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Goldman Sachs, Leerink Initiate Coverage of T2 Biosystems

NEW YORK (GenomeWeb) – Investment banks Goldman Sachs and Leerink Partners initiated coverage of T2 Biosystems today with a Neutral and Market Perform rating, respectively, on the firm's stock.

Both banks cited the significant market potential for T2's platform, which is based on miniaturized magnetic resonance and can detect a variety of analytes that include nucleic acids, proteins, and small molecules. According to the Lexington, Mass.-based firm, its T2 Magnetic Resonance, or T2MR, technology can detect biological targets 25 times faster with 30 times higher sensitivity than existing diagnostic methods.

The first target for the firm's technology is sepsis testing, a market Goldman Sachs analyst Isaac Ro estimates at $3 billion, while Leerink analyst Dan Leonard estimates the market at $1.9 billion to $2.3 billion. This past June, T2 Biosystems filed a 510(k) premarket submission with the US Food and Drug Administration for its T2Dx system and the T2Candida assay.

Goldman Sachs anticipates T2 receiving FDA clearance for these products before the end of this year with a launch for the Candida assay for sepsis in the US in the first half of next year. The bank anticipates a fast revenue ramp for the test over the first couple of years on the market, given its advantages in turnaround time, high sensitivity, and potential cost savings over existing diagnostic technologies.

Both investment banks agree that T2's potential markets extend to several other targets, and the firm already has a bacterial panel called T2Bacteria that is expected to launch in 2016, and a hemostasis test called T2HemoStat that is targeted for a 2017 launch.

Goldman Sachs has forecasted FY 2015 sales of $3.5 million for T2 Biosystems, rising to $30.5 million in 2016, and $114 million in 2017. Leerink has modeled for revenues of $3.4 million 2015, followed by revenues of $36.5 million in 2016, and $111 million in 2017.

Though Leerink's Leonard believes the novelty of the technology can drive rapid market adoption, he also cautioned that there is uncertainty surrounding the market opportunity and adoption curve. "Additionally, the competitive environment for sepsis diagnosis continues to evolve," he wrote, noting that Bruker and BioMérieux market MALDI-TOF technologies into microbiology labs, while Cepheid, BioFire, and Nanosphere make PCR-based tests for bacterial identification, and GenMark intends to offer multiplexed bacterial and fungal identification tests with the upcoming launch of its ePlex instrument.

"However, all of these technologies require upfront sample incubation/culture prior to analysis, and thus cannot match [T2 Biosystems'] three to four hour sample-to-result," Leonard noted.

One company that can offer a more competitive offering to T2's technology, in Leonard's estimation, is Abbott, which has developed a new instrument called Iridica that combines PCR and mass spec. Abbott recently previewed the technology, previously called Plex-ID, at the American Association for Clinical Chemistry annual meeting in Chicago.

Leerink's Market Perform rating is based on the balance between the T2 technology's value proposition and the uncertainty over its revenue ramp. Leonard placed a $23.50 price target on the stock.

Goldman Sachs' Ro, meanwhile, placed a Neutral rating and $25 price target on the stock. Though he, too, cited the potential for rapid uptake of T2's Candida assay following anticipated FDA approval, the risk/reward of the firm's shares is "fairly balanced as valuation already reflects successful commercialization and adoption of T2MR."

T2 Biosystems went public last month, raising nearly $60 million in its initial public offering on the Nasdaq. Goldman Sachs was one of the joint book-running managers on the offering, while Leerink was a co-manager.

T2 went public at $11 per share, and since it began trading its shares have risen as high as $24.50. In Tuesday afternoon trade, its stock was down around 9 percent at $21.04.

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