Sepsis is a state of an infectious disease, starting when a bacteria or fungus enters a person’s bloodstream, that can lead to tissue damage, organ failure, and death. Sepsis is infamously called “The Silent Killer” due to its incognito nature that makes it difficult to clinically diagnose, as well as the low level of public awareness. Roughly two million Americans get sepsis every year, killing more than 258,000, making it the leading cause of death in U.S. hospitals. At a nearly 30% mortality rate, it kills more than prostate cancer, breast cancer, and AIDS combined.
The main problem with treating sepsis is inadequate diagnostics. Mortality from sepsis increases 8% every hour treatment is delayed. The Sepsis Alliance claims, “As many as 80% of sepsis deaths could be prevented with rapid diagnosis and treatment.” The current gold standard of diagnostics is blood culture, where a blood sample is taken from the patient and an attempt is made to grow the cells in a lab to a level high enough for detection. This process currently takes 1-5 days, delaying available treatment, and increasing patient mortality. T2 Biosystems is a rapid-detection diagnostic firm that has changed that.
T2 is pioneering the technology called T2MR, a platform combining advances in the field of magnetic resonance and nano-technology. On this platform two panels are run; T2 Bacteria and T2 Candida. These panels are more generally referred to as the T2 Sepsis Solution, a unique approach that could be regarded as the best standard of care for the management of sepsis. (T2 Bacteria has been submitted to the FDA through the 510K-approval process and is currently only available in the U.S. under a Research Use Only Program). T2’s Sepsis Solution helps healthcare practitioners combat this disease in a few different ways. The first two are speed and accuracy.
Speed: T2’s system can identify pathogens directly from the whole blood sample in 3-5 hours. This means patients can start receiving appropriate therapy within hours of arrival and within the critical 12-hour window, significantly lowering the mortality rate.
Accuracy/Sensitivity: T2’s system detects 91% or more of infections actually present in patients, which is substantially greater than the 50-60% detection rate of blood cultures. The various conundrums that cause inhibition of growth in blood culture are solved by T2’s technology. For instance, patients are frequently prescribed antibiotics prophylactically or for a non-blood stream infection, which has a secondary effect of inhibiting the growth of organisms in the blood culture. However, T2MR has proven to be uninhibited by the presence of antimicrobial therapy. Furthermore, T2MR can detect the presence of an organism down to 1 CFU/ML of blood; or in other words, 1 cell with the ability to replicate and cause a worse infection.
Other methods require 100 to 1000 CFU/ML of blood. This low level of detection has multiple points of clinical impact as noted by Chiagozie Ononye, MD at T2 Biosystems 2017 AMP presentation:
- Positive T2bacteria RUO may be a marker of more serious disease in patients with known infections (Pneumonia, UTI) but negative blood cultures.
- Persistently positive T2Bacteria RUO results may indicate poor source control or ineffective antibiotics.
- T2Bacteria RUO positive results may prompt consideration of more targeted antibiotic therapy.
Lastly, T2 Panels were selectively made to identify 11 different species of organisms. As stated on T2’s website, by selectively identifying these organisms the tests, “will enable up to 95% of patients to receive effective therapy within those first critical 6 hours.” Further credence was given to this claim when Glen T. Hansen, Ph.D of Hennepin County Medical Center presenting at ID week 2017, stated, “the [bacterial] panel will cover between 85-90% of patients that we see enroll through our emergency department with acute pictures of sepsis.” This is due to the fact that when a patient presents to the ED with this “picture” they are given empiric therapy, which usually comes in the form of broad-spectrum antibiotics. Empiric therapy has been found to ineffectively treat up to 40% of the patients presenting with infections. T2 closes that gap.
Reasons I’m Long on T2 Biosystems
Recent Business Results/Analyst Coverage
T2 Biosystems recently announced preliminary Fourth Quarter 2017 Financial Results beating estimates.
- The company closed 7 contracts with new customers in the fourth quarter including 3 new contracts for the T2Bacteria Research Use Only (RUO) Panel in the United States. Bringing the total RUO contracts to 10 hospitals and the total number of all contracts to 151 hospitals covering 518,000 high-risk patients.
- Commenting on the preliminary revenue and business results, T2’s CEO John McDonough stated: “Our sales pipeline is building and sales cycles are accelerating, we believe primarily due to the anticipated FDA clearance of the T2Bacteria Panel, and the market needs addressed by the product and the excellent clinical performance demonstrated in the pivotal trial (1).”
- The company remains in positive and productive discussions with the FDA regarding market clearance of its T2Bacteria Panel and is reiterating the anticipated timing for FDA clearance in the first quarter of 2018.
- T2 ended the third quarter of 2017 with approximately $53 million cash on their balance sheet, which according to management, is to act as a cash runway into the first half of 2019.
- H.C Wainwright recently initiated coverage of T2 Biosystems with a buy rating and 12-month price target of $8.
(Chart Source: T2Biosystems.com)
Reduced costs/Length of stay/Improved patient outcomes
The T2 Sepsis Solution offers the benefit of significantly reduced costs when hospitals are looking to reduce costs more than ever, and bacterial/fungal resistance is becoming a bigger problem. Here are some excerpts from T2’s website:
- “Henry Ford Hospital System…projecting $2.3 million in total cost savings annually”
- Lee Health System in Florida reduced length of stay (LOS) by an average of 7 days, while also decreasing the use of unnecessary antifungals, ultimately achieving net savings of about $200 per patient.”
- Huntsville Hospital…the hospital saved ~$500 per patient in medication costs due to the reduction in duration of drug therapy.
- A study conducted by IMS Health showed that if an average hospital, admitting 5,100 patients at risk for Candida infections, used the T2Candida panel, it could save roughly $5.8 million annually, and reduce patients deaths by 60 percent.
Reduced time to result
According to Peter Theil, a renown tech entrepreneur and investor, a characteristic to look for in monopolies is proprietary technology that radically improves an existing solution by a multiple of 10 in an important dimension. T2 Sepsis Solutions does just that, and also boasts an impressive patent portfolio: From T2’s Website:
- The average time to species-specific results with the T2Candida Panel is significantly faster—over 25 times faster—than blood culture.
- One study found that median time to appropriate Antifungal therapy was 8 times faster
- Additionally, the average time for results for the T2Bacteria Panel was 5.4 hours, compared to 71.7 hours for blood-culture-based species identification
Hospitals are starting to adopt T2 Candida as part of protocols
This is a great sign that T2’s panels may truly become the new standard of care. Automatic ordering of the tests based on patient’s symptoms means better outcomes for patients and higher revenue for T2.
- McDonough stated in a recent earnings call: “we’re starting to see for the first time that the movement towards T2Candida being adopted in test of protocols. We are aware of at least one hospital that has actually begun that already (1).”
More novel products in the pipeline & a versatile platform
- Expected to start clinical trial for T2 Lyme in the spring of 2018. Early clinical results have been promising.
- In recent earnings call, while discussing the partnership with the CDC, McDonough highlighted the versatile nature of the platform stating, “samples are mostly samples coming from the patient’s skin because when you have this infection, it’s blood-borne, but it sheds on the skin. So, this shows the versatility of our platform where we are actually running skin samples, not just blood samples. And we also have a blood-based Candida oral study going on in Europe. So we can detect it in blood. We can detect it in skin, we even approve it, and we can detect it in the environment itself (1).”
Relationships with big names
Cidara Therapeutics: In September 2017, T2 formed a relationship with Cidara Therapeutics to accelerate patient enrollments in its clinical trials evaluating the company’s lead antifungal compound. Commenting further on the topic, McDonough stated, “What we do know is that Cidara is running that trial at about a hundred different hospitals around the country. We know that they are highly recommending the hospitals to use T2Candida for enrollment. They provide—basically pay for—the T2 cartridges for the sites that will adopt and use T2Candida.” (1)
CDC: In September 2017, T2 announced, “a 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 in hospitals around the country.” Commenting further on the topic, McDonough stated, “The ultimate objective of CDC is not to be running all these samples in the [their own] lab, they want to push this out to the states[…]We are already in discussions with one [state] and the second one right behind it in terms of potentially moving this platform out to the state level for Candida, or in fact we even have a couple of hospitals that have approached us because they are interested in bringing the test in to run within the hospital.”
Allergan: On Nov 01, 2016 T2 Biosystems Announces Collaboration with Allergan to Develop the First Blood-Based Diagnostic Panel to Detect Antimicrobial Resistance.
Canon: The T2Lyme Panel, which is being developed through a partnership between T2 Biosystems and Canon US Life Sciences is being designed to identify the bacteria that cause Lyme disease directly from a patient’s blood, without the need for blood culture. The test panel is expected to be run on the FDA-cleared T2Dx Instrument, the same instrument currently used to run our FDA-cleared T2Candida Panel and our CE Marked T2Bacteria Panel.
Bayer: On July 18, 2016 T2 Biosystems announced “A Research and Development Collaboration with Bayer to Advance Drug Monitoring and Biomarker Discovery for Blood Coagulation Disorders”.
Competition that is vying for T2’s solution
There is a growing list of companies all trying to solve the clinical unmet needs that infection presents, but no one has offered solutions comparable to the success of T2. Other companies have yet to compete with such rapid detection pre-blood culture. To add to the list of companies that have launched tests for sepsis (Roche, BioMerieux, and Thermo Fisher Scientific, Accelerate Diagnostics), DNAe is the most recent newcomer. If DNAe executes on its claims, it could have a distinct advantage over T2’s Sepsis Solution. The functions of DNAe’s test include: testing a broader range of organisms, distinguishing between bacterial and fungal pathogens in one test and testing for antimicrobial resistance; but T2 has an early-mover advantage over DNAe. DNAe says they could achieve a CE mark by the end of 2018, but they have yet to execute a fully automated test on their platform. It seems plausible to say, at the very earliest, they could achieve FDA approval in late 2019 or early 2020, thus reaching T2’s largest customer base. There are many more unknown factors of this new test to consider: Cost, sensitivity, and its performance in the presence of anti-microbial or other medications.
For these reasons, I remain bullish on T2, and I am reassured that this is a valuable market in which T2 remains the only player for the immediate future. However, T2’s successful execution on the Sepsis Solution and its pipeline timing is even more essential to monitor.
Slow uptake was caused by selling “½ a product.” That will no longer be the case with FDA approval.
· Soon, T2 will be able to offer the full FDA approved product, which has been marketed as the Sepsis Solution since the beginning. Selling half of a solution has led to the slow uptake and the depressed price levels we now see. Furthermore, the T2Dx machines cost ~$100,000. Although most machines are actually leased, hospitals have large expenses in other areas when implementing a new technology: computer software has to be updated, labs and healthcare personnel have to be trained, machinery installed, etc. Combine this with the fact that the prevalence of Candida infections is statistically much lower than bacterial infections, which makes it a hard sell. Budget constraints often negatively influence innovative expansion, causing hospital lab departments and committees to invest in other areas.
· Hospitals will soon have access to the actual Sepsis Solution and not just the Candida panel. At the 2017 ASM Microbe 2017 presentation, Jonathan D. Edwards, leader of Huntsville Hospital’s anti-microbial stewardship program stated, “we’ve seen a significant impact on our fungal isolates but when you move to bacteria that’s going to be just exponentially increased (1).” The high level of RUO contracts is evidence of this exponential increase and it means we could potentially see a windfall of new contracts if the bacterial panel gains FDA approval.
· With the full product, T2 will be able to offer the Emergency department a unique value proposition: McDonough commenting on the ED department opportunity states: “in addition to the 6.75 million symptomatic patients who are inpatients in hospital, there’s another 2 million, sometimes estimated 3 million patients that are presenting in the emergency department. And about 50 percent of all sepsis cases are actually community-acquired, and are presenting for the first time in the ED. Now those cases are almost always bacterial infections, not Candida or fungal infections (1).”
Like other investors have already alluded to, this is a busted IPO that feels like a similar story of a company called Zeltiq Asthetics (ZLTQ), that traded down and was bought out by Allergan for nearly 2.5 billion for $56 a share. It was also my first big win coming out of college. If this one is half as successful I’ll be happy.
Thanks for reading,
The author of this report has been long in TTOO since the fourth quarter of 2017. Neither the author of the article nor Tailwinds Research has any present or past business relationship with the companies mentioned in this report. This report represents the opinions of the author and is not intended to be used as investment advice; the report is simply intended to provide readers with a snapshot of the recent company developments, and is not to be used as a substitute for an individual’s own due diligence. Companies of TTOO’s size tend to have higher volatility and investors should first speak to their investment advisors before making any investment decision.
(1) Emphasis added by this author
Disclaimers & Disclosures: For a full list of disclaimers and disclosures, please visit: www.tailwindsresearch.com/disclaimer/