T2 Biosystems (NASDAQ:TTOO) Q1 2018 Earnings Conference Call May 8, 2018 4:30 PM ET
Executives
Matt Clawson - Investor Relations
John McDonough - President and Chief Executive Officer
John Sprague - Chief Financial Officer
Analysts
Patrick Donnelly - Goldman Sachs
Max Masucci - Canaccord Genuity
Paul Knight - Janney Montgomery
Steve Brozak - WBB
Puneet Souda - Leerink Partners
Karthik Sunkesula - H.C. Wainwright
Operator
Good day and welcome to the T2 Biosystems 2018 First Quarter Financial and Operational Results Conference Call and Webcast. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Matt Clawson, W2O Investor Relations. Please go ahead.
Matt Clawson
Thank you very much, Kate and good afternoon everyone. Thanks for joining us for the T2 Biosystems 2018 first quarter financial results conference call. On the call to discuss the results and operational highlights for the quarter ended March 31, 2018 are President and CEO, John McDonough; and Chief Financial Officer, John Sprague. The executive team will open the call with some prepared remarks, followed by a question-and-answer period.
I would like to remind everyone that comments made by management today and answers to questions will include forward-looking statements. Those include statements related to T2 Biosystems’ future financial and operating results and plans for developing and marketing new products. Forward-looking statements are based on estimates and assumptions as of today and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied by those statements, including the risks and uncertainties described in T2 Biosystems’ annual report on Form 10-K filed with the SEC on March 19, 2018. 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 and President, John McDonough. Good afternoon, John.
John McDonough
Thank you, Matt. Good afternoon, everyone and thank you for joining us as we discuss the progress, results and outlook following our 2018 first quarter. The past quarter was one of both execution and anticipation as we continue to make progress in the field and more importantly lay the groundwork for what we believe to be the most important product launch to-date at T2 Biosystems. But before I detail those activities, let me summarize the financial and commercial results from the period, which John Sprague will then amplify with more detail in his commentary.
In the first quarter, we recorded total revenues of $2.3 million and product revenue of $1,048,000. Both revenue levels met or exceeded our guidance and more importantly reflect solid trends in commercial activity, instrument placements and utilization. Overall, product revenue grew 66% from the first quarter of 2017 driven by growing sales of the T2Candida panel and the T2Dx Instrument. This included increased T2Candida usage on a same-store basis over last quarter, a positive sign that utilization is growing over time as hospitals better understand the benefits and new hospital protocols are adopted. T2Dx Instrument sales continue to show a steady build as does the new customer pipeline due to the anticipated FDA clearance of the T2Bacteria panel and the growing body of third-party data, peer-reviewed literature and customer success stories addressing both the T2Candida panel and the early use of the RUO version of the T2Bacteria panel. We measure our progress in part using metrics that includes the number of new instrument placements, the number of contracts in place and the growth in the number of high-risk patients at facilities under those contracts. The number of high-risk patients is important as it represents the current existing market opportunity for the T2Candida and T2Bacteria panels if every patient at hospitals under contract were tested at the time they showed symptoms of infection.
Another way to think about it is that this number represents our available market under contract. During the first quarter, we increased the number of high-risk patients at hospitals under contract by approximately 48,000, which was a greater number than the 35,000 high-risk patient target we conveyed on our Q4 call. That positive patient trend corresponded with five new instrument placements in Q1, four contracts that provide access to 10 new hospitals and the expansion of contracts with two existing customers to include the T2Bacteria panel once cleared by the FDA. We continue to see hospitals and systems focus on T2Bacteria commercial availability both as a catalyst to begin the contracting process but also before moving forward with activating contracts.
As evidence of that dynamic, we had mentioned the step up in a number of proposals delivered in the fourth quarter. 24 proposals were delivered in Q4, up from 8 in Q3 and this elevated level of interest continues in Q1 with the delivery of 17 new proposals. We believe this is one more indicator that the anticipation of the T2Bacteria panel is generating real interest and is resulting in a higher overall level of commercial activity. Given that this robust activity primarily reflects interest in the T2Bacteria panel, we do not anticipate an increase in closing rates until we receive FDA clearance of T2Bacteria. However, when T2Bacteria is available, we anticipate an 80% or more proposals will close over time with varying timelines around the sales cycle depending on the customer. Furthering that theme of the T2Bacteria impact, as of March 31, 2018, we had 11 T2Bacteria research-use only customers and two current T2Candida customers that have amended their contract to include delivery of T2Bacteria once it is clear to market by the FDA, exceeding our own expectations of contract close rates prior to FDA clearance.
As of March 31, 2018, we have 70 instruments placed or contracted to be placed, covering 162 hospitals in the United States and worldwide. We estimate that each instrument is capable of running over 3,000 T2Candida and/or T2Bacteria tests per year. Additionally, as of March 31, 2018, those contracts and instrument placements provide access to an estimated almost 520,000 high-risk patients that could be tested with T2Candida and T2Bacteria, which both run on the T2Dx Instrument. It is still our intent to hold a conference call following the expected announcement of FDA clearance of T2Bacteria to, among other things, provide updated 2018 full year financial guidance and to detail key pre and post-launch activities in more detail. At that time, we will also provide guidance on the number of instruments expected to be placed and the number of hospital accounts expected to be closed during 2018. That brings us to the status of the T2Bacteria panel, a topic in which we are all keenly interested. All of the activities and correspondence with the FDA appear to be on track with the typical review time line of 6 to 9 months following submission. That timeline has us on a path to FDA clearance this quarter and we see no indication of any deviation from that path. Our discussions with the FDA continue to be productive and cooperative and they appear to appreciate the positive data from the clinical trial and the benefit of the T2Bacteria panel for patients.
At T2 Biosystems, we are all collectively waiting with anticipation for this important milestone and the next step towards controlling sepsis and lessening its impact on families in the healthcare system. As a reminder, the T2Bacteria panel submission includes a filing with compelling data that demonstrates overall sensitivity of 95.8% and overall specificity of 98.1%. This compares favorably to the reported 50% to 65% sensitivity of a single set of blood cultures and therefore the sensitivity of any diagnostic product that is dependent on a positive a blood culture. Most importantly, in the pivotal study of over 1,400 prospective patients run at 11 institutions across the United States, T2Bacteria identified 104 patients with strong evidence of bloodstream infections for our panel members. Of those, the blood culture which was drawn concurrently with the T2Bacteria blood draw detected only 39 patients. And all blood cultures drawn on those patients over a time period of many days detected only 74 infections. And the average time to result of the T2Bacteria panel was 5.4 hours compared to 71.7 hours for blood culture-based species identification. Those kinds of differentiated results both in sensitivity and time are driving enthusiastic interest in the T2Bacteria panel for both existing and new customers.
As I mentioned, we are already seeing a strong uptick in proposal activity. That dynamic, combined with the market research we shared with you on last quarter’s call, gives us a sense of confidence that T2Bacteria should be a primary driver for new contracts in the second half of the year, followed by growing system and consumable sales as new protocols for suspected inspections are established and utilization followed. It is important to remember that the volume of T2Bacteria tests should be higher at each institution that adopts both T2Candida and T2Bacteria. In fact, market research and clinical data indicate that testing volumes for T2Bacteria could be as much as 10x greater than T2Candida or even more, because patients will likely be tested closer to the time they show the first signs of a possible sepsis infection.
In addition, we anticipate T2Bacteria will be implemented in many emergency room department where the majority of applicable sepsis causing infections first present. This represents an exciting new beachhead at the hospital as we look to expand our overall customer base and gain footholds where both the economics and clinical need converge positively. Of course, this will not be an instant phenomenon, especially if those new customer sites do not currently use T2Candida. The hospitals are coming around to the fact that from the patient and healthcare perspective, the combination of T2Bacteria and T2Candida together offers the health system the potential to positively impact patient lives by allowing a faster and a more targeted therapeutic approach to treating patients while potentially saving institutions millions of dollars each year.
We are planning to use the market experience and data we have gathered to execute a smart, impactful launch process when the FDA does give us clearance to market and to sell T2Bacteria. Over the past 2 years, while we have not been able to market the T2Bacteria panel in the United States, we have been able to see the marketplace by virtue of the gathering and publication of data, the use of the system in a research setting and more recently, field experience in the EU with institutions that are using the T2Bacteria panel. These activities have served to generate interest and to identify both where the opportunities lie and some early operational lessons for the anticipated rollout. As you might imagine, our sales team is anxiously awaiting FDA clearance of T2Bacteria and is looking forward to changing the clinical conversation and the economic equation while delivering a system that is designed to change the way that an infectious disease is managed in the hospital environment.
Before turning the call over to John Sprague for the details of our Q1 financial performance, I would like to provide a brief update on our pipeline and development efforts. Having concluded our preclinical study for our T2Lyme Diagnostic panel, we are still on track to commence the FDA clinical trial for T2Lyme this spring. We expect this clinical trial to continue into 2019, which may enable us to make a submission to the FDA sometime next year. We estimate the size of the T2Lyme market to be $700 million and we believe we can make a difference in detecting this growing disease by directly detecting the bacteria that enters the bloodstream from a tick bite. The T2 Gram-Negative Resistance Diagnostic panel, being developed through a partnership with Allergan, also remains on track and we plan to deliver initial product to Allergan by the end of this calendar year. In the future, this product could be used to determine if a patient is resistant to the first line therapy associated with certain deadly gram-negative bacterial infection.
We believe our partnership with the Centers for Disease Control and Prevention, the CDC, regarding a new effort that will use the T2Dx Instrument in an investigational use only T2Candida auris panel as a means of rapidly detecting the superbug Candida auris on hospitals around the country is progressing well. Existing laboratory methods that detect Candida auris, including culture, suffer from prolonged detection times, 17 days at the CDC and low accuracy which exacerbates the challenge in the fight to contain the superbug. The T2Candida auris panel has an average time to result of approximately 4 hours. The validation work has been completed and we expect the data from the work at the CDC to be published in the future and to potentially serve as an entry point to state hospitals and other institutions that are focused on the Candida auris outbreak. The initial development efforts of our expanded T2Bacteria panel are also underway as part of our collaboration with CARB-X. The new tests aim to address both serious superbugs and resistant genes on the antibiotic-resistant threat list published by the CDC. The test delivered by T2 Biosystems will aim to identify 20 or more additional infectious species and resistant genes directly from whole blood.
With that, let me turn the call over to John Sprague, who will review our first quarter 2018 financial results in greater detail. John?
John Sprague
Thank you, John. First quarter 2018 total revenue of $2.311 million exceeded the high end of guidance by 44% and increased 39% over last quarter’s revenues of $1.661 million and 146% over last year’s first quarter revenues of $941,000. Product revenues, primarily T2Candida panel and T2Dx Instrument sales, of $1.048 million were at the high end of guidance, a 21% decrease over last quarter’s product revenues of $1.335 million and a 66% increase over last year’s first quarter product revenues of $631,000. The decrease in product revenues from 4Q 2017 to Q1 2018 was driven by higher T2Candida sales offset by lower T2Dx Instrument sales due to the timing of orders. Research revenues were $1.2 million compared to $326,000 last quarter and $310,000 in last year’s first quarter.
Cost and expenses, excluding cost of product revenue, were $10.5 million, an increase of 8% over last quarter’s cost and expenses of $9.7 million and a 16% decrease over last year’s first quarter cost and expenses of $12.5 million. Cost and expenses were 2% below the low range of guidance and include non-cash compensation expense of $1.4 million compared to $1 million last quarter and $1.1 million in the last year’s first quarter. Operating margins were a loss of $11.5 million, a 20% decrease over last quarter’s $14.4 million operating margin loss and a 12% decrease over last year’s first quarter operating margin loss of $13.1 million.
Net interest and other non-operating expenses were $1.5 million compared to last quarter’s net interest and other non-operating expenses of $3.8 million, which include non-cash interest expense related to the valuation of embedded debt derivative of $2.2 million compared to last year’s first quarter net interest expenses and other non-operating expenses of $1.6 million. Our net loss was $12.9 million, $0.36 per share compared to a net loss last quarter of $18.2 million, $0.51 per share and a net loss in last year’s first quarter of $14.7 million, $0.48 per share. Weighted average shares outstanding were 36 million compared to 35.9 million last quarter and 30.6 million in last year’s first quarter.
Our cash and cash equivalents were $29.7 million at March 31, 2018. We believe we have sufficient cash and financing sources for the first quarter of 2019. The following forward-looking statements reflect estimates based on information as of May 8, 2018 and are subject to uncertainty. Additional information is available under the heading, forward-looking statements. We will provide guidance for the full year 2018 following FDA clearance of the T2Bacteria panel. For the second quarter of 2018, we expect total revenue to be $3 million to $3.3 million with product revenue a range of $1 million to $1.3 million.
Research revenue is expected to exceed $2 million in Q2 due to a one-time payment expected from Canon related to the T2Lyme project. We expect to close at least 6 new contracts in the second quarter, which include at least 8 new placements of T2Dx Instrument that provide access to a minimum of 35,000 high-risk patients. We expect our contracts close rate and instrument placement rates to accelerate following FDA clearance of the T2Bacteria panel. We also expect second quarter 2018 operating expenses, excluding cost of product revenue, to be $10 million to $10.5 million, including non-cash stock-based compensation and depreciation expenses of $2 million. Our weighted average shares outstanding of 36 million may be impacted by stock option exercises. Thank you. And back to John McDonough for closing remarks.
John McDonough
Thank you, John. In summary, we continue to make steady progress and to lay the necessary groundwork to optimize the rollout and impact of the T2Bacteria launch following its FDA clearance. It’s a time of great anticipation at the company. And while our existing business continues to grow as anticipated, we are all looking forward to this next chapter at T2. We are squarely focused in driving the commercial adoption of our products and driving revenue growth through adoption of our platform and testing of patients via the combination of T2Candida and T2Bacteria once it is cleared by the FDA. We believe that this combination should result in the tipping point of the market and should drive a substantial increase in the number of installed systems and tests being run at hospitals, which should then result in a significant inflection in our revenue ramp.
Thank you for your participation in today’s call and for your continued interest in T2 Biosystems. That concludes our prepared remarks for this evening. Operator, we will now open the call for questions.
Question-and-Answer Session
Operator
[Operator Instructions] The first question is from Patrick Donnelly of Goldman Sachs. Please go ahead.
Patrick Donnelly
Great. Thanks. Maybe just one, on the sequential tick down of proposals, can you just update us on what you have seen on the pipeline activity around T2Bacteria approaching the market? Just wondering what you are seeing from customers, if the sales approach has shifted at all in preparation for this, just would like some color there?
John McDonough
Yes. You bet, Patrick. So Q1 usually gets off to a slow start. We were really pleased with the number of proposals that went out relative to Q4. We are definitely seeing that interest in T2Bacteria is the primary driver in the growth of those proposals. And interesting, the majority of these proposals, vast majority, includes both T2Bacteria and T2Candida.
Patrick Donnelly
Okay. And then maybe just one on therapeutic customers, can you talk about the interest there for using your product in clinical trials? And then maybe just help us think about what the opportunity set in that market is?
John McDonough
Yes, it’s a great question. So, we already have a relationship in place with Cidara, that’s a part of their protocol with the FDA to use T2Candida for enrolling patients in their trial and they have successfully seen an increase in enrollment and a decrease in the cost for enrollment. The opportunity – and of course, with T2Bacteria, there are more antibiotics in development than anti-fungals. So, we see an exciting opportunity there to partner with those therapeutic companies. For us, it’s an entrée into the hospital as the guest experience using our product and seeing the benefits through clinical trials, most of the discussions with the sites that are looking to enroll patients in a clinical trial are also interested in testing patients within their hospitals. So, it’s a great relationship. It’s one where we can certainly provide significant value to the therapeutic company, but it also provides an excellent entrée point for us in the hospitals we might not otherwise be in.
Patrick Donnelly
Great. And then maybe one last one, can you just update us on your thoughts from a competitive landscape in sepsis testing? We have got a few questions. A large diagnostics player gained approval for their sepsis test last week. So, just wondering how you are feeling about your competitive positioning on that market?
John McDonough
Yes. So I am not sure which product you are referring to, but for sure, we are the only company that can detect species directly from a blood sample without a blood culture and you need the species-specific information in order to know which targeted therapy to use. So, all of the other products to the extent that they are identifying species, they all require that blood culture on the front end and the challenge there is that blood culture will typically miss 50% or even more of the infection. And as we saw in our FDA clinical trial, the average time to result was 71.5 hours versus our 5 hours. Other sepsis products that are coming to market, which maybe the one you are referring to are actually detecting the onset of sepsis following the infection, which is a different space and not competitive to what we are doing at all. The T2 value proposition is to get patients on the right targeted therapy so that they don’t move into a septic state at all. So, we identify the species, the source of the infection and the whole idea is to prevent sepsis. If a patient became septic, if the product you are talking about is the one I am thinking, then that diagnostic could simply let you know that the patient has moved on to the next stage of sepsis.
Patrick Donnelly
Okay, that’s what I thought. I just wanted to clarify. Appreciate it.
John McDonough
You bet.
Operator
The next question is from Mark Massaro of Canaccord Genuity. Please go ahead.
Max Masucci
Hi. This is Max Masucci on for Mark. On the expected Q2 bacterial approval, is the FDA still requesting additional data and does it have anything to do with now reporting out AB and have the nature of conversations there or the topics of the questions changed at all?
John McDonough
So, it has nothing to do with AB. At this time, there are no open requests for data from the FDA and we feel pretty comfortable we are on track to receive notification of clearance in Q2.
Max Masucci
Great. And based on your conversations with hospitals and clinicians, can you speak to your confidence as to what percentage of patients suspected of sepsis will be given a T2Bacteria panel?
John McDonough
Yes. It’s a great question, Max. It’s difficult to answer that question and it’s going to vary by hospital. We are seeing very high interest in testing of patients in the emergency department. I would say, the majority of the accounts are looking to implement T2Bacteria there. Not exclusively there, but they are looking to adopt T2Bacteria there. And if you look at the entire patient population, roughly 25% of patients suspected of sepsis are presenting in the emergency department – about 50% of sepsis is presenting there, but the testing population is about 25% of the total. And of course, in the ED, you would be screening right on the front end if you adopt T2Bacteria, you are not waiting. And in all other areas of the hospital, all discussions are around screening patients when they are suspected of an infection. With T2Candida, the initial interest tends to be around screening patients when they are suspected of a fungal infection, which is typically 48 to 72 hours after they are suspected of a sepsis infection and that patient population typically is in the order of 10% to 15% of the total suspected sepsis patient population.
Max Masucci
That’s great. Thank you. And regarding your Candida auris collaboration with the CDC, can you share some of the milestones as it relates to timing and can you speak to any dialogue where you could develop additional assays with the CDC?
John McDonough
Yes. The key milestones were the complete validation, which they have completed successfully. We believe that data will turn into a publication and the CDC has been actively introducing us to state institutions and labs where the test could be run. And we have had broad discussions about using the T2Dx instruments for other superbugs, but I don’t have anything to report on that at this time.
Max Masucci
Okay. And one more if I can, can you speak to the source of strength in research revenues during the quarter and how should we think about the pacing for the rest of ‘18? And then also on instruments, do you expect the placements to be up sequentially or could you share your general thoughts on pacing for instruments?
John McDonough
Yes. So I will take the second half and then John can take the first half of that. So we expect to deploy 6 to 8 instruments in Q2. That’s assuming that T2Bacteria has little to no influence on Q2 placements and that’s the assumption and we expect placement rates to increase pretty significantly in the second half of the year on the basis of an FDA clearance of T2Bacteria in Q2. John, maybe you can take the research?
John Sprague
Sure. So, the strength of research revenues in Q1 are tied to our Allergan project, which is progressing well and actually slightly ahead of what we anticipated the schedule today. In the second quarter, we do anticipate a milestone with Canon will be completed and paid related to the Lyme project.
Max Masucci
That’s great. Thank you. Congrats on the quarter.
John Sprague
Thank you, Max.
Operator
The next question is from Paul Knight of Janney Montgomery. Please go ahead.
Paul Knight
How are you? Congratulations on the progress. You mentioned you had 11 T2Bacteria research only in Q1 and also you mentioned a number that would convert, what was that number, might convert?
John Sprague
Well, we are quite hopeful that all 11 of those RUO customers will convert. And on top of those 11, two of our existing T2Candida customers have already amended their contracts to include T2Bacteria once its FDA cleared and that’s pretty unusual. Usually, you are not going to get contracts being changed until a product is cleared. So we are pretty happy to see that level of interest in two accounts that they want to be ready to obviously move pretty quickly following clearance.
Paul Knight
And then John is there any change in turnaround time on bacterias, it’s still in that 2 to 3-hour timeframe?
John McDonough
Yes. So if you were to run a single T2Bacteria on our instrument, it would probably take probably about 3.5 hours. The average time to result in the FDA clinical trial was just over 5 hours, because our instrument and this is important because unlike other instruments in the market, you can run 7 samples at a time and the more loading of the machine, it just slows down the average time to detect because there are some shared resources inside of the machine.
Paul Knight
Okay. And then I know Lyme is still in the early days, but direct detection method would be very, very unique in the market, can you talk about, first of all, what data, how the data looks and also I know it’s a long way away, but uptake? It seems to me like it’s clearly an unmet need.
John McDonough
Yes. I mean there is a big unmet need here and we haven’t officially started this clinical trial yet, so we don’t have any specific data. We know in some of our preclinical studies, we are definitely seeing that we picked up cases of Lyme disease missed by PCR and other methods and we are quite hopeful that we can make a big difference, estimated by the CDC that 90% of these cases go undiagnosed and we are pretty hopeful that detecting the bacteria directly in the blood can start to fill in at least a piece if not a big piece of the gap and the study is what will ultimately determine how many of these cases we are picking up that are missed and how bacteria presents in the blood. This is a whole area which we know is a big deal and a big opportunity, but it’s also never been studied before. And so we are excited about it and we will continue to report on the progress and way too early to know the update until we really see the data from the clinical trial.
Paul Knight
And then lastly on cash flow, I guess we should assume similar levels of D&A and stock-based comp that we had in Q4?
John Sprague
Yes, that’s appropriate.
Paul Knight
Okay, thanks.
John McDonough
Thanks, Paul.
Operator
The next question is from Steve Brozak of WBB. Please go ahead.
Steve Brozak
Hey, good afternoon and congrats and thanks for taking the question. Let me dive into one item that you mentioned that’s unusual in terms of calls that I have listened to. You mentioned new protocols and obviously you were talking about a particular collaboration with Cidara, but that would then lead me to wonder and ask about new protocols, for instance, within the hospital systems. And specifically, how would you differentiate that, because it’s not something that I am used to listening to and specifically, how would you talk about new protocols, especially within the ER?
John McDonough
Yes, you bet. It’s a great question, Steve. So many, in fact, most hospitals, if not all, that we are targeting in our top 1,200, they have sepsis protocol for patients suspected of sepsis. And ultimately, T2Bacteria belongs in that protocol. And what it means when you are in the protocol is that you are automatically ordered. It doesn’t even necessarily require a clinician to place the order. If you meet certain criteria, it just triggers the protocol and that’s how a blood culture will be ordered and T2Bacteria will be ordered and that’s ultimately where we aim to be. That’s where we belong. It will obviously take some time. We will close these accounts. We certainly don’t expect to be a part of a protocol 90 days after somebody brought product in. They are probably going to be using it as an order test for some period of time and then ultimately move to that protocol when they understand the workflow and how the product ultimately works. And then once you are involved in the protocol, it’s automatic. The patients benefit. There is no delay when a patient is suspected from when that test is drawn and most of the accounts that we are talking to with these proposals that have gone out that are over 40 now over the last 6 months, they are highly interested in including T2Bacteria in that protocol.
Steve Brozak
Which actually leads me to another question about – on the financial side, you took the steps years ago to institute the coverage on CPT code. So, is this the new way of also thinking about how hospitals would now think about a revenue source versus a savings source in terms of test administration and how would you start to look at that?
John McDonough
Yes. So for inpatients in a hospital, the CPT codes don’t come into play. They are covered under DRG codes and so all the savings associated with using T2Bacteria and T2Candida drop to the bottom line in a hospital. That’s why we have had folks like Henry Ford save over $2.3 million in T2 studies from Lee Memorial Health System hospitals, many hospitals in Europe that are realizing these savings because they are getting a fixed sum reimbursement for that septic patient. It’s a different dynamic, Steve, in the emergency department, where existing CPT code provide about $220 of reimbursement for the test for any patient that ultimately is not admitted into the hospital. Now if you are admitted into the hospital, well, you are covered under the CPT code and you are admitting a patient that’s now on the right targeted therapy, so the hospital is going to save money on that patient. And if you send them home, you are going to get $220 of reimbursement for a test that will likely have an average ASP of about $150 per test. So I don’t know how the hospitals will record that. Is that revenue? Is that offsetting cost? But it’s surely really helpful, especially in the lab environment and in the EB to have that reimbursement in place that really covers a large majority of these negative T2Bacteria test results.
Steve Brozak
Okay. I mean, obviously, you mentioned new, going back to something else that you had mentioned on the Lyme side. Your partnership with Canon and how they have obviously backed you in so many different ways, can you give us any color on all these new tickborne illnesses that are starting to pop up all over the world and obviously now in the United States? Can you tell us if it’s the same application approach that you would take to identify this? The same way you have looked at Candida auris on the fungal side, would it be pretty close to the same thing in terms of looking at Lyme disease and the different tickborne or bug-borne illnesses, how would you quantify that?
John McDonough
Yes, great question. So, I mean to the extent they are bacteria or viruses, which most of these are it would be the exact same technical approach. And we certainly envision in the future of expanding the T2Lyme panel to a tick panel, because when a patient comes in, if you don’t have Lyme disease, you might have a spider bite or other things that are causing the infection and it would be highly valuable, desirable to just have the complete tick panels that would address most of those questions of what is it you are dealing with, whether it be Lyme or something other than Lyme.
Steve Brozak
One last follow-up on the tickborne side and I will hop back in the queue. You had mentioned that you picked up a positive on Lyme disease that PCR basically found negative. Is that what you had said?
John McDonough
Yes, we have had many cases of that. Our sensitivity, our ability to detect cells, we are detecting at less than 10 cells per ml and that’s been published in terms of our T2Lyme panel. And PCR is typically much, much higher than that in order of magnitude or multiple orders of magnitude. So, it’s not surprising that we will be picking up infections missed by PCR. We are doing the same thing in sepsis. PCR is used by many of the companies who had post blood culture speciation products and PCR is used there, because it can’t be used directly at whole blood. Roche tried that many years ago in a product called SeptiFast, but they can’t detect. Septic patients are typically presenting with 1 to 25 cells per ml in their bloodstream and PCR can’t reliably detect at that level and we can. That’s the big breakthrough here. We detect cell abnormalities in this case the DNA associated with the cell at lower levels than any other technology we are aware of in the market.
Steve Brozak
Well, again congrats and obviously looking forward to news this quarter coming up. Thank you.
John McDonough
Thanks, Steve.
Operator
The next question is from Puneet Souda of Leerink Partners. Please go ahead.
Puneet Souda
Yes, hi, John. So, my question is on the – once this approval comes through hopefully in this quarter, what’s your expectation for cadence here? Would you expect a bolus at first or would this be more gradual into the second half just given the initial interest that you have?
John McDonough
Yes, I think we are going to see within the 90 days following FDA clearance, a significant uptick in the close rate of new contracts and instrument placements. And again, we will provide more guidance on that once the clearance is achieved. And the only reason why we are not providing that guidance today is that the guidance would be different with clearance on May 8 versus June 8, because that uptick is going to be a little bit different in terms of how it affects the whole calendar year. So, the first step will be a significant uptick in instrument placements and then that will be followed by significant growth in revenue and testing of patients. And we may see some of that in the first quarter following FDA clearance, but it really starts to kick in when you get to that second quarter following FDA clearance.
Puneet Souda
Okay. And what’s your expectation, I just want to understand in terms of the reagent rental placements or outright purchases for T2Bacteria?
John McDonough
Yes. We are definitely, Puneet, we have always been kind of saying the best rate in the U.S. is about 85% reagent rental, 15% purchases. We are going to stick with that today, although we are seeing a little more interest in purchasing instruments. So, it’s quite possible that, that will tweak down a little bit to 80% or 75% reagent rental. In Europe, however, all of those instruments, virtually all of those instruments are sold to the distributors. So, we do have instrument sales in Europe, virtually every one of those accounts and then the distributor maybe placing them at a hospital under reagent rental. But if they are doing that, they own the instrument and they are doing the reagent rental, but we picked up the product revenue from the sales of the distributor.
Puneet Souda
Okay, got it. And just last one on ECCMID, were there any updates there that were different than last couple of conferences where you have presented. And just briefly on Europe, I just want to understand what was the contribution in the quarter and what’s your expectation, obviously, once the U.S. approval is in place, do you expect any changes in Europe as well?
John McDonough
Yes, we have been running – we haven’t broken those out separately yet, but if you could think about Europe is generally running at about 20% of total product revenue and we think that trend will continue and there can be differences in a quarter, but there is a bolus of instrument placements or maybe a lower number of instrument placement, but it’s typically running 15% to 20% of total revenue. At ECCMID, there were a number of excellent presentations, very confirmatory to what we have been talking about. So, I wouldn’t say there was new data other than that we saw more of the same data coming from multiple presentations. So, we were really pleased with the contents of the conference. The next big milestone for us on data and customer presentations will be at the ASM conference, which is coming up in June, which is taking place in Atlanta. That’s the biggest microbiology conference of the year here in the U.S. So, we expect to see some more presentations. We will talk more about that in the future. And ultimately, we expect to see all of the data from the FDA pivotal trial to be published, but that could take 6 months or so.
Puneet Souda
Okay, thank you.
John McDonough
You bet.
Operator
The next question is from Yi Chen of H.C. Wainwright. Please go ahead.
Karthik Sunkesula
Hi, congrats on the great quarter. This is Karthik on for Yi. I just have one question with regards to the potential differences between the U.S. and the EU. I just wanted to check that would arise from the data conclusion that you have made from the marketing efforts for T2Bacteria in the EU. I guess, my question is what are some of the clauses and potential differences that you may encounter in the future?
John McDonough
So you are asking kind of what are the market differences between Europe and the U.S., essentially, do I have that question right?
Karthik Sunkesula
Yes, in a way, that would lead to differences in the number of contracts that you encounter in the future once T2Bacteria is approved for commercialization in the U.S.?
John McDonough
Yes. That’s a great question. It’s comparable in terms of the environment in the U.S. and Europe and it’s always difficult to answer these questions, because Europe isn’t a single body, right. Each country has its own nuances. So, in each market, one has to assess the state of reimbursements, for example. As you know, there is an emergency department reimbursement in the U.S., that’s not always true in a European country, some have it, some don’t, and the amounts vary. And in most of the European markets, the hospitals tend to be much bigger than we see here in the U.S. and that creates interesting dynamics, because sometimes those sales cycles are a little bit longer. The rollouts take a little bit longer, because they are just big institutions that move at a slower rate.
Karthik Sunkesula
Alright, perfect. Thank you. Best of luck moving forward.
John McDonough
Thanks very much.
Operator
[Operator Instructions] There are no other questions at this time. This concludes our question-and-answer session. I would like to turn the conference back over to John McDonough for closing remarks.
John McDonough
Thank you very much. Thank you all for dialing in today. Thanks for your continued interest in T2. We are very excited with results of the quarter and more importantly look forward hopefully very soon to scheduling our next conference call to talk more about the expected FDA clearance of T2Bacteria. I wish you all a good evening.
Operator
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
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