Operator: Good afternoon, and welcome to the T2 Biosystems Third Quarter 2021 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to, Philip Taylor, Investor Relations. Please go ahead.

Philip Taylor: Thank you, operator. 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 these statements, including the risks and uncertainties described in T2 Biosystems' annual report on Form 10-K filed with the SEC on March 31, 2021, 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 Chairman and CEO John Sperzel. John?

John Sperzel: Thank you for joining our third quarter 2021 earnings conference call. Today, I will review the company's third quarter performance and provide updates and developments across our 3 corporate priorities. I will then turn the call over to John Sprague, who will review our third quarter financial results, before I make some closing remarks and we open the call for questions and answers. During the third quarter of 2021, the T2 Biosystems team generated total revenue of $7.4 million, an increase of 42% compared to the prior year period.

Product revenue during the third quarter was $4.3 million, an increase of 15% compared to the prior year period. Importantly, our U.S. sepsis test panel revenue increased 55% compared to the prior year period, and 18% sequentially compared to last quarter. We're very pleased with the total product sales growth compared to the prior year period, which included a record high number of T2Dx instruments, and the launch of our COVID-19 molecular diagnostic tests. Our mission at T2 Biosystems is to fundamentally change the way medicine is practiced through transformative diagnostics that improve the lives of patients around the world.

To achieve our mission, we're focused on driving adoption and increasing utilization of our culture independent rapid diagnostic tests for the detection of sepsis, causing pathogens and resistance genes. Our T2Bacteria and T2Candida and T2Resistance Panels can improve patient outcomes by reducing the time to detect sepsis causing pathogens and accelerating Time to achieve targeted therapy, thus reducing the burden of sepsis. Sepsis is the body's overwhelming and life threatening response to an infection. It is one of the greatest challenges to healthcare systems globally, and exacts an enormous economic and human toll each year. I want to share three staggering facts about sepsis.

First, sepsis is the leading cost of U.S. hospitalization. According to the U.S. Department of Health and Human Services, sepsis costs our health care system approximately $62 billion annually. Second, sepsis is the leading cause of death in U.S.

hospitals. According to the U.S. Centers for Disease Control and Prevention, sepsis claims the lives of approximately 270,000 Americans each year. And third, sepsis is the leading cause of 30-day hospital readmissions. According to data from the National Center for Biotechnology Information, approximately 20% of sepsis survivors are re-hospitalized within 30 days.

The current standard-of-care for patients at risk of sepsis relies on broad impairment protocols to administer antimicrobial therapy, despite the fact that such protocols are only optimal in about one half of cases. The current standard-of-care also relies on a positive blood culture to identify the presence of a bloodstream infection. Despite the fact that blood culture can yield false negative results due to poor sensitivity and take one to five days to achieve the growth needed for pathogen identification. Finally, traditional microbiology or molecular diagnostic tests, which rely on a positive blood culture, may then be required to determine species ID and susceptibility. The challenge in managing patients at risk of sepsis or suspected of sepsis is that it is a race against time.

Each hour of delayed treatment can increase mortality risk by up to 8%. Therefore, early identification of sepsis causing pathogens is critical to improving patient outcomes. Our aim at T2 Biosystems is to change the standard-of-care by enabling targeted therapy faster. Our T2 Bacteria and T2Candida Panels are the first and only FDA cleared products able to detect substance causing pathogens directly from whole blood within three to five hours without the need to wait days for a positive blood culture. Strategically, we're focusing our efforts around three corporate priorities, to create and provide value, accelerating our sales, enhancing our operations and advancing our pipeline.

Starting with our first priority, accelerating our sales, our sales strategy consists of three elements. One, increased sepsis test utilization among our installed base of T2Dx Instruments, two, expand our T2Dx Instrument installed base by selling or placing new instruments and three, transition the U.S. COVID driven instruments sold during 2020 from our T2SARS-CoV-2 Panel to sepsis panels. During the third quarter, we achieved annualized sepsis test utilization of $115,000 per legacy T2Dx instrument within our U.S. hospital customers, a 55% increase compared to the prior year period.

Long term, we continue to believe that routine use implementation of our sepsis panels will reach $200,000 per instrument. In line with our expectations, we entered into contracts for eight T2Dx Instruments during the third quarter, including one in the United States and seven internationally. In addition, we have already entered into five T2Dx Instrument contracts during the fourth quarter, and we continue to believe we will enter into at least 32 Dx Instrument contracts for the full year 2021. As a reminder, we sold 47 T2Dx Instruments to U.S. hospitals during 2020 for COVID-19 testing and plan to transition these customers to sepsis testing over time.

We pre-qualified these customers based on their commitment to evaluate our sepsis panels following the pandemic. And we continue to believe these customers will convert to our sepsis panels. While we have converted some accounts, the widespread conversion has been delayed, as these customers continue to use our COVID-19 tests and currently lack capacity to evaluate our sepsis products due to continued demands of the pandemic. With the evolution of the SARS-CoV-2 virus mutating into different variants, we've been diligent in our efforts to ensure that our test is capable of detecting the new variants. To date, based on sequence and in silico analysis, our T2SARS-CoV-2 Panel can detect all variants of interest, as noted by the CDC, including the alpha, beta, gamma, delta, Lambda, Mu, and Iota variants.

The recent increases in COVID-19 infection rates have led to continued customer demand for our T2SARS-CoV-2 Panel, which we expect will continue through the remainder of the year. Because our products and technology are at the forefront of solving one of the most complex healthcare problems, several functional groups at each hospital are involved in the purchase decision. Accordingly, we are building a team and commercial process to address the priorities for clinicians, laboratorians’ pharmacists, and administrators. As we announced today, Brett Giffin will join T2 Biosystems as Chief Commercial Officer, effective Monday, November 8, replacing Tony Parley, who recently accepted a CEO role with another firm. Brett will lead our commercial growth initiatives with direct responsibility for global sales, marketing, service and customer support.

He brings significant industry experience and commercial leadership, having served as Chief Executive Officer for two early stage medical technology companies as Chief Commercial Officer at Accriva Diagnostics, formerly ITC Medical, where Brett and I worked together and in several sales and marketing leadership roles at Datascope, Covidien, Boston Scientific, and Johnson & Johnson. Brett began his career as a U.S. Army officer, serving in Panama and Central America. As we previously described, we're expanding our U.S. commercial team to increase T2Dx instruments sales, and drive adoption and increased utilization of our sepsis tests.

During the second quarter, we expanded from 2 to 11 regional account managers, and we spent significant time training our new team during the second and third quarters. Our plan is to expand to 20 regional account managers by January 2022. The regional account managers are working closely with our medical affairs team to support the needs of our customers and provide customer centric solutions. To further expand our business, we've initiated commercialization in the Asia Pacific region through distribution agreements in Singapore and South Korea. Under terms of the distribution agreements, we will sell our sepsis products, including T2Dx Instruments, and T2Bacteria, T2Candida and T2Resistance Panels to our new distribution partners in Singapore and South Korea.

The Asia Pacific region, home to 4.6 billion people representing meaningful growth opportunity for T2 Biosystems and we view Singapore and South Korea as ideal locations to establish a commercial foothold and build long term relationships with distributors and customers. According to estimates by the Asia Pacific Sepsis Alliance, national sepsis incidents in the region ranges from 120 to 1600 for 100,000 people with mortality rates related to sepsis up to 35%. I'm pleased to report that we have initiated shipments to these new geographies as part of the initial instrument purchase orders, with two T2Dx Instruments shipped to Singapore during the third quarter, and four T2Dx Instruments to be shipped to South Korea during the fourth quarter. Simultaneous with our commercial expansion, we have been rebuilding our clinical and medical affairs teams to raise awareness and enhance the messaging on the clinical value of our products. Our new team is comprised of laboratory professionals, pathologists, clinical microbiologist, infectious disease doctors, and PharmDs, and is actively engaged with key opinion leaders to generate and share real world data with scientific journal publications at medical conferences, and at industry trade shows.

Our ability to demonstrate and message improvements in clinical outcomes and cost reductions are key elements of our value proposition. We're committed to the generation of clinical and health economic outcome data to support the adoption and utilization of a rapid diagnostic technology, especially when it comes to bloodstream infections, and sepsis. Accordingly, we're increasing our clinical data library and our presence at key medical conferences. Earlier this year, a meta-analysis of 14 controlled studies was published in expert review of medical device, a peer reviewed medical journal, comparing our sepsis products to the blood culture standard-of-care. The use of T2 products showed significant clinical improvements and efficiencies, including faster time to species identification by 77 hours, faster time to administer targeted antimicrobial therapy by 42 hours, faster time to de-escalation of empiric therapy by seven hours, and decrease length of patient stay in the intensive care unit by five days.

During the third quarter, we unveiled new data with the medical community at several conferences, including Sepsis Alliance Summit, the American Association for clinical chemistries annual scientific meeting, and clinical Lab Expo, the College of American Pathologists annual meeting, and IV week. This data allows our team to continue essential discussions on the important role of culture independent rapid diagnostic tests in the timely and accurate detection of sepsis causing pathogens, as well as positive patient and healthcare outcomes. Throughout the pandemic, our commercial and medical affairs teams have faced hospital access restrictions that limited in person engagement. That has been a headwind to the adoption of our sepsis products. We had previously expected a more favorable environment during the second half of the year as hospitals loosened restrictions, and granted increased access.

We have seen improvements and we anticipate that our sales and medical affairs teams will have continued access to U.S. hospitals during the fourth quarter. And that hospital personnel will have increased bandwidth to engage in discussions regarding sepsis protocols, and innovative diagnostic technology for sepsis management. We are raising our revenue expectations to reflect our third quarter results, and now expect total revenue for the full year 2021 of $25 million to $27 million consisting of increased product revenue of $15 million to $16 million, and research and contribution revenue of $10 million to $11 million, which remains unchanged. And we continue to expect to enter into at least 30 T2Dx Instrument contracts in 2021.

Moving to our second priority, enhancing our operations. At the beginning of 2021, we set the goal of enhancing our business operations with an emphasis on product gross margins, operating cost, structure, and efficiency. We reviewed all business and manufacturing processes, as well as our business tools. During this review, each cost line item was carefully scrutinized to ensure that expenses and investments were aligned with our 2021 priorities, including our growth objectives. Throughout 2021, we have focused on scaling our manufacturing capabilities, and strengthening our supply chain.

Over the last year, we've scaled our manufacturing from being able to produce 2000 tests a week to over 7000 tests a day. To achieve this level of production, we scrutinized every aspect of the manufacturing process, eliminated waste, and added efficiencies. As a result of these initiatives and increased volumes, we are seeing significant improvement in our product gross margins. Not only did we make efforts to streamline our manufacturing process, but we also explored new tools to help us better manage our growth. We assess multiple tools and determine that one of the best ways to improve our efficiency is by implementing a new Oracle ERP system, which we implemented in the third quarter.

This new system will help us gain efficiencies and scale across operations including supply chain and accounting. During the third quarter, we finalized a lease that will consolidate our existing operations into a 70,000 square foot state of the art Life Sciences facility in Billerica, Massachusetts, to accommodate current and future growth. The new facility will include R&D labs and manufacturing space designed specifically to advance the development of current and new products while reducing operating costs highlighted by 60% reduction in rent. We expect the move to occur during the second half of 2022, at which time we will exit our current facilities. Lastly, moving to our third priority, advancing our pipeline.

We're continuing to advance the programs outlined in our product development contract awarded by the Biomedical Advanced Research Development Authority, or BARDA. That is valued at up to $69 million based on the achievement of certain milestones with defined contract phases. During the third quarter, our scientific team successfully completed the milestones under Option One of the contract, which led to BARDA’s decision to exercise option 2A. Option 2A is planned for the period between October 2021 and March 2022 and valued at $6.4 million. As a reminder, we're developing four products under the BARDA contract, the T2Resistance Panel, the T2 biothreat panel, the comprehensive sepsis panel, and the next generation instrument.

The T2Resistance Panel is a direct from blood test panel designed to detect 13 antibiotic resistant genes from gram positive and gram negative pathogens in three to five hours and runs on our FDA cleared T2Dx Instrument. We're currently marketing and selling the T2Resistance Panel in Europe under CE mark and we're on a pathway to apply for U.S. FDA 510(k) clearance prior to commercialization in the U.S. market. The T2Resistance Panel has previously received breakthrough device designation from the FDA.

And we have engaged in conversations with the FDA on the clinical trial requirements required for 510(k) submission. We plan to initiate a multisite clinical trial during the first quarter of 2022 which is anticipated to involve 10 sites and will recruit up to 1500 subjects. The T2 biothreat panel is a direct from blood panel designed to detect six biothreat pathogens and runs our FDA cleared T2Dx Instrument. The development of the T2 biothreat panel has concluded. And we've demonstrated preliminary detection of targeted biothreat pathogens directly in whole blood at clinically relevant concentrations.

Analytical verification studies have been initiated and we plan to initiate the clinical trial for the T2 biothreat panel during the first quarter of 2022 with positive samples being prepared and analyzed in a high containment biosafety level three, or BSL-3 laboratory The comprehensive sepsis panel is a direct from blood test panel designed to detect up to 99% of all bloodstream infections caused by bacterial and Candida species, as well as all blood borne antibiotic resistant threats, identified as urgent by the Centers for Disease Control and Prevention in a single test, with time to result of approximately three hours. The comprehensive sepsis panel is being developed using our pre-existing and proprietary technology. The Next Generation instrument is being developed in parallel with our comprehensive sepsis panel, and is designed to be fully automated on demand and random access, similar to our T2Dx Instrument, but with faster turnaround times, and the ability to detect an increased number of pathogens and resistance genes from a single old blood sample. The industrial design is nearing completion. And based on the current schedule, we plan to have a fully functioning beta unit in mid-2022.

Once completed, we'll merge the prototypes with the assay and initiate full scale system wet testing. With that, I'll now turn the call over to John Sprague to go over the details of our first [ph] quarter financial results.

John Sprague: Thank you, John. Total revenue for the third quarter of 2021 was $7.4 million, an increase of 42% compared to the prior year period. Product revenue was $4.3 million, an increase of 15% compared to the prior year period, driven primarily by increased test panel sales.

Research contribution revenue was $3.1 million, an increase of 110% compared to the prior year period, driven by increased BARDA contract activity. Product costs for the third quarter of 2021 were $4.7 million, a decrease of $2.1 million compared to the prior year period driven by manufacturing cost efficiency initiatives. Research and Development expenses were $6.4 million, an increase a $2.6 million driven by increased BARDA contract activity. Selling, General and administrative expenses were $8.5 million, an increase of $3.3 million driven by increased commercial team headcount, increased tradeshow activity, and an ERP system implementation which went live in October. Net loss for the third quarter of 2021 was $14 million, $0.08 per share, compared to a net loss of $11.3 million $0.08 per share for the prior year period.

Cash, marketable securities and restricted cash were $43.6 million as of September 30, 2021. We did not use the ATM facility in the third or fourth quarter 2021. And we are in compliance with remaining covenants of the CRG loan agreement. As John mentioned, with respect to 2021 guidance, we are raising our revenue expectations to reflect our third quarter results, and now expect total revenue for the full year 2021 of $25 million to $27 million, consisting of increased product revenue of $15 million to $16 million and research contribution revenue of $10 million to $11 million, which remains unchanged. We continue to expect to enter into at least 30 T2Dx Instrument contracts in 2021.

Thank you. Back to John Sperzel for closing remarks.

John Sperzel: Thank you, John. We're building a foundation for sustained growth. And we're encouraged by the progress made across our corporate priorities during the third quarter.

Our sales have increased considerably compared to the prior year period. And we continue to expand our commercial and medical affairs team to raise awareness of our technology and drive adoption and utilization of our products. Simultaneously, we're advancing new products toward commercialization, including the T2Resistance Panel and T2 biothreat panel and taking actions to efficiently scale our manufacturing and prepare to produce future products like our next generation instrument and comprehensive sepsis panel. I'm confident we will continue to make major contributions to the advancement of care for patients at risk of sepsis. Before concluding, I'd like to welcome Laura Adams to our Board of Directors.

She's a healthcare industry thought leader who continues to optimize patient care delivery through data and analytics. We're excited to have her on board and look forward to her valued input and leadership. I would also like to thank Tony Pare for his contributions to the company, and wish him well in his new role. And finally, welcome Brett Giffin as our new Chief Commercial Officer. Now let’s open it up to questions.

Operator?

Operator: [Operator Instructions]. Our first question is from Mark Massaro of BTIG. Please go ahead.

Unidentified Analyst: Okay, this is Vivian [ph] on for Mark, thanks for taking the question. So how should we think about how COVID testing contributed to revenue, and how sepsis revenue trended sequentially? And if you can also provide a further update on how transitioning instruments from COVID to sepsis is tracking.

John Sperzel: So the sequential growth of our sepsis business from quarter to quarter, I believe we stated in the prepared remarks was about 18%. The transition from the COVID driven instrument sales to sepsis, I would consider that as being delayed, largely due to bandwidth of hospital personnel, and the continued use of our COVID-19 molecular diagnostic tests. So we see that as a delay, every customer that we sold an instrument to for COVID-19 testing in the second half of 2020, has continued to express interest in converting to our sepsis panels in the future. And John, would you comment on the COVID contribution during Q3?

John Sprague: Sure, so COVID was about it was 56% of our sales in Q3, which is decreasing from earlier in the year.

Unidentified Analyst: Okay, awesome.

Thanks. And could you also maybe discuss what drove that improvement in annualized run rate, and how we should think about a target moving forward, maybe for 2022.

John Sperzel: One of the three legs of our commercial stool, if you will, is to increase sepsis test utilization among our installed base of instruments. And that happens through a combination of things, increased awareness about our technology, increased adoption of other test panels. For example, if a customer is using only our T2Candida Panel, expanding that to also introduce our T2Bacteria Panel, wider adoption within an account, meaning that more clinicians order the test as we continue to evolve.

And we drive that through a combination of broadening or expanding the clinical data putting that in the hands of our commercial team, as well as our Medical Affairs Specialist, you'll note that we have completely rebuilt our medical affairs team, largely to reflect the kind of customers that we sell to. And we sell our products, enterprise wide basis within hospitals, to Laboratory Professionals, PharmDs, Infectious Disease, Doc's and administrators. So we've hired people within our medical affairs team, such that we can have peer to peer conversations with our customers. And we think that that's going to allow us to continue to drive utilization as we go forward.

Unidentified Analyst: Okay, great.

Thanks so much. So for APAC, you booked four instruments? Could you elaborate on the demand that you're seeing there and give some color on how those international placement dynamics are different from the U.S.?

John Sperzel: Well, our objective is to establish a global footprint, and we're really pleased to enter the Asia Pacific market, as we said in the remarks, initially in Singapore and South Korea, and our model outside the U.S. is that we sell our products to distributors. In this case, we are focused in the AsiaPac market, on our success products, T2Dx Instruments, Bacteria, Candida, and Resistance Panels. We shipped two instruments to Singapore during the third quarter, and four instruments are expected to ship to South Korea during the fourth quarter.

Those are initial instrument orders along with those distribution agreements. As I mentioned earlier, we view Asia Pacific region as a significant growth opportunity for the company has a high incidence and a high mortality rate associated with sepsis. And we believe there's potential to continue to expand geographically within the region.

Unidentified Analyst: Awesome. Thanks so much for taking the question.

John Sperzel: Thank you, Vivian.

Operator: [Operator Instructions] Seeing that there are no further questions. I would like to turn the conference back over to Mr. Sperzel for closing remarks.

John Sperzel: I just like to thank all of you for joining our third quarter 2021 earnings conference call.

Look forward to updating your next quarter. Have a great day.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.