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T2 Biosystems' Gain in Q1 Product Sales Offset by Decline in Research Revenue

NEW YORK (GenomeWeb) – T2 Biosystems reported after the close of the market Tuesday that its revenues dropped 14 percent in the first quarter as higher product sales were offset by lower research revenues year over year.

The Lexington, Massachusetts-based molecular diagnostics firm reported total revenues of $941,000, down from $1.1 million in Q1 2016 and well below analysts' average expectation of $2 million.

Its product revenues were $631,000 versus $437,000 in Q1 2016, while its research revenues were $310,000 compared to $659,000 a year ago.

T2 sells the T2Candida test for detection of sepsis, for which it received US Food and Drug Administration clearance two years ago. The T2Candida panel, which runs on the firm's magnetic resonance-based T2Dx instrument platform, identifies the five clinically relevant species of Candida directly from whole blood – C. albicans, C. tropicalis, C. parapsilosis, C. krusei, and C. glabrata.

According to the firm, it ended the quarter with contracts in place representing 126 hospitals in the US, providing access to approximately 420,000 patients at high risk of infections that could be tested with its T2Candida test, or in the future its T2Bacteria test for detection of bacterial sepsis. It noted that it secured contracts for its sepsis test with two hospitals, one in the US and one in Europe.

In addition, T2 said that during the quarter it secured commitments from hospitals in the US and Europe that would provide access to an estimated 30,000 additional patients annually considered to be at high risk for sepsis infections.

On a conference call with industry analysts to discuss the Q1 results, T2 Biosystems President and CEO John McDonough said the firm has expanded its European presence and now has access to 10 countries, where the firm's platform is marketed by international distributors.

T2 is currently conducting clinical trials on its T2Bacteria panel, and McDonough said the firm is on track with its plans to file for FDA clearance by mid-2017. He further noted that the panel would go through the 510(k) process and could receive approval in as few as 90 days after filing. And, T2 anticipates getting the CE mark for the T2Bacteria panel and launching the test in Europe in the back half of 2017.

He called the panel a "real game changer" for the company and said that customer interest in the test is high. McDonough said the market opportunity for T2Bacteria in the US alone is 8.75 million high-risk patients per year. The new panel will enable the firm to target hospitals beyond the top 450 it targeted with the T2Candida panel alone, and in particular he cited the emergency department of hospitals as a key target for the panel. 

T2 reported first quarter R&D expenses of $6.6 million, flat with Q1 2016, and SG&A spending of $5.9 million, down from $6.2 million year over year.

The firm's net loss was $14.7 million, or $.48 per share, compared to a loss of $13.4 million, or $.55 per share, for Q1 2015. It missed the consensus Wall Street estimate for a loss of $.46 per share.

T2 finished the quarter with $58.8 million in cash and cash equivalents, which McDonough said on the call was sufficient to take the firm through commercialization of the T2Bacteria panel.

Beyond the T2Bacteria panel, the firm is currently conducting preclinical studies of its T2Lyme test, which it expects to complete by the end of this year. It expects to conduct further trials next year in support of an FDA submission. T2 also is working on a gram-negative resistance panel, for which it expects to conduct preclinical studies in 2018.

McDonough said the firm expects second quarter product revenues to grow sequentially by 10 percent or more. Its research revenue is anticipated to be below $100,000 in the second quarter as revenue from Canon USA tied to its partnership on the Lyme disease panel will decline due to the test being in the preclinical stage of development, though research revenues should "normalize" around $100,000 per quarter in the second half of the year, McDonough said.

Analysts, on average, anticipate Q2 revenues of $2.6 million with a loss per share of $.46.

"Traction and execution still appear to be a challenge for [T2 Biosystems], and we believe that it needs to launch T2Bacteria to reach broader adoption," Puneet Souda, an analyst with Leerink Research, wrote in a note published Tuesday evening. He noted that the firm has said in the past that T2Bacteria may represent a $1.4 billion opportunity based on 7 million to 8 million patients.

 "We believe that the clinical data for FDA approval are now more important given that revenues are only expected to grow 10 percent sequentially next quarter with T2Candida as its only product," Souda added.

Shares of T2 dropped around 12 percent in Wednesday trade on the Nasdaq to close at $3.97.