T2 Biosystems' (TTOO) CEO John McDonough on Q4 2016 Results - Earnings Call Transcript

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T2 Biosystems, Inc. (NASDAQ:TTOO) Q4 2016 Earnings Conference Call February 13, 2017 4:30 PM ET

Executives

Tucker Elcock - Teneo Strategy

John McDonough - President and CEO

Shawn Lynch - CFO

Tom Lowery - Chief Scientific Officer

David Harding - Chief Commercial Officer

Analysts

Taylor Matthews - Goldman Sachs

Steve Brozak - WBB Securities

Carolina Ibanez-Ventoso - Janney Montgomery Scott

Bryan Brokmeier - Cantor Fitzgerald

Mark Massaro - Canaccord Genuity

Operator

Greetings, and welcome to T2 Biosystems' Fourth Quarter and Full Year 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I will now turn the conference over to your host, Tucker Elcock with Teneo Strategy. Thank you, Mr. Elcock. You may now begin.

Tucker Elcock

Thank you, Doug, and good afternoon everyone. Thank you for joining us for the T2 Biosystems' 2016 fourth quarter and full year results conference call.

On the call this afternoon to discuss results and operational milestones for the periods ended December 31, 2016, are President and CEO, John McDonough; Chief Financial Officer, Shawn Lynch; and Chief Scientific Officer, Tom Lowery. Chief Commercial Officer, David Harding will be available during the question-and-answer period of the call. The executive team will open the call with some prepared remarks followed by a question-and-answer period.

I would like to remind everyone that comments made by management today will include forward-looking statements. Those include statements, does 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'd like to turn the call over to President and CEO, John McDonough, for his opening comments. John?

John McDonough

Thanks, Tucker, and good afternoon, everyone. Thank you for joining us on the call.

2016 proved to be a transformative year for T2, operationally, strategically, and financially. We made significant progress against our priorities throughout the year, growing our customer base, expanding our partnership pipeline, and highlighting the power of our technology through customer success stories and real-world data. We are well on our way towards demonstrating the power of the T2 technology to improve patient health and deliver strong economic returns to healthcare institutions.

We exited the year with strong momentum, lead by a solid performance in the fourth quarter, and we expect that momentum to continue in 2017, which I will cover further in a bit. But first let me walk you through some of the operational and strategic highlights from the quarter and the year.

In the fourth quarter, we secured commitments that will provide us access to an estimated 100,000 additional patients annually, considered to be at high-risk for sepsis infections. This number represents 18 new hospitals in the United States and Europe, four contracts representing 14 hospitals in the U.S. and four in Europe. This result also represents 67% of our target of 150,000 new high-risk patients by September 30, 2017. As a result of this strong performance, today we are increasing that target to 200,000 high-risk patients over the same period.

Our performance in Europe in 2016 exceeded our expectations. Our goal was to enter four European markets, and by the end of the year we expanded our European presence to eight countries via contracts with international distributors. Europe will continue to be a key focus in 2017 as we add more hospitals to our customer base and as those hospitals rollout and commence testing of patients.

At the end of 2016, the worldwide installed base of hospitals with access to the T2Dx Instrument grew to 143 hospitals, representing an estimated 445,000 symptomatic patients annually, who are considered to be at high-risk of sepsis infections; an approximate 95% percent year-over-year increase in high-risk patients.

Importantly, during the fourth quarter we continue to make strong progress with the T2Bacteria program, and we remain on track for completing the clinical trial and filing for market clearance with FDA by mid-2017. We recently completed a detailed market research survey conducted by an independent market research firm that assessed the overall market needs in sepsis diagnostics. The research included interviews and surveys of leaders in hospital labs, infectious disease and hospital administration, and in part focused on their views of T2Candida and our product candidate T2Bacteria. We thought it would be helpful to share with you a few highlights from the research.

Number one, lab directors will be over three times more likely to recommend adopting the T2 technology with both T2Candida and T2Bacteria, validating our belief that T2Bacteria will be a game-changer for our business.

Two, two-thirds of the critical clinical decisions are made in the first 24 hours of when patients are initially tested, demonstrating the critical need for faster and more accurate tests as blood culture results extend beyond the 24-hour period. The ideal time to result is 12 hours, and the most important test results is species identification not susceptibility results. To our knowledge, only the T2 platform can deliver results in the ideal timeframe of 12 hours or less, and for that matter even within the first 24-hour timeframe.

Three, infectious disease doctors are strong supports of the T2 platform with T2Candida on a standalone basis, and are even more positive when you add T2Bacteria.

And four, economic customer success stories are important in driving market adoption. The survey results are consistent with our own experiences in the market and further demonstrate the need for and power of our platform and products.

Switching to other product pipeline development, we're also making good progress with T2Lyme and remain on track to complete preclinical studies in 2017, which will lead to an FDA clinical trial in 2018. We recently received issuance of a key patent related to T2MR in the field of haemostasis. This patent covers the T2MR measurement of multiple factors directly in blood. These new claims in combination with issue claims from other patents demonstrate our innovation and protect the multiple T2MR haemostasis measurements associated with assessing the risk of patients bleeding or clotting.

In 2016, we strengthened our balance sheet and formed important strategic alliances that position us for long-term sustainable growth. In July, we announced a multiyear agreement with Bayer to provide our T2MR for Bayer's research and development efforts in blood coagulation disorders.

In September, we announced a $40 million equity investment by Canon U.S.A. that will fund the company's continued growth through the launch of the T2Bacteria panel. In November, we announced the collaboration with Allergan to develop a novel diagnostic panel to detect gram-negative bacterial species in antibiotic resistance for patients with serious bacterial infections, including infections that lead to sepsis. And in December, we secured a new $50 million debt facility with CRG with an initial draw of $40 million that delays the payment of principle payments for at least three years, further improving our capital position.

We enter 2017 with the financial resources and important partnerships that not only drive new opportunities, but also represent important third-party endorsements of or technology and T2's strategic direction. During the quarter, we continued to expand our partnership pipeline, and while we will remain selective in our approach, we are hopeful to expand our partnerships in 2017.

Additionally and perhaps most importantly, during the year the value of our products were demonstrated at customer sites throughout the United States and Europe. Four of our customers presented or published data at industry conferences from their use of T2Candida that highlights the patient and economic impact of testing patients. The most notable one came from the Henry Ford Health System in Detroit, which presented a statistically significant study reporting approximately $2 million in savings through the implementation of the T2Candida technology. These savings were realized by significant reductions in ICU and hospital length of stay for patients, along with a reduction in the use of antifungal drugs.

Other customers included Riverside Hospital in California, Huntsville Hospital in Alabama, and the Lee Memorial Health Systems in Florida, all of whom demonstrated outstanding economic returns from their respective hospitals.

On that note, I would now like to turn the call over briefly to Tom Lowery, Chief Scientific Officer, to provide some further color on successes that customers have had as a result of our technology. Tom?

Tom Lowery

Thanks, John. We continue to see case studies where T2Candida is detecting tissue-based injections, also known as DT Candidiasis, where blood cultures missing these infections. Just to remind you, in our visual pivotal study we had one case that was positive with T2Candida, but negative for over 12 blood cultures. In this patient, seven days after the T2Candida positive result, an intra-abdominal abscess was discovered. He was subsequently sampled by surgically-obtained tissue culture and confirmed to be the same Candida species that was detected seven days earlier by T2Candida. We all know this was the first of many such cases. Today there have been dozens of clinical cases that we are aware of where blood culture was negative, T2Candida was positive and confirmed by other microbiological methods.

In Europe, for example, a hospital originally reported that T2Candida identified four patients that were blood culture negative and confirmed lung infections from the same species of Candida using culture from a bronchial lavage. Another example from a large U.S. hospital for multiple cancer patients suffered from invasive intra-abdominal Candida infections that were missed by blood culture, when identified by T2Candida confirmed my imaging and follow-on microbiology testing.

Additionally, customers have shared several other patient case studies where blood culture was negative, but non-blood culture specimens, such as wounds, swabs, respiratory samples were positive in mass T2Candida results. The inability of blood culture to detect DT tissue infections and the challenges associated with obtaining high-quality tissue samples, swabs, and lung washes for culture are well-understood by microbiology directors. It's been exciting to hear the enthusiasm from customers that experienced cases like these. We expect more cases of DT Candidiasis will be detected by T2Candida further demonstrating the ability of the test to help physicians and labs to clinically manage these patients with invasive candidiasis who with blood culture alone are being missed.

John McDonough

Thank you, Tom. As you can see, our products truly are transformational. And these success stories are and will continue to be an important driver going forward and securing our next phase of growth.

There have been a lot of developments in the field of sepsis diagnostics, but to our knowledge, all products in the market are coming into the market that detects species or susceptibility requires a positive blood culture first. We know the problem of a blood culture taking one to five days to go positive. But the biggest problem maybe the 30% to 50% of patients that are positive with infections, but are cleared negative by blood culture. T2Candida today and we believe T2Bacteria soon may detect patients days faster, and they also detect patients that are missed by blood culture. Providing this information to clinicians can be critical and the survival and recovery of patients and the hospital costs associated with these infections.

With that, let me turn the call over to Shawn to take you through the quarterly and full year financial results and our 2017 outlook. Shawn?

Shawn Lynch

Thanks, John. Total revenue for the fourth quarter was $910,000, which consisted of $579,000 of product revenue, compared to $343,000 or product revenue in the fourth quarter of 2015. Results were driven by an increase in T2Candida panel sales due to increased patient testing across the installed base.

Total revenue for the full year was $4.1 million, which consisted of $1.75 million of product revenue, compared to $599,000 of product revenue for the full year of 2015, an increase of approximately 191%. Product revenue for the full year was primarily derived from a combination of instrument and consumable sales.

Total operating expenses increased for calendar year 2016 due to an expansion of commercial activities and continued investments in the product pipeline, including T2Bacteria and T2Lyme. We continue to focus on cost control ahead of the T2Bacteria launch. However, our operating expenses will fluctuate quarter-to-quarter based on the level of clinical studies we are running.

We closed the year with the cash and cash equivalents balance of approximately $73.5 million. This strong position will only further be buoyed by the debt refinancing we executed at the end of the quarter. The agreement positively impacted our cash flow as we secured a minimum of three years of interest-only payments, while extending the company's borrowing limit to $40 million, with the potential option to draw an additional $10 million, and extend the interest-only period further upon the T2Bacteria panel achieving FDA clearance.

As we move into 2017, as John stated earlier, we are not targeting an increase in the number of high-risk patients at customer facilities of 200,000 or an additional 100,000 to the number closed in Q4 by the end of the third quarter of 2017 ahead of the launch of T2Bacteria. Additionally, we are anticipating higher product revenue in the first quarter of 2017, compared to the fourth quarter of 2016 from an increase in T2Candida sales due to increased patient testing across the installed base.

Total operating expenses for the first quarter of 2017 are expected to be between $13.2 million and $13.7 million of which approximately $1.8 million is non-cash expenses which are primarily depreciation and stock compensation expenses. We are also forecasting weighted average shares for the first quarter to be $30.6 million, and $31 million for the full year.

With that, I would like to turn the call back over to John for some closing remarks.

John McDonough

Thanks, Tom. Our priorities entering 2017 are clear and unchanged, and our square focus is on execution.

Priority one, continue to expand and gain access to patients at large hospitals and hospital systems in the United States and Europe who have high risk of sepsis infection. We have previously stated a 12-month goal through September 30, of adding 150,000 high-risk patients, and we are taking that number up to 200,000 high-risk patients based on our strong performance in the fourth quarter.

Two, introduce new products to expand the current suite of solutions. We are running patient samples at clinical sites, and expect to complete the clinical trial for T2Bacteria, and file for market clearance with the FDA by mid 2017. We also intend to communicate the results of our clinical study with you after completion. For our other products in the pipeline, we intend to complete preclinical studies for T2Lyme in 2017, which will lead to an expected FDA clinical trial in 2018, while commencing preclinical studies for the gram-negative resistance panel in 2018.

Three, expand our partnership pipeline to help accelerate our growth profile. In November, we announced our partnership with Allergan, and we are working to grow our pipeline of other partnership opportunities. And finally, we expect to see more customer success stories that may continue to demonstrate the power of T2's technology, and the impact it is having at healthcare institutions. This will be an important driver of the future success of T2.

As I have stated before and continue to believe, at the core of T2 we are working to deliver diagnostic products that fundamentally change clinical decisions in a way that saves the lives of patients, and delivers a strong economic return to the hospital system. Our technology continues to help our customers be at the forefront of the paradigm shift occurring within hospitals with regards to how they approach patient care. We remain committed to and are excited to see the impact of our products in the lives of patients in the economics of hospitals in 2017, and beyond.

With that I'd like to turn the call over to the operators for questions. Operator?

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Issac Ro of Goldman Sachs. Please go ahead.

Taylor Matthews

Hi, this is Taylor in for Issac. So I just had a few questions. One on T2Bacteria, I know you guys are aiming for market clearance in mid-2017. So if we could just get kind of an update on where it is now and what sort of milestones to look for in the interim before the data is actually available or the trial finishes? Excuse me.

John McDonough

You bet. Good afternoon, this is John. So we remain right on track. We have instruments running at the clinical sites, patient samples being run, we're making good progress, we're right on track to file with the FDA by the middle of the year.

The next update will probably be something like this, when we have our Q1 earnings call we'll give you a good sense of where we are in that trial. Really the timing of when we file relative to the middle of the year, which is why we keep saying the middle of the year will really be primarily driven by enrollment at the clinical sites. We're off to a really good start, so we're feeling pretty good about that, and we feel very much on track by the middle of the year.

The next major milestone probably at the time we file with the FDA or pretty close to it would be the opportunity for us to share the data from the clinical trial itself. We did that with T2Candidia, and in all likelihood unless there's something preventing us from doing that, and we don't know what that would be right now, and we would expect to do the same. So that would be coming right in the middle of the year as well.

Taylor Matthews

Okay, thanks. And just one quick follow-up, so I saw your operation expense guidance, and I'm just wondering what type of pacing should we be thinking about with -- obviously there's extra expenses in the beginning of the year for the clinical trial. So any color on that would be really helpful.

Shawn Lynch

Yes, absolutely. This is Shawn. So what I would say is we're pretty comfortable with our current resource footprint with the exception of the timing of kind of clinical trials as you think about it. So as we wind down through the clinical trials in the first-half, we should get back to kind of normal resource footprint.

Taylor Matthews

Okay, great. Thank you.

Operator

Thank you. The next question is from Steve Brozak of WBB. Please go ahead.

Steve Brozak

Hi, good afternoon gents, and congrats on all the stuff that took place in 2016. Let me dive right into the questions. Can you tell us how over 2016 the sales cycle, the drivers have evolved and what you've learned from that? And I've got one follow-up question after that, please.

John McDonough

Yes, hi, good afternoon, Steve. Great question. So we are definitely seeing some changes in the sales cycle. As we went through 2016, I think we saw more in the first half of the year that we had closed most of what typically would be called early adopters. And as we shifted to the middle of the year we were much more targeting and talking to what I'll call more mainstream buyers. And by that I mean those who are really more interested in the advantages of your technology and less enamored with the technology itself. And as we got towards the end of the year we really saw some strong momentum starting to build with the customer success stories entering the marketplace. That's why we've been talking about that for some time. This more mainstream buyer that represents the largest part of the market, they're a little bit less risk-averse than your technology buyer.

And so to the extent that you can talk to real successes, like Henry Ford and Riverside, and a whole bunch of others, that really moves the needle in sometimes pretty extraordinary ways. The other thing that we're certainly seeing as we enter Q1 is that T2Bacteria getting closer is definitely driving interest in the platform more broadly. It a little bit too early to try to quantify that, but we definitely are seeing that making an impact in the early part of this year, and we think that's only going to grow as we go through 2017.

Steve Brozak

It actually leads me into the follow-up. Given the fact that you've gone out there and laid the groundwork for all the introductions, and meetings, and everything else, now that you're going to target these facilities with Bacteria you've got an edge up. And how would you put that? How would you position that in terms of now having not just fungal detection, but bacterial detection, how would you present that in terms of these folks that have been waiting, and also the people that have installed. What do you see that as being not just two plus two equals to four, but what do you think it does? And I'll hop back in the queue. Thank you.

John McDonough

Yes, great question. I think it really changes the story in a pretty substantial way. What we're now moving to offering is a much more of a complete sepsis solution to a hospital system as opposed to being positioned as a Candida solution. Now, as I've been saying all along, the medical community has embraced and understands the huge impact of Candida. But as we've also said all along, sometimes the lab, that there's more work to be done there in terms of them understanding the unmet need for Candida infections. And it just takes longer, that's where the sales cycle gets longer. They understand bacterial infections much more so because they're more prevalent. And so they get a lot more excited about a complete solution. I think the survey that we spoke to really confirmed that in a pretty numeric data-driven way as opposed to what we're seeing and hearing. We certainly saw that in the survey results.

So I think this really helps in terms of getting the platform into places where it doesn't exist today. Where there have been interest and interest, and maybe just moving at a slower pace than they might when you have a complete sepsis solution. And I think it's a big game changer for the existing customer base because of course they already have installed instruments, and we fully expect that they will embrace and adopt pretty rapidly after FDA clearance.

Steve Brozak

Great. Again, congrats gents, and looking forward to 2017. Thank you.

John McDonough

Thank you, Steve.

Operator

Thank you. The next question is from Paul Knight of Janney Montgomery Scott. Please go ahead.

Carolina Ibanez-Ventoso

Hi, good afternoon. This is actually Carolina Ibanez-Ventoso on for Paul Knight. Thank you for taking my question. And although the product revenue for the fourth quarter was considerably year-over-year, it was flat sequentially, and also consequently the average reagent sales was down sequentially. So I was wondering if you could provide more context to the sequential result.

Shawn Lynch

Yes, absolutely. This is Shawn. So let me start with the second part first. I'm not sure where you're seeing the consumables sales down sequentially. I'm not sure that's information that we've disclosed. And maybe that's something we can capture offline. But with respect to the first part, at the end of Q3 we talked about Q4 would be relatively flat compared to Q3, as in Q3 we kind of had a bounce back from some of the product recall issues that we had at the end of Q2. So we had some backlog that we had to fulfill in Q3. And between that, and consumables, and instrument mix that really kind of led to flat results in Q4. As I talked about in the script, we believe that there will be an increase in revenue in Q1 due to increased patient testing across the portfolio.

John McDonough

Yes, and as we talked about on the third quarter call, just to kind of fill in the blank, especially internationally, there are instrument sales that are part of the mix, and we just didn't have as many instrument sales in Q4, which we expected, which is why you have the flat guidance from Q3 to Q4. But in fact, we're very happy with the growth we saw consecutively from Q3 to Q4 in disposable sales. So if that's kind of not visible on the income statement you should know that that is in fact the case.

Carolina Ibanez-Ventoso

Okay, thank you. That was all for me.

Operator

Thank you. The next question is from Bryan Brokmeier of Cantor Fitzgerald. Please go ahead.

Bryan Brokmeier

Hi, good afternoon guys. You're starting to realize hospital adoption, talked about that having maybe a bit of a pickup in the fourth quarter to 100 hospital representing 100,000 patients. But revenues still haven't quite caught up to that. We saw some of this a little bit in the past and wanted to see if we could get a little more color on what you can do and what you are doing to increase physician utilization?

John McDonough

Yes. There's really three answers to that question. So the first one is, of course, get the account up and live and testing patients. And we -- fourth quarter is a tough time to do that when you get towards the end of the year not many hospitals are turning on new testing. So we expect to see a little bit more of that in Q1 than we would've seen in Q4, and did see a couple of accounts go from December to January, February rollout. So that'll be number one.

Number two, of course, is a dedicated sales people who are promoting to physicians, educating the physicians on ordering the tests, and that would be within the accounts that are closed. And then number three, which is a really big one, as we've talked about in the past, when these accounts go live they typically are starting with testing a segment, usually a reasonably small segment of their entire symptomatic high-risk patient population that really they should be testing. And so we are definitely seeing a move towards broader testing of patients.

We're seeing that both in terms of somewhat modest but nice growth within the customer base, and lots of interest based on the success customers are having testing patients, based on the data from customers that have been presented at trade shows. There is a lot more movement towards testing a broader segment of the overall high-risk patient population. And that's certainly something that as a commercial organization we're really focused on educating and working with an account so that they are testing the right patients. So that third piece is probably the biggest needle mover that we think we will see more and more as we go through 2017, and one we're really excited about.

Bryan Brokmeier

Okay. And you talked a little bit about the sort of -- the customers that you're targeting now whether more mainstream hospitals from where they were. Can you talk a little bit more about how you're customer pipeline looks, and also you signed 100 hospitals representing 100,000 patients, and prior to that I believe that you averaged about 50,000 high-risk patients a quarter. Your new goal implies a slower rate from that. Given the improving adoption, the customer references, and the data that's out there that goes along with that, given the lumpiness of signing contracts. Are you being prudently conservative or there's something else that we should consider for the rate of adoption over the next three quarters.

John McDonough

I think we're being prudently conservative. I think that's a fair way to say that. But we're doing it for all the right reasons. As you said, it can be lumpy. You can close one big healthcare system and we could -- there are some accounts we're working on that would represent more than half of the 150,000, and then we could blow it away. But then there's a lot of accounts that have 3,000, 4,000, 5,000 high-risk patients and then you need more than in order to be able to get there. But we feel really confident with the adding another 100,000 over the next three quarters. We're really excited with the progress that we saw in Q4. We're going to work really hard to try to stay at that rate or better. But it's really going to come down to timing of when these contracts close, which we know is very difficult to predict upon all of that.

Bryan Brokmeier

Okay. And also, I didn't see your financial statements. Is that something we should be expecting today or when are you going to be releasing them?

Shawn Lynch

Yes, so Bryan, this is Shawn. So we didn't include the financials because we closed a number of complicated transactions in Q4, including our debt funding arrangement kind of at the end of the quarter. So we're still kind of going through some of those details internally and with our audit team. We think that we're released kind of the important information as of today related to symptomatic high-risk patient revenue, cash, and shares outstanding. So, if you need more we can talk through it, but otherwise we plan to file our K in due course.

Bryan Brokmeier

Okay, thank you.

Shawn Lynch

Welcome.

Operator

Thank you. [Operator Instruction] Our next question is from Mark Massaro of Canaccord Genuity. Please go ahead.

Mark Massaro

Hey, guys, thank you for taking the questions. I was hoping you could comment on -- anyway, in Q4 you had a really strong eight contract number which is your strongest in all of 2016. Can you speak to your pipeline in your funnel in terms of contracts? And that being said I understand you're trying to move us to the number of high risks symptomatic patients. You have taken up that guide as well. I was wondering if you could just speak to how we should be thinking about number of hospital contracts as we prepare in advance of the bacteria launch.

John McDonough

Yes, and we're not going to go there because we've moved away from contracts. So what I'm happy to talk to the number of high-risk patients within those accounts because we definitely have put the sales focus on the biggest opportunities. The biggest opportunities take longer to close. And it's worth the effort because you can close 100,000 high-risk patients in a quarter, like we just did in the fourth quarter. The pipeline is strong, honestly. I'm glad you asked about it. It continues to advance. It's a very rare case if somebody's not interested in our platform. It's a very rare case now with T2Bacteria entering the fold. Even some of those that have been waiting are now starting to come back in and moving forward in the sales cycle. So we're definitely seeing a heightened interest and excitement growing. And we think T2Bacteria is helping to stoke that. And the customer success stories that we've talked about are stoking that.

And honestly what Tom Lowery just spoke to on the call, boy, that's the biggest thing of all, right. I mean, we now have well over two dozen documented cases at customer sites where they've detected infections that probably would've gone undetected, completely undetected. And blood culture was negative. It turns out there are lung infections, abscess infections. And we're picking them up in the blood sample. I mean, it's -- I'll be real honest, we didn't think even when we launched the product and started testing patients last year, we never thought we would see the types of cases that we're picking up. No one ever really knew. Some of our scientific advisors thought that this might be possible, that if you were sensitive enough maybe you would pick up these infections. Nobody knew, you know, if there is a lung infection really presents in the blood you know, and what's happening is they're picking up these positives, they're doing imaging, they're seeing an infection. And even if they had done the imaging they never would've -- not only the Candida infection and we're directing them in that way. And we think we're going to see the same thing with bacterial infections and the impact it's going to have.

So when you think about customer success stories and the impact that they can have on the pipeline and the sales cycle, don't just think about the big ones. Of course, we like to see these smaller cases that we see are every bit as impactful. We're typically seeing in a hospital that for every two candidemic patients they know about we pick up a third one they didn't know about. And in all honesty, if that patient ever got treated they probably don't survive. And the cost of treating that patient on average would be 2.7 times greater than the cost of treating a patient that you did know about and treat.

So the cost savings are really phenomenal as well. So we're pretty excited about the technology. We're really excited with T2Candida. We can't say it's having an impact on the sales cycle, and we're just so excited to be in 2017, and moving toward T2Bacteria. And we certainly -- we know everybody wants to see more numbers; we're working hard at that. We're an early stage company, and sometimes you don't get to see all the good things that are coming reflected in short-term revenue and in profit.

Mark Massaro

Great, thanks. And I know all hospital systems are a little bit different, but can you speak to the number of months it's taking from the time that you provide a demo into a hospital system to the time that the budget gets approved, and you place the instrument and start recognizing revenue. And then as a follow-up to that, can you just speak to the timing of recognizing revenue upon clearance of the Bacteria panel.

John McDonough

Yes, so let's see if I can pick these pieces apart. Typical sales cycle is six to 12 months. We see them as fast as three months and the longest -- well, we've got some that have been in the pipeline well over a year. So I'll let you know when they close what the longest is. So the longest is yet to be determined, but typically we're averaging six to 12 months. When the contract is closed it typically takes three to six months to go through both an installation, and then a verification, just like every product that goes in needs to be verified. And for the first time today they're verifying both an instrument along with T2Candida. And it's really at the end of that process typically where you'll now see revenue commencing. And they're starting by testing typically a smaller number of patients.

So beginning to end, if you take a 12-month sales cycle and you took six months to go live, it's 18 months, if you will, from first call to first revenue.

Mark Massaro

Excellent, yes, that's pretty stable. And then my last question is on Lyme disease, obviously a large unmet need. Assuming you do finish the three clinical studies in '17, is it fair to say that you may be in good position to submit in early '18. And can you speak to the regulatory pathway there?

John McDonough

Yes, so if we complete preclinical studies in '17 we would likely enter the clinical study -- for the FDA. I don't know. So I think we'd probably figure to the FDA. And we'd probably start to have in early spring of 2018. So we don't know exactly what that trial will look like. We are in discussions with the FDA. It's possible we would get submitted before the end of 2018, but it's too early to make the call on that.

It's important to point out though vis-à-vis Lyme disease -- that panel, because that is a panel, also includes the bacteria associated with Lyme disease in Europe. So it's not unreasonable to think that we could be CE marked and selling products in Europe in 2018. You know, early -- I don't know, maybe first half of 2018, that would probably be the most optimistic scenario, but quite possible.

Mark Massaro

Great. Thank you very much.

Operator

Thank you. We have no more questions at this time. I would like to turn the conference back over to management for closing comments.

John McDonough

Well, thank you all for dialing in this afternoon. We look forward to communicating back in the very near future, and we hope you all have a good day.

Operator

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. And thank you for your participation.

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