Business Update and Financial Guidance Conference Call Script John McDonough CEO Commentary John Sprague CFO Commentary Zack Kubow (W2O) - Moderator

Business Update and Financial Guidance

Conference Call Script

John McDonough CEO Commentary

John Sprague CFO Commentary

Zack Kubow (W2O) - Moderator

May 29, 2018 8:30 a.m. ET

Leader Dial-In Number: 1-877-808-1531 or 1-201-493-6782

Conference ID: 13680514

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the T2 Biosystems conference call to discuss the FDA clearance of the T2Bacteria

Panel. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. It is now my pleasure to turn the call over to Zack Kubow, of the W2O Organization.

Please go ahead, sir.

Thank you, operator, and good morning everyone. Thanks for joining us for the T2 Biosystems conference call to discuss the news issued this morning that the

FDA has cleared the T2Bacteria Panel for marketing in the US. On the call today 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 not guarantees of future performance and 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 d like to turn the call over to President and CEO, John McDonough

. Congratulations John, please go ahead.

Thank you, Zack. Good morning, everyone,

and thank you for joining us to discuss what we believe may be the most important milestone to date at T2 FDA clearance of the T2Bacteria Panel. We believe this will be a significant growth catalyst for the Company because it allows us to

roll out a more complete solution for diagnosing the pathogens associated with sepsis - a solution that we believe is capable of fundamentally improving the process of detecting,

managing and ultimately minimizing the terrible impact of sepsis. This is a significant development for the Company, the hospitals and the healthcare providers serving patients at risk for

T2Bacteria is the first and only diagnostic that can identify specific sepsis-causing bacterial pathogens directly from a whole blood specimen in

approximately five hours, without the need to wait for the results of a blood culture. This represents a major breakthrough in the field of diagnostics, and more specifically, in the management of patients at risk for sepsis, which continues to be

one of the most costly issues both in terms of mortality rates and actual dollars spent in the healthcare system today. The T2Bacteria Panel, combined with the already FDA-cleared T2Candida

Panel, may allow hospitals to identify up to 90% of the bacterial and fungal infections that are not effectively treated with broad-spectrum antibiotic drugs, a regimen that is typically initiated immediately when a patient is suspected of having an

To appreciate this step forward, it is helpful to understand the limitations to date of the diagnosis and treatment of patients suspected of

having a bloodstream infection, which leads to sepsis when not effectively treated. In order to successfully treat such patients with the correct targeted antibiotic, a clinician needs to know the species-specific pathogen responsible for the

infection. Blood culture, the only other method to diagnose a bloodstream infection, takes up to five days and even then detects only 50-65% of the infections with the first culture. Because of blood

culture s poor rate of diagnosing infections, clinicians often run four blood cultures for each patient, spread out over a period of time, in the hope that they can improve the rate of detection. But even with that marginal accuracy, the time

required to run the additional blood cultures further delays the time to result. Meanwhile, for every hour that passes without the correct matching of the pathogen to the targeted medication, the estimated mortality rate for the patient increases by

almost eight percent.

Because of the limitations associated with blood culture, physicians and hospitals have had to devise clever, probability-based

protocols where they treat patients with drugs before they receive the blood culture results, in the hope that they can administer the right targeted therapy faster than if they were to wait for the blood culture results. If they didn t do so,

the mortality rate for sepsis would be far higher. This process, known as empiric therapy, is used because the clinicians know if they can treat the patient with the right targeted therapy sooner, they may save the life of the patient. But these

probability-based protocols have issues: targeted therapy for the patient can be delayed by days; many patients never receive the right therapy; and most patients receive drugs they don t actually need, which is expensive to the hospital, can

have negative consequences to the patient, and is a primary cause of the growing issue of antimicrobial resistance.

I am happy to say that we believe

today s announcement may mark the beginning of the end of the probability-based approach to managing bloodstream infections and sepsis, and its potential replacement with a fact-based system that provides rapid and accurate diagnostic results

that can potentially place more than 90% of patients suspected of a bloodstream infection on the right targeted therapy within six to eight hours, reduce related deaths by an estimated 50%,

reduce the long-term side effects for patients that survive, and save billions of dollars for hospitals as the consequences of sepsis become more preventable. Published data suggests that a

hospital can save in the range of $25,000 per infection if a patient can be placed on the right targeted therapy within 24 hours of presenting with symptoms. And customers that have adopted our T2Candida product, which provides many of the same

benefits as the T2Bacteria Test Panel, have been reporting similar per-infection cost savings.

additional color on the benefit of T2Bacteria, our plans for the commercial launch, and our expectations for revenue growth, I want to take a step back to remind everyone of some of the facts about bloodstream infections, sepsis and why we are

excited to be able to improve patient care for this condition:

Our objective is to have T2Bacteria implemented as a part of a hospital s standard sepsis protocol, which is typically

used to identify patients suspected of having sepsis and the diagnostic and therapeutic approaches that are automatically taken with those patients. By being a part of the sepsis protocol, physicians would not need to order the test, but instead

T2Bacteria would be automatically ordered and, as a result, we believe probability-based approaches, which are currently used to determine what drugs to give these patients, would be improved profoundly.

So clearly, there is a need and a benefit to the key stakeholders in the healthcare system the patient, the hospital and the payor. But we have the

experience to know that while there are institutions that have been waiting for the approval, the T2Bacteria Panel will not sell itself and we therefore have a commercial plan in place that is being implemented as we speak.

We have been preparing for the launch of T2Bacteria for two years and are confident that we have the team and strategy in place to hit the ground running.

Here are a few elements of that plan and facts we look to as positive signs of market interest:

will discuss, we believe the FDA clearance of the T2Bacteria Panel and the launch of a more complete Sepsis Solution will drive an acceleration in the adoption and utilization of the T2Dx system that will allow us to double our revenue in each of

the next two to three full years. Let me walk you through the reasons we are confident that we will be successful in doing so.

With that as a background, I will turn the call over to John Sprague to discuss our financial guidance.

The following forward-looking statements reflect estimates based on information as of May 29, 2018 and are subject to uncertainty. Additional information

is available under the heading Forward-Looking Statements.

With the FDA clearance of the T2Bacteria Panel, we are now prepared to provide

guidance for the full year 2018.

We expect total 2018 revenue to be $10.0 million to $12.0 million, with product revenue in the range of

$4.5 million to $5.9 million. Research revenue is expected to be in the range of $5.5 million to $6.1 million.

We expect revenue to

double in each of 2019 and 2020 and to achieve total revenue in 2020 in the range of at least $50 million.

In the second half of 2018, we expect to

close contracts for the placement of 20 to 25 instruments that provide access to at least 75,000 patients suspected of sepsis. We expect approximately 70% of these instruments to be placed in the United States.

For new instrument placements, it typically takes three to six months before systems go live and patient testing commences as hospitals are required to

validate any new diagnostic tests or instruments. During this period, the Company typically receives nominal revenue unless the instrument has been purchased by the hospital, which in the United States occurs about 15% of the time. International

distributors typically purchase instruments at a 30% discount off the list price of $100,000 per instrument.

We expect the average sales price for

T2Bacteria to be $150 and for T2Candida to hold at $200 per test. International distributors typically receive about a 30% discount.

single T2Dx instrument is capable of running about 3,000 tests per year. Over time, as patient testing grows in the hospital, we expect each T2Dx instrument to generate about $300,000 in annual revenue from the combination of T2Bacteria and

We estimate that we will achieve cash flow break-even between $65 million and $75 million in annual

revenue. We expect our gross margins to be approximately 45% to 50% at these revenue levels.

Regarding operating expenses, as discussed on our last call,

we expect second quarter 2018 operating expenses, excluding cost of product revenue, to be $10.0 million to $10.5 million, including non-cash stock based compensation and depreciation expenses of

$2.0 million. We expect quarterly operating expenses to stay in the range of $10.0 million to $11.0 million per quarter in the second half of 2018, including non-cash stock based compensation

and depreciation expenses of approximately $2.0 million each quarter.

Thank you and back to John McDonough for closing remarks.

Thank you, John. In summary, with the

FDA clearance of T2Bacteria, we are now poised to enter the next chapter at T2 Biosystems. Sepsis is a significant issue in the United States and around the world, and we believe the combination of T2Bacteria and T2Candida represents a breakthrough

in the ability of physicians and hospitals to finally manage patients at risk for sepsis using accurate, fact-based assessments and not probabilities alone. Our vision is to drive broad adoption of T2Bacteria, which we believe can have the following

Given this significant opportunity to impact patient care, we believe the FDA clearance of T2Bacteria will put T2 Biosystems on a new and accelerated growth

trajectory as the number of installed systems grows and testing at hospitals grows in multiples, which should then result in a significant inflection in our revenue ramp. This will also position us to continue advancing our exciting pipeline of

diagnostics that meet critical unmet needs in healthcare, including the T2Lyme Panel, which officially tested the first patient in the beginning of an FDA clinical trial this quarter.

Thank you for your participation in today s call and for your continued interest in T2 Biosystems. That concludes our prepared remarks. Operator,

we ll now open the call for questions.