T2 Biosystems reaches regulatory milestone that could be a game changer, analyst says

By Ciara Linnane

T2 has FDA clearance for its T2Biothreat panel, which can detect six deadly pathogens within four hours

T2 Biosystems Inc., a Lexington, Mass.-based developer of diagnostics for rapid identification of dangerous pathogens, has reached a key regulatory milestone that could alter its near-term future, according to one analyst.

Ben Haynor, an analyst at Alliance Global Partners, said the Food and Drug Administration's clearance of the company's T2Biothreat panel, which detects six pathogens -- the organisms that cause anthrax, tularemia, glanders, melioidosis, plague and typhus -- within four hours, is a potential game changer for the microcap, which has a volatile trading history.

T2 (TTOO) said Tuesday that the FDA has granted 510(k) clearance to the panel, allowing the company to immediately begin marketing and selling it in the U.S.

It's the first and only FDA-cleared product to detect all six of those pathogens and the only one developed by a U.S. company to target multiple pathogens. Clinicians typically need several days to detect those pathogens, which can result in mortality rates of 40% to 90%, according to the U.S. military's "Medical Aspects of Biological Warfare" and the Center for Food Security and Public Health.

Governments and government entities are the likely purchasers of the panel, according to Haynor.

"Should they choose to purchase T2Biothreat, we would expect the agencies to stockpile tests, which we believe could lead to large recurring orders (given the test's two-year shelf life)," Haynor wrote in a note to clients on Wednesday.

"We understand the company had identified the appropriate individuals within the government to target once the T2Biothreat panel's FDA clearance was secured, and we would expect the company to be in touch with such individuals in short order if they have not been already."

T2 developed the panel with funding from the U.S. Department of Health and Human Services, the Administration for Strategic Preparedness andResponse and the Biomedical Advanced Research and Development Authority, "suggesting a substantial interest from the U.S. government," according to the note.

Read also: T2 Biosystems touts 'highly differentiated' products in fight against sepsis

"If T2 does begin to receive orders from government agencies, investors should be more likely to provide needed capital to the company, in our view, as revenue visibility would likely improve immensely," Haynor wrote.

Still, Alliance Global is sticking with a neutral rating on the stock and an 18-cent price target. The stock last traded at 30 cents and is down 10% on the day.

But T2 has gained more than 280% over the last three months after generating meme-like buzz. The S&P 500 SPX has gained 1.5% in the same time frame.

Haynor says he's a believer in T2's technology, "but overriding near-term capital needs keep us on the sidelines," he wrote.

"That said, provided the company can appropriately finance themselves, it appears to us the worst may be soon behind them," he said in the note.

T2 is not yet cash-flow positive. As of June 30, it had cash and cash equivalents of $16.1 million. CEO John Sperzel told attendees of the Sidoti Micro Cap Conference in August that the company is not ready to guide toward cash-flow break-even, but he said it had "substantially" bolstered its balance sheet by raising an additional $17.1 million in cash and converting 20% of its debt to equity.

Alliance Global is one of just two houses that cover the stock, along with Canaccord Genuity, according to FactSet, which has a hold rating.

Related: T2 Biosystems's stock falls 8.7% premarket after generating meme-like buzz

-Ciara Linnane

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09-21-23 0729ET

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