T2 Biosystems (NASDAQ:TTOO)
Q2 2016 Earnings Conference Call
August 1, 2016 4:30 PM ET
Matt Clawson - IR, Pure Communications
John McDonough - President & Chief Executive Officer
Shawn Lynch - Chief Financial Officer
David Harding - Chief Commercial Officer
Bryan Brokmeier - Cantor Fitzgerald
Issac Ro - Goldman Sachs
Steve Brozak - WBB Securities
Paul Knight - Janney Capital Markets
Mark Massaro - Canaccord Genuity
Greetings. And welcome to the T2 Biosystems' 2016 Second Quarter Six Months Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference over to your host, Matt Clawson of Pure Communications. Thank you. You may now begin.
Thank you, Shay. Good afternoon, everyone. Thanks for joining us for T2 Biosystems' second quarter and six months results conference call. On the call this afternoon to discuss results and operational milestones for the period ending June 30, 2016, are President and CEO, John McDonough; Chief Financial Officer, Shawn Lynch; and Chief Commercial Officer. David Harding. The executive team will lead up the call with some prepared remarks followed by a question-and-answer period. I would 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 filed with the SEC on March 9, 2016. 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 CEO John McDonough for his opening comments. Good afternoon, John.
Thanks, Matt. And good afternoon, everyone. Thank you for joining us on the call. Recognizing that we spoke only a few weeks ago, you may not anticipate much in terms of content today but in fact we are very glad that you've joined us to get our update which hopefully you will find both helpful and encouraging. Today, as we look forward to the second half of 2016, we've never been more confident in the value of our unique T2MR technology and the immense potential it holds for creating a new global paradigm for patient care.
We believe this is a game changing technology for the treatment of sepsis that already benefits many types of hospitals and healthcare systems in a modest but growing number of countries. We've had a busy and eventful six months filled with both successes and challenges that we believe are typical of an early stage IDD company in the first phase of a product launch. Selling it to challenging hospital environment, working to scale our company at home and internationally, supporting a growing list of customers, pushing forward on important clinical development and trial program internally and with partners, all significant tasks, but all necessary as we build the foundation for the growth that we feel lies ahead.
We entered the second half of this year with an active and robust sales pipeline of approximately 400 prospects, approximately 5% of those in the late stages of the sales cycle. In the first half of 2016 we closed 11 new hospitals and hospital systems which are or will be adopting T2Candida. Six of those accounts closed during the second quarter, four domestically and two internationally. In the US, our new customers in the second quarter included a 17 hospitals network and another four hospital network meaning that six contracts closed represent 25 hospitals. The two international commitments are with large and prestigious medical centers. As we've expanded our commercial footprint and are expanding our penetration beyond the initial contract wins, we’ve discussed also expanding the metrics that we report to you regarding our sales progress. Starting today, we will be reporting on those additional metrics.
In total, we've now closed contracts with a total of 41 hospitals and hospital networks in the United States and Europe. 36 in the United States and 5 in Europe. The 36 contracts in the United States include contracts with the large hospital networks that we've reported each quarter. Including those hospitals and those hospital networks, T2Candida is or is expected to be used to test patients at high risk of sepsis in approximately 111 US hospitals in total. We estimate that those 111 hospitals each year see over 260,000 symptomatic high risk patients who could be tested with T2Candida and in the future over 335,000 patients who could be tested with T2Bacteria. These high risk patients that we now have access to represent almost 4% of the total estimated market of 6.75 million high risk patients for T2Candida. Said differently, if our existing customer base of 111 US hospitals would were to test all of their high risk patients with T2Candida, we would expect to generate over $50 million in annual sales, and would estimate that the number to more than double with the introduction of T2Bacteria.
As we move forward and gain more experience in the coming quarters, we will be reporting on what percentage of that market universe we are penetrating and how it grows over time. And remember, this is designed to be a recurring revenue business model. I think we can all agree that the opportunity in our existing customer base is already quite substantial. Hopefully you can understand our excitement with our commercial progress since the launch of T2Candida about 18 months ago as we've developed a critical customer base that includes a robust number of institutions with thousands of symptomatic patients at high risk for sepsis. As we gain critical mass, we recognized that tracking closed contracts alone does not provide the full and accurate picture of our current captive opportunity. And that these additional statistics can better allow our investors to understand the value of the customer base as it continue to grow. We will continue to report on contracts closed each quarters, but we'll also identify the number of hospitals associated with those contracts and perhaps more importantly the estimated number of symptomatic high risk patients seen at those hospitals. And that number is expected to drive future revenue growth more so than the number of contracts closed.
Since signing our first European distributor in the first quarter, we've been pleased with the speed of commercial progress and hospital adoption. And going ahead, David Harding, our Chief Commercial Officer will talk in more detail about that market in a few moments. It's an interesting and very positive story for us.
At home, we are getting more skilled at selling into the hospital marketplace. It's a market than in any many ways is resistant to change and disruption which is why we are selling. Our success requires the collaboration of several constituents within each organization who need to come together in order to sign a commitment and launch successfully. But we knew what we are getting into and it helped that we have a growing body of data that demonstrate that we offer better science, better technology and better patient outcome at a lower cost. Our T2MR technology can detect the pathogen that cause sepsis in a matter of hours rather than days, saving thousands of dollars of the profit. We believe we are marching towards a tipping point in the market and adoption will accelerate and sales cycles will be shorter.
Customer success stories will likely drive this next wave of growth and the introduction of T2Bacteria will be a major driver as well. Our enthusiasm is buoyed almost daily by the stories we hear first hand from hospital as they test patients. We are continuing to hear stories of decrease patient mortality and cost savings even greater than we discussed with you. We saw a wave of customers' testimonial at the ASM Conference in June and understand more customers will be presenting data at ID week in October. We look forward to sharing that data with you on our next call.
We talked in July about the issues we encountered in the ramp of our manufacturing process which we now believe are largely behind us. I am proud of the fact that we responded quickly to higher than normal invalid test results rate that some customers were experiencing with T2Candida. We worked quickly and very closely with our customers and alleviated the problem getting products back on customers' shelves just a few business days after our call in July.
The early data we are getting back from the field indicate that we've resolved the invalid response issue with our action. And in certain cases it is even become a positive, helping us build a closer bond with our pioneering customers who appreciated our transparency and proactive approach to facing and solving the issue. While the temporary halt in shipments did impact deliveries in June and July and therefore short-term revenue, I can quite honestly say I don't believe we lost any business or sustained any serious long-term negative commercial impact from this. Products [indiscernible] pulled back, and all customers replenished with the inventory they needed in about two weeks.
On the clinical front, we have no further update on the progress of the T2Bacteria clinical trial. We remain on track to file with FDA by mid -2017 and we are working hard to see if we can shorten this timeline. We are excited about this very important product and are pleased with the product performance to date. We are increasing our focus more actively on partnerships for new products development activity such as our work with Canada and US Life sciences related to our Lyme disease diagnostic panel in development. And our recently announced collaboration with Bayer related to our hemostasis platform. To that end and with an additional goal of closely monitoring operating expenses, we plan to focus our hemostasis effort on partnering with companies such as Bayer and perhaps even more broadly with other companies that are currently in the hemostasis diagnostic market. We are seeing a lot of interest and activity among potential collaborators, so rather than move forward alone, we will hold off on entering an FDA clinical trial for hemostasis this year as these partnering efforts continue to develop. These partnership along with others on the drawing board validate our technology, they open up new applications for T2MR and may even serve as a great secondary source of capital.
We continue to expand our sales force which now total 23 in the United States. We’ll likely keep the size of sales force in the current state through the end of this year and then we will consider expansion in 2017. We will continue to emphasize customer success stories in all of our marketing and sales tactics and continue to evolve our sales strategies for approaching new accounts.
Speaking of success stories I'd like to now bring in David Harding to tell you about our very exciting international effort. We’ve constructed a very savvy distribution network and have already reached our full year commitment target only halfway through the year. David.
Thanks very much, John, and good afternoon, everyone. As John indicated we are very encouraged about our early progress in Europe. Through the first half of the year we've secured contracts with four important European institutions in France, Italy, Spain and also in Denmark that are led by some of the top leaders in infectious diseases and microbiology. This pace of contracts and installations is going faster than we had originally anticipated. In part this is driven by clinical leaders who are anxious to use T2's pioneering technology to improve patient care. But there is an economic underpinning to the uptick which is the disproportionately high cost of certain anti fungal drugs in Europe. In fact, this popular class of anti fungal drugs can be up to 3x to 4x more expensive than in the United States. European hospitals are very cost conscious and many of them see great potential value in being able to use the T2Candida Panel to rapidly remove patient from unnecessary and very expensive empiric anti-fungal therapy.
Another reason for our early traction in Europe is that we've been able to partner with a set of distributors that have deep experience and relationship in the microbiology and infectious disease space. We are in the process of securing additional distributor relationship over the second half of the year and anticipate having coverage across most of Western Europe by the end of the year. We believe the market opportunity in Europe represents approximately 3 million symptomatic high risk patients. We look forward to updating you on our progress in this important region as we continue to add distribution capacity and learn more about the drivers of adoption and ultimately utilization in these institutions.
Now I hand it back over to John.
Thanks, David. As you've heard me say several times, it is very difficult to predict the timing of closing date for actual contracts particularly when we are introducing a truly novel and disruptive technology. Based on our analysis of our sales funnel activity and the number of institutions that are in the latter stage of the sales cycle, we believe we can achieve the goal of closing 45 commitments and contracts this year. Although, we fully understand the uncertainty in that number given the difficulty in predicting the timing of when contract will close. We are targeting both hospital and hospital system which can provide more access to high risk patient from the contracts numbers alone we suggest. So that end more importantly we will also target increasing the number of patients at high risk of sepsis in customer base for an estimated 260,000 as of June 30 to 360,000 or more by yearend. An overall increase in the available patient population of over 35%. Before I turn the call over to Shawn to discuss our second quarter results, I'd like to remind investors that the importance of this installed base as it relates our razor blade business model. As we build the customer base, hospitals first go through the installation and verification process that averages 3 to 6 months. Once they began testing patients the initial volume are typical small, but we expect volumes to grow over time causing revenue to ramp at a most significant way. When that occurs, it can drive steady, recurring revenue with growing margin. And we believe it will grow exponentially with introduction of new products for our T2Dx diagnostic instrument. We are confident that introduction of T2Bacteria target the late next year will help drive both utilization and adoption rate. The need for rapid detection of bacterial sepsis with similar to Candida sepsis but there does appear to be in even broader market appreciation for bacterial sepsis.
Now I'd like to turn the call over to our CFO, Shawn Lynch to discuss our second quarter financial results. Shawn?
Thanks, John. Total revenue for the second quarter was approximately $990,000 which consisted of $151,000 in product revenue, primarily from consumable diagnostic tests and $839,000 in research revenue. The impact to product revenue from the temporary hold in shipments in June from confirmed order placement was approximately $200,000. Total operating expenses for the second quarter were $12.5 million, reflecting increased investment in our sales force and commercialization of our products. The expense impact in the field action related to T2Candida invalid results was approximately $60,000. The net loss applicable to common shareholders for the second quarter was $14.1 million or $0.58 loss per share, compared to $11 million or $0.54 loss per share, in the second quarter of 2015.
Our balance sheet as of June 30, 2016, remains strong reflecting total cash and cash equivalents of $50.2 million, with an additional $5.5 million available under our equipment lease credit lease facility.
Now for the outlook for the remainder of 2016. We believe we can hit 45 new customer commitments and contracts globally for the year given our current pipeline, although we recognize the difficulties in predicting the timing of our contract to close, trade and risk. Anticipated placement from the second half is targeted throughout approximately 100,000 new symptomatic patients at high risk for sepsis annually. We believe that the more relevant target for us is increasing the patient population that we have access to, to testing with T2Candida now and T2Bacteria in the future as that population is likely to be more accurate, future predictor of testing volume and future revenue. To date, roughly 90% of instrument placement is under reagent rental model. And that number remains good testament of the expected pattern going forward.
Research revenue in Q3 and Q4 of 2016 is expected to be comparable to what was realized in the second quarter of 2015. We anticipate total third quarter operating expenses to be between $12.3 million and $12.8 million, including approximately $2 million in non-cash expenses that consists primarily of depreciation and stock compensation expense.
We expect net interest expense to be approximately $900,000 in the third quarter. We anticipate the total number of common shares outstanding will be approximately 24.5 million in the third quarter and for the full year we're forecasting weighted average share outstanding of 24.4 million.
With that, I would like to turn the call back over to John for some closing remarks. John?
Sepsis is one of the leading causes of death in the United States and the most expensive hospital treating condition costing the US Healthcare system alone an estimated over $20 billion a year and growing. We've a technology platform that can detect this dangerous pathogen faster than anything else in the market. We are now pleased with the rate of contracts closed in the first half. We all pleased with the quality of account closed and potential scale this opportunity and the status of sales pipeline especially at the late stages of the sales cycle. And we have confidence in our new executive team members which include Joanne Spadoro who brings use of operational experience from her time at Roche diagnostic another leading diagnostic company. And Shawn Lynch who brings extensive financial experience to the team from his time at GE and PerkinElme. We believe we have a strong team in place and we are making significant operational and commercial progress.
Finally, we are increasing our focus more actively in partnership with new product development activities such as our work with Canada and US Life sciences and our recently announced collaboration with Bayer which may have a multiplying effect on what is already an enormous opportunity. These partnership along with others in the drawing board validate our technology, they could open up new applications for T2MR and may even serve as a great secondary source of capital. We've an immense opportunity right in front of us. So we monitor it everyday by the impact our products can have on the life of patients at over 100 hospitals around the world.
With that I'd like to turn the call over to the operator for questions. Operator?
Our first question comes from Bryan Brokmeier from Cantor Fitzgerald.
Hi, good afternoon. John, were any of the six completed installations instrument purchases or were they all reagent rentals?
All of the six accounts, the four accounts of US that we closed in Q2 were all reagent rentals. The two European accounts, when those instruments are installed, they are purchases because we sell the instruments directly to the distributor who in turn we believe is placing them under reagent rental with accounts but that’s financially supported by the distributor
That's six completed installations you are talking about.
No. Those would be six accounts that we closed during the second quarter. Of the six that got -- that went live in Q2, we believe they were all reagent rentals.
Okay. And you said that you talked about the target of 45 contracts for the full year but there are some risks around hitting that. Can you provide any sort of a range or what sort of variance could there be in hitting that 45 or maybe even exceeding 45?
Well, look, we are not going to try providing a range around because we would rather just stick with our goal being to get to the 45 number. But in all likelihood it will probably be some number that’s a little more or hopefully no more than a little less right. Although last year we targeted 30 and hit 30. I do think and I'd suggest that the more important goal is getting access to the number of patients. Not all contracts are the same. As we’ve stated in the past and going back to when we initially became a public company, we anticipated that a typical hospital among the top 450 would provide access to about 5,000 symptomatic high risk patients per year. And if you do math on the 260 million high risk patients that are part of the current 36 US contracts, that actually shows the importance of the hospital networks we are closing because each contract on average is actually then providing us with access to about 7,200, actually over 7,200 high risk patients. So once we look at that, if you really try to look at future revenue modeling and the like, the number of patients that ultimately we have access to testing is more important than the contracts.
Having said that we still believe that we can get to the 45 number. But more importantly, we feel very good about adding another 100,000 high risk patients to the overall patient population that will be available to us by the end of the year.
Thank you. Our next question comes from Issac Ro from Goldman Sachs.
Hi, good afternoon, thank you. First question was on the nature of your pipeline. I was curious how you guys are defining potential customers that you said are late stages, so curious if you have a methodology you can share with us in terms of what constitutes late stage versus early stage?
Yes. Hi, Issac. When we were in the late stages there are very different factors that go into that but it is almost, it is always would mean that there is a champion, there is support, typically you would both infectious disease and the lab support, in all likelihood they have proposal on hand, they probably have thought off on economics and they will [indiscernible] anything else you would add to that, they probably even have a contract.
They have contract in hand.
Doesn't mean that’s illegal yet but it might be illegal, some of them probably would be, some of them probably would not.
Okay. That's helpful. And then on the pipeline. You guys talked a lot about the timeline for bacteria panel but I don't think we spend a lot of time talking about what exactly will go into it, I know you guys have probably thought very carefully about how to make that commercially compelling but curious if you could give us a little color on the type of content you want to put into bacteria panel so that it accelerates the demand for your technology.
Yes. Issac, the key to the content in the panel is if you-- we look at this - the way to look at it is, think about the symptomatic high risk patient. So if you are a high risk patient let’s just say a patient who is in the intensive care unit spiking fever, what typically happens is that, that patient is immediately put on broad spectrum antibiotic drugs. And those -- in typical institutions the broad spectrum antibiotic drugs which are cheap, they are probably about $20 a day, they will cover about 60% of the bacterial infection that the patient might have. It doesn't cover 40% and it of course doesn't cover Candida, the five fungal infections. So the panel for T2Bacteria include things such as -- staph aureus plus pneumonia, e-coli and a number of others that are typically not covered by broad spectrum antibiotic drugs because the real impact that we can have on that septic patient is to change the therapeutic decision within that first, let's call it, six hour window to get them on the right drug because we know mortality rate can be cut in half or more and the cost savings are tremendous -- the reduction in length of stay in the ICU as well reduction of length of stay in hospital when you can treat patient with the right targeted drug more quickly.
So the good news here is that our T2Bacteria will cover almost 95% of the bacterial infections the patient might have that are not covered by broad spectrum antibiotic drugs. And what means is that the combination of T2Candida and T2Bacteria along with the use of broad spectrum antibiotics should mean that 95% of septic patients are put on the right drugs within the first six hours. And that's totally game changing and could have just a tremendous impact in terms of the very high mortality rate, 30% in total for sepsis and the really high cost of treatment.
Thank you. Our next question comes from Steve Brozak from WBB Securities.
Hey, good afternoon, gents. One I guess tactical question. Are you -- because I know that you talked about getting product or cartridges back out, are you complete in terms of your cartridge swap out to the field and I am sure you would have told us if there were any clients that basically had any question but I am sure that you’ve handled it, so you want to give us any kind of color on that. And I got a question about your technology.
Yes. You bet. It is complete. It was completed extraordinarily fast, I mean virtually all customers were back with the product they needed the week after we spoke on the phone. So virtually everyone was testing patients a week later and virtually everybody was restocked within two weeks [indiscernible] over after that [indiscernible]. And sure, yes, no, lot of customers had questions but they had questions before we took the field action. And to our knowledge virtually all of those questions have been answered to the satisfaction of the hospitals and the people who asked those questions.
Okay. Obviously that no one likes to see a recall but candidly I guess you guys handled it as well as you could ask for. But looking at that because obviously these hospitals are your first line of consumers I remember watching and looking at something that you had presented about layering where you were looking at layering. So for instance all of these adopters for T2Candida products are going to be the same adopters for the bacterial products and for Hemostat products. So are you looking at building that kind of edifice where each of these people that are the adopters would be the quick adopters for the next product line and how does that play as far as the Europeans are concerned? Because obviously you had mentioned the differential in terms of the anti-fungal products and how much they cost. So are you looking at it in a similar way there as well? And one follow up after that.
Yes. So this is David. On the European piece for sure we are looking at it in a very similar way. I don't think there will be the same cost differential in anti bacterial drugs as they are with the anti fungal. But nevertheless the need still remains for a rapid bacterial diagnostic. And so we believe that the same institution that is adopting T2Candida now will be the early adopters for T2Bacteria as well.
And in the US, I think it's safe to say it will be a very rare account is closed that would not be highly interested and what we are doing with T2Bacteria, a very rare result.
Okay. Thanks for making sure that was clear. Looking at -- you had mention something on the sepsis side. And looking at the 1.25 million sepsis cases that take place in the United States, what by the corresponding because we did some research and basically came out and said that for every hour of delay there was about an 8% increase in mortality rate for patient treatment. So and looking how this -- are you seeing any kind of anecdotal feedback from the clinicians say you know what this is different. Are we seeing something that is different in terms of how we are going to change the practice of medicine? What are your thoughts there and I'll hop back in the queue after that.
Yes. So I would say a couple of things, Steve. Yes, I mean virtually every time our customer is adopting our product you will hear thing such as breakthrough, game changing, words of that in terms of the impact direct detection from blood, eliminating the need for blood culture which doesn't just have a multi data lag in diagnosis but this is 40%-60% of the infection entirely with all sensitivity has been consistently demonstrated as 90% or better. So we hear that game changing story with high frequency and most exciting we are seeing to start play so hot, we are hearing stories, anecdotal stories at this point about the impact certainly we are having on cost but more importantly the impact we are having on patient care, more poverty the likes and we think those stories as they come into the market more and more. And they are and we believe they will out battle continue ID -- game changer in terms of getting this adoption rate through an inflection point. The other thing that I think is worth pointing out which is not generally understood, of course the most important thing that our technology enabled is the reduction is mortality rate. But the other thing that we've demonstrated in our IMS publication, IMS Healthcare publication about 18 months ago is that the cost of death is very high for sepsis patient but the hospitalization cost, the patient who dies about 2.7x greater than those who survive. And that's important and so service of adoption they really is. I mean I'd like to say that exclusive reduction in mortality will drive adoption they will. But you need a couple with cost fading certainly in the environment we are in and the reason why there is a cost of death for sepsis patient is quite high is the patient who don't survive, I mean they spend a lot of time in hospital, lot of time in the ICU, unfortunately this is in suffering that dealt was really quickly in terms of the patient.
Look obviously look forward to what happens as far as the next quarter in terms of adoption but obviously the technology is going to keep growing. So I look forward to the updates in the future. Thank you.
Thank you. Our next question comes from Steve Beuchaw from Morgan Stanley.
Good afternoon, guys. This is [Liza][ph] for Steve. Just a quick question on better understanding the partnership in Hemostasis. So as we think about that partnership I am guessing it would be -- we would be expecting kind of more companion diagnostic clinical trial in the -- beyond this year. And then should we think about that moderating development expenditures for the Hemostasis products in your R&D?
Yes. Hi, Byzone. I think the way you should think about that is that first of all we have a world class pharmaceutical company that work with this product about 6 to 12 months inhouse doing some collaboration work for us. And they saw information vis-à-vis us being able to measure the impact, Hemostasis impact on patient sample and perhaps even be able to measure their drug effect that they bring technology inhouse and they are using it more extensively. Yes, we think there is a real opportunity for this to move towards companion diagnostic and ultimately if those clinical trial would go and see that would probably done by there in RC2, the drug would be relatively to their drug. But if we get to that point it would certainly represent a very extensive opportunity for us with Bayer, and of course there are many other pharmaceutical companies that might be quite interested in [Technical Difficulty]
Great. And then just one follow up. I noticed little bump-ish this quarter in the research revenue and expectations to continue. I don't know if you could provide any kind of color on that through the balance of the year what are you thinking about?
Well, we are expecting the second half to be pretty flat with the first half -- I don't think if there was anything special going on there. Until, David, anything to add to that?
No. I think that's correct.
Thank you. Our next question comes from Paul Knight from Janney.
Hi, John. Can you talk about consumable trend a little bit? It looks like your sales, your consumable sales for instrument was down a lot? Was it -- is this recall impact? Half of the quarter was a two week, it just seems like your sales per instrument was down that you talked about.
Yes. Hi, Paul. So this is Shawn. So why don't start first with kind of the data. So we had -- our revenue impact was about $200,000 and that was from confirmed orders that we did not recognize revenue on as a result of the recall. I think so those are the stocks I think either any other situation related to the recall I'll let John comment.
Yes. I mean it certainly we stop taking orders and shipping of last week in June and so there is likelihood of other orders we would have shipped -- we would have increased that number further given it would impact the order which was really to quantify what that might be.
And then back to bacteria, the number of published papers that -- we haven't seen a lot of flow there. Is there -- why is that?
Well, we have published data on limited detection or maybe thesis that are part of the panel. Generally speaking, the next significant publication you are going to see is the FDA trial is generally not wise to be doing preclinical studies and publication in the light when you are in or at the clinical trial. So I think that normal course of activity but certainly a clinical data will be important as we launch the product, you can't expect to see host of presentation at IDV coming up in October but generally speaking we are going to publishing a whole lot of data until we get into that trial.
And any -- is there a change in where you were expecting commercialization of bacteria from a month ago, John?
No. Not at all. We are very excited about it. Expect to be following with FDA in the middle of 2017. Hopefully that puts us in a position obviously we can't time when the FDA will clear something but I'd suggest sometime in the second half of the year we can get FDA clearance and be in the market. And we are really excited to get out there and do that. And we are doing everything we can to see is there anything we can do we pull out schedule in a little time.
Thank you. [Operator Instructions] Our next question comes from Mark Massaro from Canaccord Genuity.
Hey, guys. Thanks for taking the question. John can you comment and how many customers are in the final stages at this time and have you seen any variation?
So what we've said we got about 400 customers in the pipeline, 5% enrolled late stage, it is about 5% of late stages. So that the math of that will point to some 20ish kinds of number. And that maybe have to -- beyond variation we typically sees the number goes up not down unless an account closes or in late stages -- pretty rare for us to get into late stages. We've an account go away. It definitely can happen at a stage in the late stage of longer than you want. We've seen that happen which gets to the predictability of timing when these contracts close.
Okay, great. That's pretty stable. Obviously we just passed the month of July. Can you comment on hospital activity in the month of July given vacation and whether or not -- little high that you do business in the summer month relative to maybe the fall or the winter?
I think we generally saw July to be just fine. Our experience would suggest August is the month that is slower then September goes like Jan by steady, but I think August is usually -- it seems like the end of three -- more into August being August and that's the bigger challenge in the month of July.
Great. And can you also comment on where the invalid rates are trending now? Obviously they stretched quite a bit and you resume shipping, just be curious to know how those rates have come down?
What we can tell of course we don't get to see what's going on everyday and account is over than a couple of weeks. But by all account -- the invalid rates so that's where they were before it all started. And I don't think we are aware of any customer raising a question about invalid rate simply went back for the old name in fact pretty faster.
Okay. Great. And then another follow up in the one or two weeks that you were not shipping, was there any change in behavior at some of your customer side maybe another words what were they doing not running your T2Candida?
Well, it's interest. We were able to resolve -- think there is only like one or two accounts that may have not there to without having product available. But keep in your mind we stopped shipping -- it was around June 27, we renewed -- we announced that we are pulling product back from the field in July 8. And we have products back in most customers' hand are needing this by July 13, and then we have weekend in between. So we stated through that one, there are definitely some customers who got down to no inventory but we had cartridges arriving the day they were running out of inventory. So that was a fairly team work process. And I think as a question got asked earlier by all account we didn't have much of customer reaction. We really didn't, I mean definitely we had couple calling up and what am I going to do, I am in the middle drug verification and so we had a couple of questions like that. But this was some -- a normal course activity for customers who -- super unusual like we hope this is super unusual for us. We don't want to be doing those but we were cautious, we were quick and the customers responded generally speaking as this being a non event.
Okay, great. And just my final question obviously the Bayer collaboration is super early days but what are some of the next items that we can monitor that would be significant development of the panel.
You mean base internally --
I think so to keep at eye all over the coming quarters would be more partnership as we are really focusing on additional Bayer partnership or perhaps even a more expensive partnership with somebody who could take our products forward from a commercial standpoint. So there are lot of discussions going on from that standpoint. There is a tremendous amount of value in this technology as it relates to the Hemostasis market. And we think we have the product at the stage where the partnership can be quite attractive for us in terms of supporting the product forward and driving towards commercialization.
Thank you. At this time we have no further questions. I'd turn the call back over to John McDonough for closing comments.
So thank you all for dialing in today. We look forward to reporting back on third quarter results after the conclusion of the third quarter. And if people have additional questions we'll certainly be around. While the commercial market maybe slows in August, we'll be working in August and working hard to build additional shareholder value and drive towards the introduction of T2Bacteria and the further commercialization of T2Candida. Thank you all for dialing in.
Thank you. This does concludes today's teleconference. You may disconnect your line at this time. Thank you for participation.
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