NEW YORK (360Dx) – Leerink today upgraded its rating for shares of T2 Biosystems to Outperfrom from Market Perform and raised the target price to $12 from $5, following the US Food and Drug Administration's clearance of the firm's T2Bacteria Panel.
In a research note, Leerink analyst Puneet Souda wrote that the upgrade also considered T2's ability to penetrate the bacterial sepsis market with an immediate entry into hospital emergency departments. Souda believes that the firm's T2Bacteria product "address[es] an important need for a rapid answer in the emergency room."
Further, the investment bank "see[s] upside in further menu expansion into T2Lyme, [T2]Candida auris, [and] CARB-X and Allergan collaborations, none of which are reflected in our Street estimates."
Leerink believes that T2 Bio values the overall emergency department opportunity at 2 million patients, or $300 million, and that the company will most likely pursue the market opportunity. In addition, the investment bank sees the T2Lyme test as a $700 million market opportunity, with a launch in late 2019 to early 2020.
"We believe the company's guidance could be conservative in light of the instrument placement and test kits pull-[through]," Souda said. In its Q1 earnings call, the firm noted that it has "70 instruments placed or contracted to be placed, covering 162 hospitals in the US and worldwide."
Additionally, T2 Bio is partnering with the US Centers for Disease Control and Prevention, using an investigational-use-only panel, T2Candida auris, to detect the disease in US hospitals. The firm's expanded T2Bacteria panel, being developed in collaboration with CARB-X to tackle superbugs, is expected to launch in 2021 or 2022. Soulda highlighted that T2 Bio also has a $50 million market opportunity with Allergan to develop gram-negative resistance markers that "could make the platform more attractive to hospitals."
Souda noted that Leerink's overall guidance could be cautious in the long run, as instrument placements and tests performed per instrument should improve. "[M]ore than 80 percent of the current 50+ quoted proposals should turn into placements in the next two to three quarters," he said.
In addition, with the emergency department market expanding, Souda sees the T2 Magnetic Resonance instrument, which detects molecular targets in a variety of liquid samples, gaining adoption more broadly within the hospital and into testing for Candida.
T2 Bio's stock was up 15 percent at $8.53 in early afternoon trading on the Nasdaq.