T2 Biosystems (TTOO)
Moving on to another player in the diagnostic space, T2 Biosystems manufactures molecular diagnostic instruments and test panels. While the company has struggled in the past, Leerink argues that its $1.33 share price presents an opportunity to get in on this turnaround story.
Firm analyst Puneet Souda, who also covers HTGM, points out that part of the excitement surrounding this name is related to its COVID-19 testing solution (sepsis rule-out test). During its Q2 2020 earnings call, TTOO stated that there has been serious demand for the test, with it specifically seeing increased use from hospitalized patients who have a greater risk of developing secondary co-infections such as sepsis.
It should be noted that TTOO has partnered with Hackensack Meridian Health to develop and validate the COVID-19 assay on the T2Dx platform. The system can provide results in less than two hours, with clinical data demonstrating a sensitivity of 95% and specificity of 100%. As for the daily throughput, it lands at 60-80 tests. With all of the necessary filings submitted to the FDA for Emergency Use Authorization (EUA) approval, TTOO has started selling the test to clinical labs.
Expounding on this, Souda commented, “Management expects all 60 placements in the 2020 financial guidance to be entirely driven by COVID demand and has solid visibility into 2H – impressive in our view given the lack of instrument adoption in 1H20. TTOO hopes to leverage current COVID-19 demand to increase T2Dx install base and expand sepsis-related revenue over time – as the pandemic inevitably subsides.”
Given that the COVID test is expected to provide a significant near-term revenue boost, management reinstated its FY20 revenue guidance of $18-$20 million, which is above the consensus estimate.
If that wasn’t enough, Souda calls the efforts of newly appointed CEO John Sperzel encouraging, who is working to execute on his top priorities. These include accelerating sales growth through a focus on utilization, reducing TTOO's cost structure and advancing the product pipeline.
Specifically looking at utilization, in Q2, TTOO’s U.S. annuity per system increased 51% quarter-over-quarter, from $50,000 per system to over $75,000 per system, due to rising demand for its FDA-approved fungal candida test. This doesn’t factor in any benefit from the COVID tests.
On top of this, TTOO strengthened its balance sheet, with its pro-forma cash position now coming in at $69 million. As its pipeline also includes a Lyme disease test, a testing instrument and several other test panels, Souda likes what he’s seeing.
To this end, Souda sides with the bulls. Along with an Outperform (i.e. Buy) rating, he keeps a $3 price target on the stock. This target puts the upside potential at 123%.
Are other analysts in agreement? They are. Only Buy ratings, 4 to be exact, have been published in the last three months. Therefore, the message is clear: TTOO is a Strong Buy. With a $3.25 average price target, shares could soar 152% in the next year.