T2 Biosystems (NASDAQ: TTOO) has long had a basic problem. Their systems and tests work just fine but there’s been no compelling or grand reason for anyone to buy one. Therefore the overheads of running the business have long vastly outweighed the revenues from deploying the machines. What has been needed, from the TTOO point of view, is some compelling reason why people should install a machine. It’s possible - possible - that this new Candida Auris test could be that reason. Thus the leap in the TTOO stock price.
The background here is that Candida Auris has just been identified as a potentially major issue: “Candida auris infections have emerged globally as public health threat in recent years, posing a particular risk in health care settings for people who already have serious medical problems. Scientists say the sudden explosion of the fungus, which was not found in humans anywhere until 2009, may be because of climate change.” That association with climate change is a bit of a stretch. Not mentioning it these days would be like a Miss World contestant failing to call for world peace. It is, however, spreading inside health care settings. It’s also intensely dangerous and testing for it takes a lot of time which would be better spent treating it. So, a new and faster test for it is a great idea.
Which is what T2 Biosystems now has: “T2 Biosystems (NASDAQ:TTOO) has received breakthrough device status from the US Food and Drug Administration for its Candida auris molecular diagnostic blood test. The test is designed to detect C. auris, a multi-drug resistant fungal pathogen, in three to five hours, without the need to wait days for a blood culture, T2 Biosystems said.” Breakthrough status makes the process of authorisation much simpler - it’ll happen in something less than geologic time.
T2 Biosystems stock price from Google Finance
The thing for T2 here. Their business model is that a health care setting buys one of their machines (in itself profitable). Then a constant stream of revenues from testing materials - also profitable. While the machines work just fine, as do the tests, there’s been no compelling reason for people to buy one. It’s been a very slow business that is. This has meant significant losses and ongoing losses - the revenue simply hasn’t been growing into supporting the overheads.
Well, what if there is now a compelling reason? This Candida Auris test? At which point the economics of the company are transformed. CDC has declared c a to be am emerging threat, the FDA offers this licence pathway, why wouldn’t this work? Well, if T2 remain the only people with such a test then likely it will work. But if there are myriad people with a test that works then TTOO is right back where it started. Nice kit but no imperative for anyone to buy it.
So, the value proposition here depends on who else will or can develop Candida Auris tests. That’s what the bet is.
