NEW YORK – It was a week of positive developments for T2 Biosystems, with the firm receiving a contract that could potentially result in tens of millions of dollars in revenue while also providing a boost to the firm's sagging stock price.
Over the years, the T2 has found it challenging to drive market adoption of its technology and its T2Candida panel in particular. Wall Street analysts have speculated that the introduction of other tests in its pipeline, such as the T2Bacteria panel, which was launched within the past year, will help the firm gain some traction in a highly competitive sepsis testing market. And, the announcement this week that T2 could see up to $69 million under a new agreement with the Biomedical Advanced Research and Development Authority cheered investors, driving T2's stock to double in price over the course of a week.
In conjunction with the BARDA news, T2 also announced it was awarded a breakthrough technology contract with group purchasing organization Premier that will enable special pricing and give the firm preferred access to 4,000 US hospitals.
Though this week's news signifies a potential windfall for the Lexington, Massachusetts-based diagnostics firm, in a conference call with investment analysts this week, the conversation repeatedly returned to the New Technology Add-on Payment (NTAP) for the company's T2Bacteria sepsis panel — a development announced last month that T2 CEO John McDonough said may actually wind up being "the biggest piece" of the firm's expected growth acceleration.
Sepsis is one of the deadliest and costliest conditions in the US, and time to diagnosis has a profound impact on both of these variables. The T2Bacteria panel can detect sepsis-causing organisms directly from whole blood in a matter of hours, while other tests rely on blood cultures that can take days to provide a result.
Beginning Oct. 1, 2019, the NTAP will incentivize adoption of the T2Bacteria panel by providing a payment of up to $97.50 per test to hospitals that run the panel. This payment, covered by the US Centers for Medicare & Medicaid Services (CMS), equates to a 65 percent discount on the cost of the panel to end users. Furthermore, it is effectively an endorsement of the technology from CMS, which McDonough also suggested should influence the decision-making of commercial payors as well.
According to the firm, its T2Bacteria panel test detects half of all bloodstream infections, 70 percent of species cultured from blood collected in the emergency department, and 90 percent of pathogens in the ESKAPE class, which includes Enterococcus faecium, Staphylococcus aureus, Klebsiella pneumonia, Pseudomonas aeruginosa, and Escherichia coli.
The panel received US Food and Drug Administration clearance last year. It detects five common sepsis-causing species of bacteria in whole blood samples from patients with potential bloodstream infections in roughly five hours.
What makes the technology so novel, from the NTAP perspective, is the fact that it can detect sepsis-causing bacteria directly from whole blood. Other technologies rely on blood culture specimens. Cultures can take a few days to grow, during which time a patient can be on toxic empiric therapies that also have a collateral effect of driving antibiotic resistance.
The NTAP is an element of the annual inpatient prospective payment system (IPPS) report, in which CMS communicates what it will pay for patient services. It was designed to promote the use of new technologies that lead to better treatment and cost savings but that might otherwise take a while to become widely adopted, essentially encouraging uptake by providing hospitals with a discount.
The NTAP has been around since 2001, and the technologies it is designed to support include devices and drugs, but until now no diagnostic device has ever made the cut.
"It was really a wild card for us. … There was no precedent for them funding a diagnostic," said Tom Lowery, CSO at T2, who noted in an interview that he spearheaded the firm's application to CMS.
"We met with them several times and they would say, 'Wow, we've never looked at a diagnostic this closely'," Lowery said.
The firm was required to meet the three NTAP requirements: the technology had to be both novel and recently cleared by the US Food and Drug administration, it had to be useful for patients for whom there isn't currently enough money to support treatment, and there had to be substantial clinical benefit.
"The majority of our effort over the last year was providing them with interventional data on use of the T2Bacteria panel," Lowery said, which also included having users submit public comments and data.
In the 2020 IPPS, there are a dozen or so pages detailing every concern CMS initially had about the T2Bacteria panel as well as the specific ways in which commenters and the firm addressed these concerns.
The agency ultimately concluded the panel "represents a substantial clinical improvement over existing technologies."
Specifically, the agency noted that the T2Bacteria test "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."
The firm is now orienting its marketing strategies to emphasize that CMS patients are eligible for subsidized testing through the NTAP.
On the call, McDonough said that T2 has been attempting to establish itself in the market through "endorsements and success stories," listing among the recent endorsements "breakthrough status from the FDA on T2Resistance, CMS endorsement through NTAP, BARDA endorsement on the platform, and endorsement from Premier." It is clear that "the industry is latching on to the benefits of our technology," McDonough said.
The firm now has "aggressive marketing campaigns" related to NTAP, he said, reaching out to customers and prospects in the pipeline. "In every single account that we are talking to, NTAP is a leading part of the conversation," McDonough said, and it is also incorporated into tailored economic analyses the firm provides to customers.
"We typically are seeing returns on investment in those economic models that are three to seven times … Well, that now gets tripled," he said. "The absolute cost is lower, and that is a benefit to the hospital, but the return is the same," he added, amounting to an "extraordinary" nine to 20 times return on investment.
In terms of the technology, Lowery noted that the T2 system is different from others out there in a number of ways.
For example, it takes a whole blood patient sample directly from a vacutainer tube inserted into the instrument.
The detection method is like molecular magnetic resonance imaging. "We call it T2 magnetic resonance – it is measuring the same property of matter that an MRI does," Lowery said, specifically noting that it measures T2 relaxation, which is a property of the hydrogen nuclei in the water molecules in a sample.
"The detector itself is about as big as a Rubik's cube," he said, and it allows the firm to interrogate samples without interference from the matrix.
"We can detect down to as low as 1 [colony forming unit] per ml directly in whole blood, whereas the other FDA-cleared platforms are 1,000 or even 1 million times less sensitive," he said.
The "matrix" is also unusual for molecular diagnostics, in that the pathogen-concentrating step pellets all the cellular matter into a semi-solid material that is "basically like blood pudding," Lowery said.
The lysis, PCR amplification, and detection are done within this matrix pellet. "Because of that, we never have to pull out the target from the matrix, and that is why we can get such exquisite sensitivity," Lowery said. Since real-world biological reactions don't typically exist in dilute fluids, it perhaps shouldn't be so surprising that the PCR enzymes and reagents work just fine in this slurry.
The detection results are due to binding to DNA capture probe-coated nanoparticles in separate wells. "You have to get two probes to hybridize to trigger the T2 signal in the sample," Lowery explained, "So, we do a single-pot multiplex in the amplification reaction, and then it is split into separate independent hybridization reactions for detection," he said.
Importantly, although the instrument does not filter out blood cells, it does aim to capture only intact cells, and it explicitly excludes fragmented circulating DNA. This step is meant to remove bits of the commensal microorganisms that are constantly nibbled at by the immune system and can be present in the bloodstream, and thus it enables high clinical specificity, Lowery said.
Meanwhile, the BARDA funding now enables development of a next-gen instrument. "It is essentially the exact same technology in our T2Dx instrument, but you'll be able to get much higher throughput and also run much larger menus," Lowery said. "It is literally the same reagents, chemistry, and all the same hardware modules, but a different kind of automation in order to speed it up," he said, making it a "pretty low risk" engineering exercise on the instrument side.
In terms of menu expansion, one of the panels the firm is developing with BARDA will have more than 36 reported results, which in aggregate will be able to detect more than 250 pathogens, Lowery said.
Rick Bright, the director of BARDA, also specified in an email that under the contract T2 will be developing panels for biodefense threats — specifically anthrax, plague, and tularemia — as well as for antimicrobial resistant infections and sepsis. "These last two are of particular interest to us because every health security threat our nation faces, from radiation burns to pandemic influenza infections, can lead to secondary infections that are drug resistant or that result in sepsis," he said.
BARDA is homing in on sepsis in other ways as well, having launched a Division of Research, Innovation, and Ventures (DRIVe) last June with a special impact area called Solving Sepsis. "A critical aspect is having the right information early enough to inform the healthcare provider that the person is infected, before the infection becomes harder to control and patient's chances of survival diminish," Bright said.
In general, BARDA has "a growing track record of success in working with the private sector to get products from bench to bedside," he said, a record which he attributed in part to continually watching for products with potential to transform preparedness and response to health security threats, as well as to assiduousness in selecting partners. "I encourage innovators to take a look at what we're doing and how to partner with us," he added.
Reaction from Wall Street analysts to this week's – and last month's – news was positive.
SVB Leerink reiterated an Outperform rating and raised its price target on T2's stock from $3 to $5, noting that the NTAP "is bound to deliver upside as it alters economics to the hospitals." In a report, the analysts also said, "We, and management, believe this incremental reimbursement will be adopted by private payors beyond Medicare, and will lead to an increased adoption of the panel from all covered patients."
Cannacord Genuity also noted in a report to investors that "NTAP may be T2's biggest catalyst," reiterating a Buy rating and raising its price target on the stock from $2.50 to $3.50.