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BJDX: Orchestrating a New Testing Standard

By John Vandermosten, CFA

NASDAQ:BJDX

READ THE FULL BJDX RESEARCH REPORT

INITIATING COVERAGE

We are initiating coverage of Bluejay Diagnostics, Inc. (NASDAQ:BJDX) assigning a valuation of $2.00 per share. Bluejay is a diagnostic device development company offering its Symphony product pipeline. The company is advancing a sepsis triage and monitoring system for intensive care unit (ICU), emergency room (ER) and other hospital settings where accurate and rapid results are critical. Symphony is an on-site, rapid turnaround immuno-analyzer that is able to provide results in less than 20 minutes. This is in contrast to the existing approach that relies upon analysis by offsite labs which can take a day or more to return results.

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Sepsis is the leading cause of mortality in hospitals contributing to 20% of deaths globally.1 It is also one of the costliest causes, with an estimated $62 billion expenditure at inpatient facilities for related treatment in 2019 according to Medicare data. Early treatment is necessary to prevent death and improve recovery. Time is of the essence and a patient can convert from stable to critical condition in just a few hours. Interleukin-6 (IL-6) is a timely and proven biomarker that is a potent indicator of sepsis or septic shock. Blood levels of IL-6 above a certain threshold may predict a fatal outcome. Despite the utility of the IL-6 biomarker, there is no consistent and timely measure of the cytokine, especially in emergency room (ER), intensive care unit (ICU) and long-term acute care (LTAC) facilities where sepsis frequently occurs. In most cases, tests for IL-6 must be sent to a central lab where it can take hours to days to get a reading, and results can arrive after critical decisions must be made.

Hospital labs are geared towards high volume tests and when a new analyte is prepared to be measured, calibration must take place and new reagents must be added. While most laboratory analyzers are able to generate a result in under an hour, there are additional time-consuming steps beforehand that extend the process in many cases beyond a day, including the queueing of sufficient tests to justify a run. Preliminary steps include:

• Transportation of whole blood to laboratory facility

• Centrifuge of whole blood into fractionated parts

• Calibration of and supplying reagents into analyzer

Bluejay’s Symphony system can address these shortcomings by providing a mobile, on-site analyzer using whole blood and single-use calibrated cartridges that can generate a result in under 20 minutes.

Symphony is distinguished from other IL-6 testing methods in several respects compared with the existing standard:

➢ Able to produce a result in less than 20 minutes vs. 24 to 48 hours

➢ Uses 150 µL whole blood vs. greater volumes of centrifuged blood plasma

➢ Provides mobile access vs. transfer to off-site laboratory

➢ Economical alternative for low to medium volume tests vs. batching requirements in the lab

➢ Guides clinical decision making by identifying high risk patients

The availability of Symphony is expected to expand the use of IL-6 testing. Many of the critical conditions that benefit from an IL-6 reading are time-dependent and require a result within minutes to hours in order to guide emergent treatment.

The process for running a diagnostic test using Symphony requires 150 µL microliters of blood which is then fed into the Symphony IL-6 cartridge. The cartridge, along with as many as five others, is inserted into the Symphony diagnostic analyzer which is able to evaluate the sample in under 20 minutes. The testing process centrifuges the blood inside the cartridge and then analyzes it using reagents contained inside. The system employs sandwich-ELISA which generates fluorescence measured by a light emitting diode (LED) producing a result sensitive to within 3 picograms per milliliter.2

Two studies have been completed using the Symphony system. The first in 2016, was undertaken in Japan to measure IL-6 levels in rheumatoid arthritis (RA) patients. The rapid and accurate results were able to evaluate the severity and predict outcomes in trial subjects and show a tight correlation with existing chemiluminescent enzyme immunoassay (CLEIA) systems that are only appropriate to high test throughput settings. The second was a study in COVID patients that assessed the prognostic accuracy in predicting patients at high risk of progressing to invasive mechanical ventilation. A poster presented on the study concluded that Symphony was able to produce laboratory quality results with a faster turnaround time using whole blood, near patient, with 98% negative predictive value.3

Clinical trials are underway at a number of sites throughout the United States. Bluejay is conducting an extension of its ongoing trial and will meet with the FDA to finalize trial endpoints and protocol. We expect Bluejay to use 28-day mortality as its primary endpoint to stratify patient risk. A pre-submission meeting will be held with the FDA, to seek an appropriate approval pathway that is expected to use procalcitonin as the predicate test using the 510(k)-approval process. If approval is granted, Bluejay expects to commercialize the Symphony product starting at the sites used for clinical trials by employing a small sales force. Distributors will also be used to expand the reach further. Bluejay has rights to the Symphony system licensed from the Japan-based Toray Industries in the United States and rest of world excluding Japan. We anticipate that Bluejay will begin to seek partners outside the US to commercialize the product following grant of marketing authorization domestically.

Testing for emergent conditions and triage of patients for IL-6 and other critical niche analytes is a dramatic unmet need that is negatively impacted by the need to use a central laboratory that requires batching, calibration and test runs before conducting measurements, usually for multiple samples from different patients and locations.

Bluejay held $6.8 million in cash as of March 31, 2023 which we expect will be sufficient to support operational activities for the balance of 2023. We expect that there will be an additional raise in the next 12 months to support operational activities as the anticipated 510(k) application is reviewed.

Key reasons to own Bluejay Diagnostics shares:

➢ Symphony system offers several advantages over traditional systems

o Ease of use

o Cost, time and space savings

o Versatile platform able to support a broad test menu

o Throughput and multiple testing capability

o Immediate test of analyte, which can degrade during wait in queue

➢ Bluejay holds global license (ex-Japan) for manufacturing, marketing and sale of Symphony system

o Domestic commercialization using small sales force and distributors

o Ex-US commercialization using partners and distributors

➢ Further expansion into additional low volume, quick turnaround tests

o Chest pain markers

o Autoimmune disease

o Inflammatory diseases

Bluejay will be pursuing an FDA marketing authorization for its Symphony IL-6 diagnostic test for use in sepsis triage following the completion of its active clinical trial. We anticipate further clinical work to develop hsTNT and NT-proBNP rapid turnaround for chest pain using the same cartridge system.

In our report we provide a description of the Symphony immuno-analyzer and the indications being pursued by Bluejay in sepsis and chest pain. A review of the 510(k) regulatory pathway is provided followed by a discussion of the IL-6 analyte, its importance as a biomarker and its advantages for use in sepsis triage. Further discussion examines the intellectual property that protects the cartridge and the licensing agreement between Bluejay and Toray Industries. Following sections summarize the risks faced by diagnostic and device companies and for Bluejay in particular. The research report summarizes the main peers and competitors providing diagnostic testing equipment and IL-6 tests in particular and the management team is introduced. Our closing sections provide a summary of key milestones over the recent past and a valuation of the company. The valuation section provides the assumptions behind our discounted cash flow (DCF) model that values the commercialization of the IL-6 test and generates a target price of $2.00 for Bluejay Diagnostics.

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1. Rudd, K.E. et al. Global, regional, and national sepsis incidence and mortality, 1990–2017: analysis for the Global Burden of Disease Study. The Lancet, January 18, 2020.

2. Bluejay Diagnostics KOL Event. The Emerging Use of Biomarkers in Contemporary Management of COVID-19/Respiratory Failure. 26AUG22.

3. In diagnostic testing, negative predictive value is a statistical measure that indicates the probability that a subject with a negative test result truly does not have the condition or disease being tested. It helps to determine the reliability of a negative test result in ruling out the presence of a particular condition.