Matt Clawson - IR, Pure Communications John McDonough - President and CEO Moe Castonguay - CFO.

Isaac Ro - Goldman Sachs Liza Garcia - Morgan Stanley Paul Knight - Janney Montgomery Mark Massaro - Canaccord Genuity.

Greetings and welcome to the T2 Biosystems' 2015 Third Quarter Financial Results Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Matt Clawson of Pure Communications. Please go ahead..

Thank you, Stacy [ph]. Good afternoon everybody. Thanks for joining us for the T2 Biosystems third quarter call. On the call this afternoon to discuss results and operational milestones for the third quarter ended September 30, 2015 are President and CEO John McDonough and Chief Financial Officer Moe Castonguay.

John and Moe will lead off the call with some prepared remarks, followed by a question-and-answer period. I'd like to remind everyone that comments made by management and responses to questions today will include forward-looking statements.

Those include statements related to T2 Biosystems' future financial and operating results and plans for developing and marketing new products.

Forward-looking statements are based on estimates and assumptions as of today and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied by those statements, including the risks and uncertainties described in T2 Biosystems' annual report on Form 10-K, filings with the SEC, the risk factors section in its registration statement on Form S-1, as well as other risks and uncertainties detailed in subsequent SEC filings.

The Company undertakes no obligation to publicly update or revise any forward-looking statements except as required by law. With that, I'd like to turn the call over to CEO John McDonough for his opening comments. Good afternoon, John..

Thank you, Matt, and good afternoon everyone. Thank for taking the time to join us on the call today. We had a very productive quarter.

I'm pleased to say that all aspects of our business are making substantial progress and that the hospital community, through their adoption of our platform is demonstrating their confidence, the time and sensitivity are indeed the critical factors in impacting the sepsis crisis in hospitals.

Our new CFO, Moe Castonguay, will give you the financial details in a moment. But all of our financial metrics remained on rack. Revenues, operating expenses and earnings per share were all consistent with our expectations.

We're also especially pleased with our progress of the other important commercial metrics, engaging the hospitals on our target list, presenting our technology and its value proposition, signing them to contracts, and now seeing the utilization commence following system initiations at our first adopters.

As with the close of the third quarter on September 30th, we have signed contracts for T2 candida implementation and T2Dx instrument placements with 19 customers, including 18 hospitals in the United States and one lab in Europe. That means we added nine more during the third quarter.

As of the end of September, six of the accounts are online, ahead of the five we projected to be online on our last call, meaning the installations and verification processes are complete and the hospitals are already testing patients at high risk of sepsis. Orders for T2Candida and revenues have commenced.

We have stated in the past that the time from contract signing through the customer's verification period, to testing patients, was expected to be three to six months. I'm happy to report that we are -- tracking right in our range and that the method we suggest to customers for verifying costing procedures is being adopted by virtually all accounts.

This is important because it speeds up the time that customers come online, accelerates the impact we can have on patients, and allows the revenue ramp for testing within a hospital to start sooner. Looking to yearend, we're excited to say that we're on track to close contracts with 30 hospitals by the end of September, as forecast.

We said from the start that two-thirds or more of the contracts will close in the second half of the year. Our confidence in achieving the goal of 30 is based on the 19 closed contracts as of September 30th, the contracts already closed in Q4, and a very active sales pipeline.

Through conferences and presentations at industry forums, customers are beginning to identify themselves and are beginning to share their positive experiences with T2Candida. Physicians are ultimately discussing their successful clinical outcomes with T2Candida and the T2Dx at conferences and on panel discussions.

For example, Maiken Arendrup, a thought leader and Head of Mycology, Microbiology and Infection Control at Statens Serum Institute, a leading research and laboratory services organization in Denmark, shared data on several patient cases including our identification of candida infections that blood cultures completely missed.

She also had a major publication with the New England Journal of Medicine on October 8, 2015 that identified T2Candida as the most sensitive and specific diagnostic test available for disease diagnosis.

At the ICAAC Conference in September, the co-director of the Anti-Microbial Stewardship Program, with one of our customers that just went live in September testing patients, discussed cases where T2Candida detected patients early and how the hospitals and patients are benefiting from the reduction on the use of anti-fungal drugs based on negative T2Candida test results.

Another case highlighted where blood culture came out positive and our test turned out negative, only to find that T2Candida was correct, saving the patient from pulling a line which could have had a negative impact on the patient, yet another concern about relying solely on blood culture as the basis for sepsis diagnostics.

Another story from a hospital that came online in September showed that, of the first 25 patients tested, four positive and were treated early, which could never have happened without T2.

While that hit rate is certainly above the reported averages, it does hint of the power of the technology, combining the clinical benefit of those four patients getting the right drugs onboard days before they might have otherwise, with the cost savings of avoiding unnecessary drugs for the other 20 wrong patients, this system is essentially paying for itself right out of the gate.

I think people are generally aware that time is our key differentiator. Our case tests take three to five hours, versus all competitive tests where the blood needs to be culture and can take days. That's a huge advantage in terms of success for a patient and a decrease in expense for the health system. But we're not just about early detection.

It's also just as important to understand that we also offer distinct advantages in terms of sensitivity and accuracy. That's becoming apparent as testimony from physicians now using our products commence. We're picking up sepsis cases that had been missed by blood culture completely.

We're not just providing speed at the expense of accuracy or sensitivity, we are providing benefits in speed, accuracy and sensitive. That's the point we consistently underline to our customers and potential customers.

This point was further demonstrated in a publication in Future Microbiology in August that analyzed data across multiple studies from 55 patients with proven candida infections.

T2Candida detected 96% of the patients were blood culture detected only 60%, percentages that are very consistent with our T2Candida FDA clinical trials and percentages that are frequently reported from blood culture.

For us, seeing our systems in use, making the difference that we expected is very rewarding, as does hearing the early physician users up in a podium talking about our products.

We believe this continuing evidence in now real-world data will drive usage within these hospitals and adoption by new hospitals, as we move from early adopters toward the mainstream market, hearing from customers will make it easier for others to adopt, and there's already evidence that this will drive sales.

For example, we had begun discussions with one acute care network that has a significant number of candidemic patients. They were considering bring T2Candida into one of their hospital lab facilities that supports 12 local hospitals when they heard about the Lee Memorial experience at the ICAAC conference.

Based on that experience, they quickly moved to adoption and the entire sales cycle took less than 90 days. This acute care network has three other lab locations that support hospitals of other areas of the country. Success at this first location is expected to lead to adoption at their other lab facilities.

As you know, along with T2Candida, we also have other products in different stages of development, including T2Bacteria, T2Hemostat and T2One [ph]. T2Bacteria is being created to rapidly and accurately identify the most significant and adequately treated bacterial species related to sepsis.

Like T2Candida, T2Bacteria will be the first and only diagnostic panel that can provide species-specific diagnostic results in three to five hours directly from a blood sample. All other diagnostics for species identification require a blood culture that is time-consuming, labor-intensive, and misses 30% to 70% of infections.

Like T2Candida, the market opportunity for T2Bacteria is large, but will also include many patients that present the signs and symptoms in the emergency room. In terms of timing for T2Bacteria, we plan to present data on the full panel at the AMP Conference in Austin, Texas later this week.

Regarding the start of our FDA clinical trial for T2Bacteria, it is our expectation that before the end of this year we'll start collecting patient samples for clinical trial sites with a goal of submitting data to the FDA sometime in the third quarter of 2016. It's difficult to nail the timing precisely.

The turnaround time from FDA submission to FDA clearance for T2Candida took four months. Since we'll be seeking a 510(k) clearance for T2Bacteria, perhaps it may be a little bit quicker. On the commercial front, it bears noting that every T2Dx instrument we make this year and next can potentially be immediately leveraged when T2Bacteria is approved.

The installed base of customers we are building today, hospital by hospital, will only get more valuable with the addition of new products.

The T2Hemostat program and timeframe remain unchanged this quarter and continues to draw a growing interest among trauma surgeons and other specialists facing the dual problems of bleeding and clotting and the baby-boomer population that is prone to blood-sending [ph] drug regimens.

Finally, on the strategic front, we're making progress on our partnership with Canon U.S. Life Sciences to develop a diagnostic panel for Lyme disease, a bacterial infection caused by three different bacterial species and spread by ticks. Like sepsis, that market is wide open. The current testing standards have very low sensitivity.

Data suggests 90% of patients never get properly diagnosed. T2Lyme will run on the same instrument as T2Candida and T2Bacteria and will also save our customers and the healthcare systems substantial time and money while saving and improving lives.

Progress on that front has resulted in additional interest from other blue chip companies that have identified T2 model applications in other fields. We will continue to update you as these programs get off the ground. With that, I'll turn the call over to Moe who will cover the financial highlights..

Thanks, John. As John indicated, we made solid progress in the third quarter, including recorded our first commercial revenues from testing patients. Most of the initial T2Candida customers are still in the verification period; however, we did record $245,000 of product revenue from early placements.

In addition, we recognized $804,000 in revenue related to research partnerships in the quarter, bringing total revenue to $1.05 million. The Company did not record any revenue in the prior-year third quarter. We expect our margins to gradually improve over the next year as our volume grows.

We are in the early stages of ramping manufacturing operations and have not yet attained economies of scale. As a result, our product margins are not meaningful and are not reflective of what our margins will be when we reach meaningful commercial scale.

Total operating expenses, excluding cost of product revenue, for the third quarter of 2015, were $11.4 million, compared to $7.8 million for the year earlier period.

The increase in operating expenses was mainly associated with the growth of our sales organization, expansion of marketing programs to drive customer awareness, and research and development activities for additional applications of T2MR.

The net loss for the third quarter of 2015 was $11.6 million or $0.57 per share, compared to a net loss of $8.8 million after adjustments for accretion of redeemable convertible preferred stock or $0.71 per share for the third quarter of 2014.

The third quarter 2014 loss per share was directly impacted by the weighted average common shares outstanding from the date of our IPO on August 7, 2014 to the end of the third quarter of 2014.

Specifically, for the third quarter of 2015, we had 20.3 million weighted average shares outstanding, compared to $12.4 million weighted average shares outstanding in the third quarter of 2014. The Company's balance sheet as of September 30, 2015 had total cash and cash equivalents of $40.1 million.

In addition to the cash on the balance sheet, we were able to draw an additional $10 million from our debt facilities through December 31, 2015.

Additionally, in October 2015, we entered into a $10 million equipment lease facility to help fund our $2016 capital equipment purchases and T2Dx instruments used by our customers in our reagent rental program. Before I turn the call back to John for his final comments, I'd like to reiterate the outlook John laid out in our second quarter call.

As anticipated, the ramp of our product placements in hospitals will be weighted to the fourth quarter as our sales force ramps and our sales pipeline expands. It's also important to note that all nine instrument placements made in the third quarter of 2015 were under our reagent rental program.

Based on the trend for this year, we expect 80% to 85% of our target hospitals to choose a reagent rental model where we will place the T2Dx instrument at the hospital in exchange for an up-charge in the consumables, with the remaining hospitals choosing to purchase the instrument.

When we close the contract out of hospital, we anticipate it will take three to six months for installation and verification and that it could take an additional six to 12 months for our customer to ramp the number of their high-risk patients being tested.

In Q4 2015, we anticipate slightly lower research revenue with growth in product revenue over Q3 as more hospitals roll out their testing of high-risk patients. Although we expect Q4 2015 product margins to improve, the lack of scale will not produce gross margins that will have a meaningful impact on our overall operating results.

We anticipate total Q4 2015 operating expenses to increase 8% to 9% over Q3 of 2015 and for cost of product revenue to increase based on the increases in product sales. Total costs and expenses in Q4 will include approximately $1.9 million in non-cash expenses, which are primarily depreciation and stock compensation expenses.

With that, I'll turn the call back over to John..

Thank you, Moe. Let me summarize the key takeaways from the quarter. We continue to hit our targets in terms of revenue, expenses, earnings per share, and most importantly at this point, hospital contracts for our T2Dx instrument and T2Candida diagnostic panel for detecting sepsis.

We're at 19 and should knock down our goal of 30 by the end of the year. Six contracts that are online as of September 30 have been generating revenue. Patient stories are starting to come in, and physicians are beginning to share anecdotally at conferences and on panels the value they're seeing from our products.

Seeing all of these results make this an especially exciting time for all of us. If we continue to execute as we have, we believe we can continue to build momentum, not only with T2Candida but with new diagnostic panels in development for bacteria, hemostasis and Lyme disease.

As we look out to all these initiatives on the horizon and continue to build towards commercial expansion outside of the United States, I am pleased to report that David Harding is joining the Company in the role of Chief Commercial Officer.

David has an extensive background in commercial operations, including roles in marketing, international operations and general manager at Hologic and Cytyc where I had the opportunity to work with David in the past.

His primary role will be to execute the development of an integrated and global commercial team to lay our multiple technology launches and then to scale those businesses. David brings great experience to the team, strategic and operationally, as we expand our business globally and with the addition of new product lines in the future.

One final thought. There's been lots of chatter recently among investors and analysts of the diagnostic space over reimbursement news and CMS pricing that was unfavorable for many large molecular diagnostic companies. We are pleased to say that we are in a market where we are not impacted at all by those developments.

Our products are covered under DRG codes where hospitals get a fixed sum reimbursement for the patient. All of the economic savings associated with our products dropped to the bottom line of the hospital. Our reimbursement codes and models are all intact and stable.

In fact, if those DRG codes were under review, that would probably help us, as hospitals would have to look for ways to reduce their cost for treating patients. This is what we do. Last week we were honored to receive the Prix Galien Award for the T2Candida panel, which was named the Best Medical Technology Product.

There was only one selection in this category annually and it's probably the most prestigious product award recognizing breakthroughs in science and technology that can make a difference in the lives of patients.

Selected from a group of industry leaders, including products in the blood culture space and successful products who had been in the market for many years, we are both humbled and honored to receive this recognition.

I would like to extend our thanks, appreciation and respect for the scientists and engineers at T2 Biosystems that have created this breakthrough platform and product. It is exciting times for all of us as we start to see patients being impacted by our work and for our mission to begin to be fulfilled. With that, I'll turn the call over for questions.

Operator?.

Thank you. We will now be commencing the question-and-answer session. [Operator Instructions] Our first question comes from Isaac Ro with Goldman Sachs. Please proceed..

Hi. Good afternoon guys. Thank you. John, I wanted to ask a question about your full year guidance, those 30 contracts. You've been very consistent all year on calling for that to close as expected. You talked a little bit about the reasons behind it with regards to your pipeline and all that.

And I was curious if you could put a little more color around the pipeline, whether it's for this quarter or let's say the next six months, are there any pipeline opportunities that you can point to where you have potentially multi-system orders, something that would really catalyze an entire health system? Just curious if you could put more color on the quality and dynamics around the pipeline.

Thank you..

Yeah, Isaac, great question. For sure we're seeing strong development on all fronts, both with the networks but also with the large single hospital systems as well. As you recall, in Q2 we actually closed a network that has led to adoption and in fact roll out in four -- in a four-hospital system.

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

We call this one contract as we're just installing it in one hospital location. But in fact there are 12 hospitals that we'll be supporting. And they have three other special occasions around the country which there'll be the potential to roll out into, you know, given what we hope and expect to be a success with the rollout in this first institution.

And there are many others even bigger than that that are certainly in the pipeline that could lead to an acceleration in the closing of hospital contracts. For that and all the reasons I mentioned earlier, we feel really, really good. We have, in my opinion, the best sales force in the industry.

They've done a great job to this date and have built a great pipeline entering the fourth quarter. And we are continuing to reiterate our confidence in hitting that 30 number certainly. Our confidence today to hit 30 is at an all-time high.

You know, when you start the year and you think you're going to get to 30, it all feels reasonable, it feels a whole lot better to have 19 closed at the end of September, see the kind of pipeline in front of us and to have the confidence of what the future might hold..

Appreciate all the color there. Thank you. Moe, questions for you, on the gross margin side. Obviously overshot our assumptions in 3Q gross margin, and appreciate your comments earlier in the prepared remarks.

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

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

Okay, great. And maybe just the last one, for John or Moe.

Given the gross margin trajectory here and then if we also lay in the assumptions you're making on the year-over-year growth in OpEx, if take those run rates into next year, how should we think about maintaining financial flexibility? You guys have I think something in the order of $40 million are still in cash exiting the quarter.

So, just looking at 2016, how are you guys thinking about the financial flexibility? Thank you..

Yeah. Isaac, this is John, and Moe can jump in. I mean we feel pretty good. We got $40 million of cash in the bank, we now have two separate $10 million debt facilities. So, making total capital available $60 million. And if you look at the historical burn rate, that puts us in a pretty strong position as we go through the fourth quarter and enter 2016..

Got it. Thanks a bunch. Appreciate it..

Thank you..

Thank you. Our next question comes from Steve Beuchaw with Morgan Stanley. Please proceed..

Good afternoon everyone. This is Liza Garcia, on for Steve Beuchaw. Thank you for taking the questions. I was hoping maybe you could discuss a little bit about how we should be thinking about the rate of engagement on the top 450 accounts.

Hello?.

Yes. And I was pretty sure when you started talking that you weren't Steve, but I wasn't sure. It was cold season. But the rate of engagement is accelerating. I mean we're above, you know, it takes us, as we've said in the past, about six months as a sales person comes onboard, to go through training, to get up to speed, starting building pipeline.

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

We still haven't reached out and touched all 450 of the top accounts, but we've hit certainly a majority of them at this point, and that's being driven by a bigger sales force being out and attending to major conferences already in the last 60 days. We're at both the ICAAC Conference, ID League [ph], we'll be at AMP [ph] this week.

And each time we come out at one of those, the pipelines keep growing in terms of reaching out to our target accounts..

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

That's a great question and I'm glad you asked it because we get asked that question from time to time. This quarter gave us more conviction that the guidance we've been providing from the beginning is solid. We expect average pricing to be in the $200 and $250 range.

And if you do any initial poll and ask somebody about price, they'll think the price is a little bit high. That's good news, because if they didn't, then we probably want to increase the price.

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

Great. Thank you so much..

Thank you. Our next question comes from Paul Knight with Janney Montgomery. Please proceed..

Hey, John.

Can you, and also David I guess, talk to the headcount on sales force, where you want to be in Q4? And to follow up to that would be David's arrival, I guess you're, what, thinking next steps international, and what should we look for on international expansion and when?.

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

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

And on the international front, we did bring onboard this quarter a Head of International Operations in addition to that, as I mentioned on the call, David Harding joined us in the role of Chief Commercial Officer. David has actually extensive experience in building international operations.

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

Thank you very much..

Thank you. Our next question comes from Dan Leonard with Leerink Partners. Please proceed..

It's actually Tim John [ph] in for Dan today. Thanks for taking my questions. So my first one. So lately it's been -- it seems like you have a more challenging operating environment for hospitals, and I was just wondering if you can give any color on what kind of impact it has on your sales process, if any..

Yeah. No, it's a good question. There's nothing that's changed there certainly. The operating impact of hospitals and selling into hospitals that's been challenging for quite some time, we have not had any surprises in terms of that challenge.

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

So it can impact us in terms of timing to get things done, maybe a contract takes longer or maybe we're going to see at some point an installation or a verification before going live taking longer. So, certainly if the environment was better, things would be accelerated.

But I would say the environment is what we initially expected, so we haven't been surprised or had to change our expectations based on anything we're learning about the hospital environment..

Okay. And then just one follow-up. So the stories are starting to flow in.

Could you provide some qualitative color on the patient population being tested at this customer accounts?.

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

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

Some, you know, and this one is really logical and is a place we even recommend hospitals to start, they will basically start saying, we're going to test every patient that today we guess [ph] at putting on antifungal, because, among those high-risk patients on average, hospitals put about 40% on antifungals if the patient hasn't responded to blood spectrum antibiotics within the first 24 to 48 hours.

Because remember, in that period, they're still waiting for the blood culture results, that they're on -- the patient's on an antibiotic, if their condition has not improved, 40% of the time they'll put them on an antifungal.

And we've seen several institutions say, okay, we're going to start by taking that 40%, it differs by institution, it might be 20%, it might be 60%, and we're going to test them with T2Candida instead of putting them all on an antifungal drug. That becomes somewhat of a commonplace to start..

Great. Just one last one. So, how many -- could you remind us how many clinical sites that you plan to sign off of [ph] the bacteria clinical trial, and how many --.

Yeah. We have not specifically stated how many T2Bacteria clinical trial sites there will be, but you should expect it to be somewhere between nine and 12..

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

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

Great. Thank you very much..

Thank you..

[Operator Instructions] Our next question comes from Mark Massaro with Canaccord Genuity. Please proceed..

Hey guys. Thanks for taking the questions. So, last week you put out a press release I believe with three hospital systems that signed up for candida.

Can you maybe clarify why you named those three systems, obviously you have a lot more than three, and can you comment on when we might learn of some of the other larger systems?.

Yes, sure. So we put out our press release and you should expect, in terms of, whatever, website postings, tweeting, other marketing programs, we're going to focus as much as we can, whenever we can, on what customers are using our products and what their experiences may be, because that's really what's going to drive the next wave of adoption.

It's really hard to get those first 10 customers, those first 19 customers, [inaudible] are online and they can't, you know, everybody likes to kind of turn and not be the first. And so it gets a whole lot easier when you can talk about other customers.

So the real purpose of that release is to get that information out so that other customers can see that there are others using the product. In terms of other names, to the extent that we can, we may name them through press releases as we did.

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

They're not always going to be really comfortable putting their name in a press release or even in a call like this, even though they may have been willing to speak at a conference, it's almost, you know, you get left hand and the right hand, the clinicians are comfortable going to the conferences, but if you ask for approval, it's really tough to get.

But we'll continue to do that. And there were the three in the press release, but if you were at any of the conferences recently, you would have picked up at least another three that had been talking about their experience, and unfortunately we can't even name all of them on this call..

Very good. Thank you. And John, you commented on folks that are waiting to run the three to five-hour test before blasting a broad spectrum antifungal.

I know it's really early, but can you just speak to the prevalence of waiting the three to five hours as opposed to administering an antifungal and hoping for the best?.

Yes. So in terms of the incident rate, you're generally going to see an incident rate of candida infection in the order of 5% of the patients being tested, can be a little bit lower, a little bit higher. There is an institution-by-institution difference.

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

They don't have data that shows that somehow they can pick and enrich patient population to get to a higher number.

They believe, interestingly, they believe they're doing that and they actually, while they don't have data, they would say, we know blood culture has really low sensitivity, and we think because we blasted them with an antifungal, blood culture may not be picking up infections that were treated.

And indeed that might be the case, because the blood culture sensitivity is in that order of 50% to 60%. And that would only mean, by the way, that the incidence of candida, which most people will believe is much higher than what gets reported, that would be one of the major reasons for it.

But keep in mind, if 5% of the patients that are being blasted with antifungals, only 95% need it, that means when you test those patients, 95% of them never get a toxic antifungal at a cost of $50 to $100 a day, and the hospital saves a lot of money and the patient really benefits by never having these toxic drugs in their systems.

So there's a big healthcare and economics advantage to getting a rapid negative test result in those situations where you otherwise would have treated with an antifungal..

Okay, great. And my last question has to do with the IMS model that you're equipped with.

And was wondering if you could just maybe anecdotally talk about how the model is helping you close accounts and could you share with us what your close rate has been to date?.

Yes. The IMS model is a critical part of just about every sales cycle. As the sales cycle progresses, building that economic model for the hospital, for the lab, usually to take to hospital administration, is the last major step in moving towards getting a contract in place.

And it's a step point in the process where the pricing issues, if people have them, go off the table.

Generally speaking, when we build those economic models, we're able to take a hospital's specific data, the number of patients they see, their specific costs, we're able to input it in the model, and deliver back to them what the IMS model would suggest they would save.

It's not uncommon for those models to show a three to five times return on investment in terms of the cost of testing patients versus the return that they'll realize.

I would also say by the way, it's not uncommon, by the time you get to the end of the sales cycle, that someone along the way will apply some degree of conservatism and maybe even cut those economics in half, and that still doesn't negate the sale.

I'm not aware of any situation where we've delivered an economic model that has not led -- ultimately led to a sale.

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

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

Thank you, Mark..

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

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

Thank you. Good night..

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