. International distributors typically purchase instruments had a 30% discount of the list price of $100,000 per instrument. We expect the average sales price of the T2Bacteria panel to be $150 and for T2Candida Panel to hold at $200 per test. International distributors typically receive a 30% discount.

We estimate that a single T2Dx Instrument is capable of running about 3,000 tests per year. Over time, as patient testing grows in the hospital, we expect each T2Dx Instrument to generate about $300,000 in annual revenue from the combination of T2Bacteria and T2Candida testing. We expect quarterly operating expenses in the range of $10.8 million to $11.8 million in the fourth quarter 2018, including non-cash depreciation and stock-based compensation approximately $2 million and non-cash stock-based compensation from performance-based RSUs of $800,000. Non-cash stock-based competition expenses maybe impacted by the timing of performance-based RSU vesting. We estimate that we will achieve cash flow breakeven between $65 million and $75 million in annual revenue.

We expect our gross margins to be approximately 45% to 50% at these revenue levels. Our weighted average shares outstanding of 43.8 million maybe impacted by stock option exercises. Thank you. And back to John McDonough for closing remarks.

John McDonough: Thank you, John.

In summary, we continued to meet our goals and to make commercial progress. We are also encouraged by the ongoing rollout of the T2Bacteria launch. We are delivering new system placements and contracts in line with expectations and are firmly on track to meet our guidance for the year, with momentum expected to continue to build in 2019 and beyond as our installed base continues to grow and we drive higher volumes of recurring testing revenues. We remain confident that this will allow us to at least double our revenue in each of the next 2 to 3 full years. Thank you for your participation in today’s call and for your continued interest in T2 Biosystems.

That concludes our prepared remarks this evening. Operator, we will now open the call for questions.

Operator: [Operator Instructions] Our first question comes from Paul Knight of Janney.

Paul Knight: Hey, John. On the bacteria panels that were added, was it – did you say 6 instruments or 6 hospitals added the panel, the bacteria panel?

John McDonough: The bacteria panel, I am not sure.

You are asking how many customers do we close, Paul or...

Paul Knight: You said that existing customers added bacteria panel capability.

John McDonough: Yes, that’s correct.

Paul Knight: And that was 6 in the quarter?

John McDonough: That is correct, 6 in the quarter, 6 additional customers in the quarter have their contract amended to adopt T2Bacteria.

Paul Knight: Okay.

And then of the 11 contracts in the quarter, can you guesstimate how many were related to bacteria?

John McDonough: Virtually all of them.

Paul Knight: Okay. And then, are people running panels yet in the clinic?

John McDonough: They are in Europe, Paul, and in U.S., they are just getting ready to go.

Paul Knight: And any initial feedback on those European customers?

John McDonough: Too early to really have feedback, I know they have gone live, I know there have been some exciting cases, but it’s too early to really cite any significant trends in that regard.

Paul Knight: Okay, congratulations.

Thanks.

John McDonough: Thank you.

Operator: Our next question comes from Steve Brozak of WBB.

Steve Brozak: Hey, good afternoon and congratulations on all the information and obviously all the progress. There was one thing you mentioned, your new VP of Medical Affairs.

Can you give us as much detail as possible in terms of how you decided to go down this path and why now? And anything that basically gives an idea of how to understand the process and what it means? And I have got one follow-up after this.

John McDonough: Yes, you bet, Steve. Yes, so we are really excited to have Dr. Sandy Estrada join the team as Vice President of Medical Affairs. Sandy is a doctor of pharmacy.

She was the key person, the lead person at the Lee Memorial Health System down in Florida that adopted T2Candida and are now in the process of evaluating and bringing in T2Bacteria. And she has been one of the leading, if not the leading top leader for us in terms of when she was a customer, talking at conferences and podiums and presentations and the like. And probably from an implementation standpoint knows more about how to implement this groundbreaking technology than anybody else, because she has successfully done it. And it demonstrated down at Lee Memorial with T2Candida 7 days like the phase savings, significant pharmacy savings and it’s a real exciting success story. She is a real believer for the technology, so much so that she is moving to career over to T2.

And her role is really to get out there, talk to customers that are in the pipeline, to help them, identify how to implement this technology within their institution, which patients to start testing at the beginning, what value they should expect to realize and she is doing that for both T2Bacteria and T2Candida. And we are building a team under Sandy, already having brought on board two medical liaisons. We will bring out an additional team to help drive this process. We definitely have seen that as customers go to implement as we talked about over the last several years, we expect that when customers go live, they start by testing a subset of the patient population and then grow into testing hopefully, all patients suspected of sepsis within the institution. If they think about that early, at implementation phase and where to begin and how to ramp up, Sandy’s role is really to help them do that in a really independent way and is somebody who has been a customer has adopted the technology.

So, we think this is a huge addition to our commercialization efforts and will make a big difference for customers.

Steve Brozak: My follow-up has to deal with your marketing team, what kind of feedback are they giving you in terms of what they are seeing on the reception side? And also specifically what they are seeing in terms of presentations, because in the past, you have focused on the DRG system in terms of how payments are contained, but now you also have the opportunity and the possibilities for CPT code payments, what kind of feedback are you getting from that? And I know it’s the very beginning, but what details can you give us on that? And I will hop back into queue please.

John McDonough: Yes, you bet, it’s been very positive. I mean, obviously, as we mentioned in our remarks, we were at two conferences in the last quarter, two significant conferences in the last quarter. The interest level is just way, way, way beyond anything we saw with T2Candida.

There is no question the interest in T2Bacteria or the sales pipelines and honestly, it’s the combination of T2Bacteria and T2Candida together, that’s really driving a higher level of sales activity and we are getting a very strong receptivity to adoption in the emergency department, that’s really being driven by some of the CPT code reimbursement potential in that setting and all signs are very positive at this still somewhat early stage of the product launch.

Steve Brozak: Again, thank you for the details and again congrats on the quarter.

John McDonough: Thanks, Steve.

Operator: Our next question comes from Mark Massaro of Canaccord Genuity.

Max Masucci: Hi, this is Max Masucci on for Mark.

Can you provide some color as it relates to same-store Candida utilization, how did Q3 shape up compared to Q2 and just your expectations going forward?

John McDonough: Yes. We haven’t disclosed specifically product line information, because it varies from quarter-to-quarter, but we have been seeing pretty consistent quarter-to-quarter growth in T2Candida. John Sprague, would you like to add anything to that?

John Sprague: Yes, I think if you look at the sales quarter-over-quarter understanding that they are primarily Candida, we typically get flatness in the summer months, but it wasn’t as dramatic as we feared or expected I should say. And year-over-year, we saw substantial growth for Candida on a same-store basis.

John McDonough: I think it’s worth pointing out to those on the call there is definitely a growing – continued growing interest in T2Candida.

I know a lot of the interest rightfully so was on the T2Bacteria product launch, but we continue to see growth and interest in T2Candida continued publications of really compelling data, the benefits of T2Candida. And I think it’s going to be a really important part of the story, a) because it is a revenue driver, but also because those success stories of T2Candida really do translate over to what people will expect to see with T2Bacteria.

Max Masucci: And then – thanks for that. That helps. Can you speak to any competitive response you have seen on any chatter from other post-blood culture companies, post-FDA approval of bacteria?

John McDonough: No, I have nothing to report there, solely but surely I think people are understanding the significant differences and benefits of going directly from blood, but we have not detected any change in that environment or charter or alike.

Max Masucci: Alright. That’s all I got. Thanks guys.

John McDonough: Thank you.

Operator: [Operator Instructions] Our next question comes from Soumit Roy of JonesTrading.

Soumit Roy: Hi, everyone and congrats on the great execution. I just had a quick question. As you are in the early stages of the product launch when you are reaching out to the new accounts, new physicians, what’s been the dominating conversations or what’s keeping new accounts to get in, is it they want to see a long-term drop in the mortality rate or is it really more confirmatory studies of better false-negative or better precision and fast accuracy, what’s been keeping them from jumping in, what’s your initial take?

John McDonough: Yes. No, I think it’s a great question. I would say that if we could change one thing, if everybody really believes in the 3x to 5x return on investment from the adoption of technology, I think that would change everything and how do you convince people of that is through more and more customer success stories and publications.

And it relates to both of what you are talking about, economic savings and outcome studies, certainly outcome strength in the world of sepsis. They don’t understand if you change the outcome, you turn two significant savings. The patient story, we told a few minutes ago, I think tells us story where comps can run up to $3 million. So, I think it’s just a bolus of data like we do seem to hit a point with T2Candida, where we have crossed into a much stronger belief that this technology works and we need to build the same type of publications and presentations. And it’s every time one goes out there, you address another hospital’s needs in terms of adequate data.

Everybody has a different line so when enough is enough. And on my last company, we were the market leader with a 70% market share and it took a long time to get to a 70% market share and it was really driven by publications and data and customer presentations.

Soumit Roy: Got it. I guess yes, you guys doing all the right things, so we will see. And just a quick touch on T2Lyme that you have guided we should still expect mid or second half of next year the FDA filling?

John McDonough: Yes.

So we expect to be on a track to complete that study by the second half of next year. We haven’t specifically timed when we file with the FDA, but that filing can happen typically within 30 to 90 days after you complete a study.

Soumit Roy: Got it. Thank you so much. Congrats again.

Operator: Our next question comes from Puneet Souda of Leerink Partners.

Puneet Souda: Yes, hi, John. I had a quick question. I was to trying understand I don’t know if this topic was covered so far. Just in terms of the menu that is currently on T2Bacteria, how broad is that menu? If you could give us in terms of species I am seeing 5 species that are here, just help me understand how much of a market that is currently covering? And then potentially what else do you need to do and to expand that broadly more longer term? And on T2Lyme again, if you could – the data was very interesting, but if you could provide on T2Lyme, the trial design going forward, how would you test for the patients that are more, if they had an infection on the same day or a week later, because you are looking for pathogens versus competitors that are looking for antibodies or antigens associated with that pathogen? Just those two questions and I will jump back into the queue.

John McDonough: Yes, you bet. Great questions. So I will answer your T2Bacteria question, could be in two ways. The T2Bacteria panel, which identifies five specific species of bacterial infection that come across both gram-negative and gram-positive infections, covers somewhere between 50% and 70% of all pathogens associated with sepsis and it is typically covering in the order of 90% of the pathogens that are typically not covered by broad spectrum antibiotic drugs, which are administered to patients typically at the time of presentation, so 50% to 70% of all pathogens. Perhaps more importantly, the CDC has identified something that they call the ESKAPE pathogens, it’s E-S-K-A-P-E which are the most problematic infections that they are worried about, both in terms of mortality and superbugs and the like.

And the T2Bacteria panel identifies 90% of those ESKAPE pathogens, again the most problematic pathogens associated with sepsis. So hopefully that answers that question. In terms of the T2Lyme product, the real answer is until we run the critical study, we really don’t know exactly where our detection is going to work best. Are we going to be picking up early stage Lyme disease, the disease in the first week, there is a lot of reasons to believe that, will we be equally effective or more effective if patients had been dealing with the disease for, let’s say, 30 days or longer. A lot of the design of the study is to determine that and the reason why it’s impossible for now is there has never been a technology that is detecting the bacteria Borrelia that’s associated with Lyme disease.

So, knowing exactly when the bacteria is present in it what concentration level is unknown. Scientifically, truly unknown and various people will debate that answer. So the clinical study will give us that answer. We will hopefully see that we work equally well and exceptionally well in both cases, so we may find out we will better-off our early stage versus late stage and we will figure that out as we go through the trial.

Operator: Our next question comes from Yi Chen of H.C.

Wainwright.

Yi Chen: Thank you for taking my questions. My first question is do you see any variability of the use of T2Dx system and the panels from hospital to hospital, do you see some of the hospitals have much, let’s say, efficient in using the system or panels?

John McDonough: Yes, great question. There definitely can be variability and some of that variability is natural, because hospitals see different types of patients with different kinds of infection rates. As I was answering Puneet’s question earlier, I stated that we cover 50% to 70% of the pathogens associated with sepsis.

It can be higher than 70% in some institutions it can even go a little bit lower and less than 50% in others, because of infection rates and what’s seen. So, there is definitely variability that in part is natural because of the hospital and some of that variability is also just geared towards how they begin using the technology. And to go back to the question from Steve Brozak earlier, that’s one of the areas we think building this medical affairs group under Sandy Estrada can make a big difference, where we can take all of the knowledge across multiple institutions and Sandy’s specific knowledge of Lee Memorial Health System and have every hospital benefit from how this technology has been implemented in one institution, so that, that can drive significant benefits in the next institution.

Yi Chen: Okay, thank you.

Operator: This concludes the question-and-answer session.

I would like to turn the conference back over to Mr. John McDonough for any closing remarks.

John McDonough: You bet. Thank you very much for listening today. We are very excited with the status of the T2Bacteria launch.

We think we are making good progress and we look forward to speaking with you in a few months about our fourth quarter activity.

Operator: This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.