Why T2Biosystems Will Render Its Competition Obsolete

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About: T2 Biosystems, Inc. (TTOO)
by: George Kesarios
Summary

While not clear from T2Biosystems' press releases, the company has confirmed it is working on a panel that will ID 97% of the most common blood pathogens.

This will render blood cultures and today's ID/AST platforms obsolete.

The company's technology might become the de facto diagnostic standard for blood pathogens.

To begin with, I would like to comment on the recent approval T2Biosystems (TTOO) received for a New Technology Add-on Payment (NTAP) for its T2Bacteria Panel for FY 2020 as announced by CMS (United States Centers for Medicare & Medicaid Services).

As the CMS said:

The T2Bacteria Test Panel represents a substantial clinical improvement over existing technologies because it reduces the proportion of patients on inappropriate therapy, thus reducing the rate of subsequent diagnostic or therapeutic intervention as well as length of stay and mortality rates caused by sepsis causing bacterial infections.

Please note the phrase: "substantial clinical improvement over existing technologies".

Also note the CMS determined a maximum NTAP amount of $97.50 for the T2Bacteria Panel in addition to other reimbursements hospitals receive under the Medicare Hospital Inpatient Prospective Payment System (IPPS).

So, basically, two longstanding bear arguments ...

1) There is no value because other technologies are better

and

2) The T2 tests cost too much

... have collapsed, because the $97.50 reimbursement and the phrase "substantial clinical improvement over existing technologies" say otherwise.

In this article, I will not touch on the financing issues of the company (I will in my next article), but instead talk to you about the future. And the future is just around the corner.

Why T2 will become the Amazon of the blood diagnostic space

First of all, I want to return to the press release from the ASM Microbe 2019 conference. In the video, Dr. Thomas Lowery said the company has feasibility data demonstrating that the T2MR Technology has the capability to potentially detect >250 pathogen species, which would cover ≥99% of blood-borne pathogens responsible for bloodstream infections and sepsis.

He also said T2MR Technology has also demonstrated the ability to potentially detect resistance markers for all blood-borne antibiotic resistance threats identified by the Centers for Disease Control. These diagnostic capabilities could allow the company to develop a panel that provides comprehensive coverage of bloodstream infections.

When I first read about this, I was very excited. Because making such a panel is not only a game-changer, it basically makes every other diagnostic technology and method obsolete.

I talked to a friend who is a medical professional about such a panel, and he told me that the company does not need to ID over 250 species to cover 99% or more of all blood-borne pathogens. He said about 40 should do it. He also told me that it would be very hard to find so many people to conduct a clinical trial because most of these pathogens are very rare. So, I emailed T2 asking about both issues.

T2 answered, confirming that identifying 30-40 pathogens will, in most cases, cover 95% of the most common blood pathogens and up to 99% in many hospital settings, depending on the geographic location.

Answer from T2:

This is true. 30-40 will get you >95% and within some hospitals it will get you >99%. However, across other hospital data sets we have found ~150 species are needed to get to 99% coverage. It depends on the local epidemiology and geography. Our design identifies 30-40 species but has a “pan-gram positive” and “pan-gram negative” channels that inherently cover >250 species. They detect virtually any gram positive or gram negative pathogen. We believe this large coverage is essential for de-escalating all antibiotic coverage.

So, my medical friend was correct as confirmed by T2; being able to ID 30-40 species will, in most cases, cover at least 95% of the most common blood pathogens and, in many cases, 99%.

As for the second part of my question, pertaining to the rarity of these pathogens (and that it might be difficult for the company to find enough people for a clinical trial), the company answered:

It is not necessarily true, as the FDA may not require a trial where you have patients with infections for all species. The FDA pivotal studies used for our T2Candida and T2Bacteria Panels did not require clinical positives for every panel member, because there are other ways to prove your ability to detect including preparing samples and spiking cells into those samples.

This was a big relief, because for a moment there, I thought it would be almost impossible.

Now, in the video from the ASM Microbe 2019 (video in the link above), Thomas Lowery said the company now has an updated in-house panel that is comprehensive and can detect over 99% of all pathogens in the bloodstream.

Furthermore, he said one key aspect of the new comprehensive panel is what the company calls "Pan gram-positive and Pan gram-negative channels", for over 250 species (fungi and bacteria).

My next question for the company was what exactly does "pan gram positive" and "pan gram negative" mean? The text below is from my communications with T2:

Me: Does this mean that even with a panel that can detect 40 species, the panel will nevertheless provide gram positive or gram negative results by default (inherently) for over 250 species, even if the ID of the species is not detected?

Company: correct

Meaning a gram negative or gram positive result will nevertheless be returned?

Company: correct

Me: And if this the case, does this mean that gram negative or gram positive antibiotics can be used as broad coverage, even if the 5% of cases a positive ID will not be returned?

Company: yes, this will catch the rare instances of infections that would be missed by detecting the most common 30-40 species

If you didn't understand the importance of what I said above, let me spell it out for you in simple English:

1) First of all, while it was not so clear from Thomas Lowery's presentation, in my email correspondence with the company, it confirmed that the next T2Bacteria panel (the new panel) will detect 30-40 pathogens that will cover 95-99% of the most common blood infections.

2) In addition, the panel will also provide gram positive and gram negative results by default (inherently) for over 250 species, even if the ID of the species is not detected.

The company also said that the new comprehensive panel will cover between 95% and 99% of the most common pathogens depending on geographic location. For the sake of the article, I will take the midpoint of that, which is 97%.

So, the new comprehensive T2Bacteria panel in the future will:

1) On average, ID 97% of the most common blood pathogens

2) In the 3% of the cases where an ID is not returned, T2Bacteria will nevertheless identify if the pathogen is gram positive or gram negative, so the correct broad spectrum antibiotics can be administered.

Why this is a game-changer

If a future T2Bacteria panel is able to identify 97% of the most common blood pathogens and provide gram positive or gram negative results for 100% of all pathogens in existence, why use anything else? Let me explain.

Today, every time a hospital uses the T2Bacteria panel, they also initiate a blood culture. The reason is because the current panel is not comprehensive enough. Yes, the current T2Bacteria panel catches about 50% of all bloodstream infections, 70% of all species in the emergency room, and 90% of deadly ESKAPE pathogens. However, just to be sure, hospitals also do a blood culture just in case there is something else that the panel did not pick up.

But if hospitals had a panel that could identify 97% of the most common pathogens and also provide gram positive or gram negative information even when no ID is returned, (100% of all tests), then they don't need to do a blood culture. That was not a typo, blood cultures will be a thing of the past.

The reason is that blood cultures are not always positive, or take a long time. And even after you get a positive blood culture, you then need to ID for a pathogen with some other diagnostic platform, which is both a waste of time and money.

Let me repeat something that you probably already know. Every single molecular platform today needs a positive blood culture to ID a pathogen.

But with the future comprehensive T2Bacteria panel everything will be sidestepped. Blood cultures, molecular platforms, gram stains, and many other methods of identifying blood borne pathogens will be a thing of the past.

Remember it takes about 3.8 blood cultures to produce the equivalent result of a T2Bacteria test. Each blood culture costs about $50 in the U.S. In addition, I have been told that most molecular platforms that ID pathogens are even more expensive than the T2Bacteria panel.

In the future, the T2Bacteria panel and the T2DX platform will sell itself

Many years ago, when I was much younger, I had a fast chat with Mike Bloomberg outside 411 Park Avenue in NYC. Wanting to make a good impression, I started talking about the importance of marketing and sales within his organization, as a means to get the message across and increase revenue.

He stopped me in about 20 seconds and said:

What does marketing and sales have to do with anything? The product sells itself. The sales people are not there to pitch the product, because those that call are already sold. They know what the product is and they know the value of it, because their friends use it and they want it also. The sales people are simply there to get a signature for the contract.

The same will happen when T2 introduces its new comprehensive panel. Everybody will know what it does, everyone will understand its value, and they will want it. No marketing will be required, and sales representatives will simply be around to close the contract.

The cost of sepsis

The above table was sent to me by a medical professional from the U.S. As you can see, the cost of sepsis hospitalization is a huge burden on insurance companies, healthcare companies and on Medicare & Medicaid Services. So, any reduction in the time it takes to cure people who are infected will save a lot of money for the entire system.

While other molecular platforms say they can ID pathogens that lead to sepsis 2-3 days earlier than the current standard of care (meaning before molecular platforms existed), T2 brings the delay down to ZERO days.

In just a few hours, doctors can have all the information required to administer the most target medication for the particular pathogen in 3-5 hours, 97% of the time.

In addition, when no pathogen ID is returned, they at least will know if the pathogen is gram positive or gram negative to administer the correct broad spectrum treatment.

The new T2Bacteria panel will not only save tons of money but also lives. This is another reason why I think it will become the standard diagnostic method for blood pathogens.

Bottom line

In the not so distant future, T2 will introduce a comprehensive panel that will ID 30-40 pathogens, which will ID on average 97% of the most common blood pathogens direct from blood.

The T2DX platform will also provide gram negative or gram positive results by default (inherently) on over 250 species. This means that even if a pathogen is not detected, a gram negative or gram positive result will nevertheless be returned. This will permit doctors to provide accurate broad spectrum antibiotics (no more guesswork) in 3-5 hours in the 3% of cases that an ID is not returned.

This will render blood cultures and competing ID/AST platforms obsolete.

This is because the T2 platform will on average ID 97% of the most common pathogens, faster and more accurate than current methods utilizing blood cultures.

Because when the T2Bacteria panel will be able to ID 97% of the most common blood pathogens, what's the point of using a blood culture when about 30% of the time they are negative or contaminated, and become enormously costly or simply confuse clinicians?

Why use a blood culture and current ID platforms when the T2Bacteria makes it crystal clear what the pathogen is, in a short amount of time, and also tells you if the pathogen is gram-positive or gram-negative in the 3% of cases when no ID is returned?

A such, the standard of diagnostic care in the future as far as blood pathogens are concerned, will be the T2 platform and the T2Bacteria. Blood cultures and today's ID/AST platforms will be a thing of the past.

Sure, blood cultures will still be around, but as I said in a previous article, it's as if we are in 1995 and the internet suddenly came to life. People mostly used a fax machine, but as emails became more robust, fax machines became legacy technology. And while fax machines are still around today, hardly anyone uses them anymore.

Also note that the next panel will only ID 30-40 pathogens. If, in the far future, the company comes up with a panel that can ID 150 or even 250 of the most common pathogens, then it will not only become the de facto diagnostic standard for blood pathogens, but the only standard.

As to when this new panel will be available, I have no answer. However, since Thomas Lowery said the company has feasibility data to potentially detect >250 pathogen species, I assume a big portion of the R&D is completed. I also assume this new panel is T2's number one priority at the moment. I am sure they understand the importance of it even more than me.

On my next article, I will put some numbers together and you will judge for yourself if $20, $50, $100 or even $200 a share is conceivable for TTOO shares over the next several years. Yes, there are short-term hurdles to overcome. However, as far as the technology and the possibility for such a huge move in the stock price, my answer is it is possible.

Disclosure: I am/we are long TTOO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.