MassDevice Q&A: John McDonough

John McDonough, CEO of Cambridge, Mass.-based T2 Biosystems Inc., is an optimist.

Bullish on his 22-employee company’s prospects (the estimated $40 billion diagnostics market might have something to do with that), McDonough (far left in the picture at right) spoke with MassDevice about the technology behind T2’s diagnostic device, which uses a miniaturized version of a magnetic resonance imaging machine to deliver near-instant test results from just about any blood, urine or saliva sample.

The devices, which might eventually include a hand-held product aimed at the home consumer market, is still in the developmental phase, he told us. The first device, a bench-top model roughly 12 inches by 15 inches in diameter, is expected to enter clinical trials in 2010 and to hit the market by late 2010 or early 2011.

McDonough also touched on what it takes to raise money in today’s investment landscape and explains the interest of one of the company’s backers, which is affiliated with the U.S. intelligence community.

MassDevice: Give us the capsule view of how T2 Biosystems came to be.

John McDonough: T2 was formed out of a collaboration of executives and faculty at the Mass. Institute of Technology and Mass. General Hospital — a “who’s who” of founders including [MIT Institute Professor] Bob Langer, [MIT engineering professor] Michael Cima, Lee Josephson [associate professor at MGH’s Center for Molecular Imaging Research] and [CMIR director] Ralph Weissleder. They received a grant from the National Institutes of Health related to nanotechnology. They did work in their labs and essentially discovered a new diagnostic detection method that uses magnetic resonance and nanotechnology to detect the presence of pathogens in virtually any type of a sample.

Diagnostic detection has been around a long time. But virtually all of the other methods are based on visually trying to detect something. You might use fluorescence or you’re trying to light up a pathogen so a human or a computer can read it. And because you’re trying to detect something visually, the key is the quality of the picture. The sharper the image, the more likely it is you can detect something that may be abnormal.

The most time-consuming and expensive part of the process is the sample preparation, trying to clean up that specimen so you can see what you’re looking for. Our diagnostic method is non-optical, so you can substantially reduce — if not eliminate — the need for that sample preparation. By using a magnetic resonance spectrometer, we’re measuring the way water molecules are reacting in the presence of the magnetic field. We don’t have to clean up the sample in order to be able to do that. That enabled us to develop a small instrument, a bench-top, roughly 12 x 15 in. in diameter. It’s extremely easy to use, as simple as taking a sample, placing it into some container or cartridge, then placing it into the instrument and getting a result. You don’t need the skilled technician who would be required for a sample preparation. It’s much less expensive than the cost of current diagnostics.

MassDevice: You mentioned that T2’s device uses the same basic principles used in MRI machines, which are huge. How did you manage to make your device so small and portable?

JM: We can shrink the magnet to three inches, or even to the size of a penny, because we’re not creating an image. An MRI is creating an image, so it requires a lot more “horsepower” in terms of its magnetic field. So we’re taking the same MRI-based technology, but shrinking it down into something that’s portable. We’ve done some work to show we can downsize that all the way to a hand-held device.

MassDevice: After the sample is examined, how will the device display the results?

JM: Probably as a number. You’d typically be looking to see, “Is this particular bacteria present and, if so, in what quantity?” A number would come back on the screen giving that quantified result. That same number, because of the connectivity built in to the instrument, will go straight into a database and integrate it into a hospital’s information system so the data goes right to the physician.

MassDevice: What are some of the applications for these devices?

{IMAGELEFT:http://www.massdevice.com/sites/default/wp-content/uploads/headshots/McDonough_John_100x100.jpg}JM: We’d take the instruments that are in central labs today and move them closer to the patient. We can imagine an instrument being in a physician’s office so you could get a test result while you’re sitting there. The doctor can decide what treatment of antibiotics, if any, to put you on. Or the handheld device could be used in an ambulance, where they’re running tests to determine if you had a heart attack. Today, you’re rushed in the ambulance to the hospital and tests are run once you get there. There are some potential applications for Third World countries, where they need to get a rapid result, before a patient leaves, because the medical personnel may never see that person again. They need to be able to test and treat on the spot.

MassDevice: How will you go about overcoming the expectation, by both doctors and patients, that accurate, “real” testing must be done in a lab?

JM: The key to doing that is to make sure you can have a test where the quality of the result is as good as the quality of the result that you get out of a central lab. You have to be comparable to the lab-based tests.

There will be hurdles in changing that paradigm. You need the clinical trials to get Food & Drug Administration approval. And you’ll need more of that to convince physicians to use them. Ultimately, that’s what will drive people to use them in their homes.

But the central lab is not going away. There are appropriate test for the lab, appropriate test for the physicians’ office.

MassDevice: At the BioMEDevice conference earlier this year in Boston, you expressed optimism about how strong the medical diagnostics markets looks. Are you still feeling that optimism?

JM: The medical diagnostics industry is about a $35 billion to $40 billion market. Typically, you see the statistic that 15 percent of healthcare dollars are spent on diagnostics. And those diagnostic dollars directly relate to the spending of the remaining 85 percent, because you have to diagnose before you can treat. It may be a small portion of the overall pie, but it’s a critical element of the overall pie.

About 10 percent of that $35 billion to $40 billion market is point-of-care tests, meaning tests that aren’t sent to a central lab. Twenty percent is a home-based test market. The other 80 percent involves a central lab. The point-of-care test market has been growing at the rate of 10 percent a year and there are two reasons for that: Number one, quicker results mean better treatment. Number two, it’s cheaper to do it that way.

MassDevice: T2 completed a second round of financing in October 2008, raising $10.8 million and adding Partners HealthCare and In-Q-Tel as investors. We’re familiar with Partners, of course, but what can you tell us about In-Q-Tel?

JM: They represent different branches of the U.S. intelligence community and they have interest in diagnostics in general. Their interest could be in areas such as medical diagnostics or in other diagnostic areas because the T2 detection methods could be used on virtually any type of sample. So they have a high degree of interest and are working with us and funding a portion of our product development activities, which ultimately would be used for intelligence agency purposes.

MassDevice: That second successful round aside, what is the climate for raising money right now?

JM: It’s incumbent on companies today to ‘de-risk’ their business plan. If you’re pursuing a very significant business opportunity, which we are, and you have a growing body of data showing you can succeed — and you have a world class group of people behind your company — as long as you’re executing it, even in these markets, you can raise capital from what I can see.

Now it’s a different question as to whether you’ll like the financial terms. The terms aren’t going to be as good as a few years ago. So you have to do everything you can to create as much value as you can, prove your ability to do what you’re trying to do. That way, things should work out OK.

MassDevice: Could a still-slumping economy in 2010 delay the launch of T2’s devices?

JM: We’ll have to be sure we’re spending money in areas that create the most value. That’s more important today than how quickly you get from point A to point B. Of course you can spend a lot of money and get there quicker. But now it’s more important to spend the least amount of capital and de-risk the plan each step of the way. It may take you a little bit longer, but you can be a little more methodical and thoughtful about it.