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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number: 001-36571

 

T2 Biosystems, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

20-4827488

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

101 Hartwell Avenue

Lexington, Massachusetts

02421

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (781) 761-4646

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.001

 

TTOO

 

The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant of Section 13(a) of the Exchange Act  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of November 3, 2020, the registrant had 147,955,531 shares of common stock outstanding.

 

 

 

 


 

T2 BIOSYSTEMS, INC.

TABLE OF CONTENTS

 

 

 

Page  

 

 

 

 

PART I FINANCIAL INFORMATION

 

 

 

 

Item 1.    

Financial Statements (unaudited)

1

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019

1

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for three and nine months ended September 30, 2020 and 2019

2

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2020 and 2019

3

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019

4

 

 

 

 

Notes to Condensed Consolidated Financial Statements

6

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

39

 

 

 

Item 4.

Controls and Procedures

40

 

 

 

 

PART II OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

41

 

 

 

Item 1A.

Risk Factors

41

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

42

 

 

 

Item 3.

Defaults Upon Senior Securities

42

 

 

 

Item 4.

Mine Safety Disclosures

42

 

 

 

Item 5.

Other Information

42

 

 

 

Item 6.

Exhibits, Financial Statement Schedules

43

 

 

SIGNATURES

44

 

 

i


 

PART I.

FINANCIAL INFORMATION

Item 1. Financial Statements

T2 BIOSYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 

 

 

September 30,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

19,059

 

 

$

11,033

 

Marketable securities

 

 

21,990

 

 

 

 

Accounts receivable

 

 

3,860

 

 

 

2,825

 

Inventories

 

 

3,569

 

 

 

3,599

 

Prepaid expenses and other current assets

 

 

2,969

 

 

 

1,438

 

Total current assets

 

 

51,447

 

 

 

18,895

 

Property and equipment, net

 

 

3,585

 

 

 

5,845

 

Operating lease right-of-use assets

 

 

1,729

 

 

 

3,360

 

Restricted cash

 

 

551

 

 

 

180

 

Marketable securities

 

 

20,186

 

 

 

 

Other assets

 

 

133

 

 

 

206

 

Total assets

 

$

77,631

 

 

$

28,486

 

Liabilities and stockholders’ equity (deficit)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Notes payable

 

$

 

 

$

42,902

 

Accounts payable

 

 

2,407

 

 

 

3,753

 

Accrued expenses and other current liabilities

 

 

7,654

 

 

 

11,207

 

Derivative liability

 

 

 

 

 

2,425

 

Deferred revenue

 

 

290

 

 

 

285

 

Total current liabilities

 

 

10,351

 

 

 

60,572

 

Notes payable, net of current portion

 

 

44,612

 

 

 

 

Operating lease liabilities, net of current portion

 

 

479

 

 

 

1,873

 

Deferred revenue, net of current portion

 

 

300

 

 

 

46

 

Derivative liability

 

 

1,235

 

 

 

 

Other liabilities

 

 

3,080

 

 

 

 

Commitments and contingencies (see Note 13)

 

 

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued and

   outstanding at September 30, 2020 and December 31, 2019

 

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized; 147,954,385 and

  50,651,535 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

 

 

147

 

 

 

51

 

Additional paid-in capital

 

 

430,529

 

 

 

342,121

 

Accumulated other comprehensive loss

 

 

(36

)

 

 

 

Accumulated deficit

 

 

(413,066

)

 

 

(376,177

)

Total stockholders’ equity (deficit)

 

 

17,574

 

 

 

(34,005

)

Total liabilities and stockholders’ equity (deficit)

 

$

77,631

 

 

$

28,486

 

 

See accompanying notes to condensed consolidated financial statements.

1


 

T2 BIOSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

 

 

2019

 

 

2020

 

 

2019

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product revenue

 

$

3,757

 

 

 

 

$

1,177

 

 

$

5,843

 

 

$

3,765

 

Research revenue

 

 

 

 

 

 

 

56

 

 

 

11

 

 

 

269

 

Contribution revenue

 

 

1,488

 

 

 

 

 

444

 

 

 

4,488

 

 

 

1,232

 

Total revenue

 

 

5,245

 

 

 

 

 

1,677

 

 

 

10,342

 

 

 

5,266

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product revenue

 

 

6,833

 

 

 

 

 

3,944

 

 

 

13,804

 

 

 

13,153

 

Research and development

 

 

3,965

 

 

 

 

 

4,098

 

 

 

12,883

 

 

 

12,047

 

Selling, general and administrative

 

 

5,083

 

 

 

 

 

5,981

 

 

 

16,691

 

 

 

19,756

 

Total costs and expenses

 

 

15,881

 

 

 

 

 

14,023

 

 

 

43,378

 

 

 

44,956

 

Loss from operations

 

 

(10,636

)

 

 

 

 

(12,346

)

 

 

(33,036

)

 

 

(39,690

)

Interest expense, net

 

 

(646

)

 

 

 

 

(1,876

)

 

 

(3,906

)

 

 

(5,658

)

Other income, net

 

 

27

 

 

 

 

 

51

 

 

 

53

 

 

 

383

 

Net loss

 

$

(11,255

)

 

 

 

$

(14,171

)

 

$

(36,889

)

 

$

(44,965

)

Net loss per share — basic and diluted

 

$

(0.08

)

 

 

 

$

(0.31

)

 

$

(0.33

)

 

$

(1.01

)

Weighted-average number of common shares used in computing

   net loss per share — basic and diluted

 

 

147,793,891

 

 

 

 

 

45,413,215

 

 

 

112,371,006

 

 

 

44,711,463

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(11,255

)

 

 

 

$

(14,171

)

 

$

(36,889

)

 

$

(44,965

)

Net unrealized gain (loss) on marketable securities

 

 

(36

)

 

 

 

 

 

 

 

(36

)

 

 

 

Comprehensive loss

 

$

(11,291

)

 

 

 

$

(14,171

)

 

$

(36,925

)

 

$

(44,965

)

 

See accompanying notes to condensed consolidated financial statements.

 

 

2


 

T2 BIOSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share data)

(Unaudited)

 

 

 

Common

 

 

Additional

 

 

 

 

 

 

Accumulated Other

 

 

Total

 

 

 

Stock

 

 

Paid-In

 

 

Accumulated

 

 

Comprehensive

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity (Deficit)

 

Balance at December 31, 2018

 

 

44,175,441

 

 

$

44

 

 

$

328,514

 

 

$

(317,171

)

 

$

 

 

$

11,387

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

2,033

 

 

 

 

 

 

 

 

 

2,033

 

Issuance of common stock from vesting of restricted stock, exercise of stock options and employee stock purchase plan

 

 

163,802

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of warrants upon modification

 

 

 

 

 

 

 

 

147

 

 

 

 

 

 

 

 

 

147

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(15,147

)

 

 

 

 

 

(15,147

)

Balance at March 31, 2019

 

 

44,339,243

 

 

$

44

 

 

$

330,694

 

 

$

(332,318

)

 

$

 

 

$

(1,580

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,277

 

 

 

 

 

 

 

 

 

1,277

 

Issuance of common stock from vesting of restricted stock, exercise of stock options and employee stock purchase plan

 

 

196,329

 

 

 

 

 

 

330

 

 

 

 

 

 

 

 

 

330

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(15,647

)

 

 

 

 

 

(15,647

)

Balance at June 30, 2019

 

 

44,535,572

 

 

$

44

 

 

$

332,301

 

 

$

(347,965

)

 

$

 

 

$

(15,620

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,165

 

 

 

 

 

 

 

 

 

1,165

 

Issuance of common stock from vesting of restricted stock, exercise of stock options and employee stock purchase plan

 

 

50,438

 

 

 

 

 

 

53

 

 

 

 

 

 

 

 

 

53

 

Issuance of common stock from secondary offering, net

 

 

1,679,387

 

 

 

1

 

 

 

1,883

 

 

 

 

 

 

 

 

 

1,884

 

Change in fair value of warrants upon modification

 

 

 

 

 

 

 

 

117

 

 

 

 

 

 

 

 

 

117

 

Issuance of warrants

 

 

 

 

 

 

 

 

660

 

 

 

 

 

 

 

 

 

660

 

Shares issued in connection with Purchase Agreement

 

 

413,349

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(14,171

)

 

 

 

 

 

(14,171

)

Balance at September 30, 2019

 

 

46,678,746

 

 

$

45

 

 

$

336,179

 

 

$

(362,136

)

 

$

 

 

$

(25,912

)

 

 

 

 

Common

 

 

Additional

 

 

 

 

 

 

Accumulated Other

 

 

Total

 

 

 

Stock

 

 

Paid-In

 

 

Accumulated

 

 

Comprehensive

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity (Deficit)

 

Balance at December 31, 2019

 

 

50,651,535

 

 

$

51

 

 

$

342,121

 

 

$

(376,177

)

 

$

 

 

$

(34,005

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,160

 

 

 

 

 

 

 

 

 

1,160

 

Issuance of common stock from vesting of restricted stock

 

 

370,417

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock from secondary offering, net

 

 

68,150,678

 

 

 

68

 

 

 

40,029

 

 

 

 

 

 

 

 

 

40,097

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(14,949

)

 

 

 

 

 

(14,949

)

Balance at March 31, 2020

 

 

119,172,630

 

 

$

119

 

 

$

383,310

 

 

$

(391,126

)

 

$

 

 

$

(7,697

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

994

 

 

 

 

 

 

 

 

 

994

 

Issuance of common stock from vesting of restricted stock, exercise of stock options and employee stock purchase plan

 

 

407,183

 

 

 

 

 

 

180

 

 

 

 

 

 

 

 

 

180

 

Issuance of common stock from secondary offering, net

 

 

8,881,466

 

 

 

9

 

 

 

12,811

 

 

 

 

 

 

 

 

 

12,820

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(10,685

)

 

 

 

 

 

(10,685

)

Balance at June 30, 2020

 

 

128,461,279

 

 

$

128

 

 

$

397,295

 

 

$

(401,811

)

 

$

 

 

$

(4,388

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

855

 

 

 

 

 

 

 

 

 

855

 

Issuance of common stock from exercise of stock options

 

 

5,083

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

4

 

Issuance of common stock from secondary offering, net

 

 

19,488,023

 

 

 

19

 

 

 

32,375

 

 

 

 

 

 

 

 

 

32,394

 

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(36

)

 

 

(36

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(11,255

)

 

 

 

 

 

(11,255

)

Balance at September 30, 2020

 

 

147,954,385

 

 

$

147

 

 

$

430,529

 

 

$

(413,066

)

 

$

(36

)

 

$

17,574

 

 

See accompanying notes to condensed consolidated financial statements.

 

3


 

T2 BIOSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(36,889

)

 

$

(44,965

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,323

 

 

 

1,694

 

Amortization of operating lease right-of-use assets

 

 

1,149

 

 

 

1,065

 

Stock-based compensation expense

 

 

3,009

 

 

 

4,475

 

Change in fair value of derivative instrument

 

 

(1,190

)

 

 

461

 

Gain on disposal of property and equipment

 

 

(2

)

 

 

(3

)

Impairment of operating lease asset

 

 

523

 

 

 

 

Impairment of property and equipment

 

 

636

 

 

 

 

Non-cash interest expense

 

 

2,345

 

 

 

1,763

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,035

)

 

 

213

 

Prepaid expenses and other assets

 

 

(1,458

)

 

 

(577

)

Inventories

 

 

723

 

 

 

(1,464

)

Accounts payable

 

 

(1,281

)

 

 

2,683

 

Accrued expenses and other liabilities

 

 

(1,099

)

 

 

1,250

 

Deferred revenue

 

 

259

 

 

 

(143

)

Operating lease liabilities

 

 

(1,478

)

 

 

(1,694

)

Net cash used in operating activities

 

 

(34,465

)

 

 

(35,242

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(50,462

)

 

 

 

Proceeds from maturities of marketable securities

 

 

8,250

 

 

 

 

Proceeds from sale of property and equipment

 

 

4

 

 

 

 

Purchases and manufacture of property and equipment

 

 

(425

)

 

 

(735

)

Net cash used in investing activities

 

 

(42,633

)

 

 

(735

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of shares from employee stock purchase plan and stock option exercises, net

 

 

184

 

 

 

383

 

Proceeds from issuance of common stock in public offering, net of offering costs

 

 

85,311

 

 

 

1,884

 

Principal repayments of finance leases

 

 

 

 

 

(882

)

Net cash provided by financing activities

 

 

85,495

 

 

 

1,385

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

8,397

 

 

 

(34,592

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

11,213

 

 

 

50,985

 

Cash, cash equivalents and restricted cash at end of period

 

$

19,610

 

 

$

16,393

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

1,820

 

 

$

3,435

 

Supplemental disclosures of noncash activities

 

 

 

 

 

 

 

 

Transfer of T2 owned instruments and components to (from) inventory

 

$

693

 

 

$

31

 

Change in fair value of warrants issued and modified

 

$

 

 

$

924

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

$

 

 

$

4,805

 

Purchases of property and equipment included in accounts payable and accrued expenses

 

$

61

 

 

$

43

 

4


 

 

 

 

September 30,

2020

 

 

December 31,

2019

 

Reconciliation of cash, cash equivalents and restricted cash at end of period

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

19,059

 

 

$

11,033

 

Restricted cash

 

 

551

 

 

 

180

 

Total cash, cash equivalents and restricted cash

 

$

19,610

 

 

$

11,213

 

 

See accompanying notes to condensed consolidated financial statements.

 

5


 

T2 BIOSYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of Business

T2 Biosystems, Inc. (the “Company”) was incorporated on April 27, 2006 as a Delaware corporation with operations based in Lexington, Massachusetts. The Company is an in vitro diagnostics company that has developed an innovative and proprietary technology platform that offers a rapid, sensitive and simple alternative to existing diagnostic methodologies. The Company is using its T2 Magnetic Resonance technology (“T2MR”) to develop a broad set of applications aimed at lowering mortality rates, improving patient outcomes and reducing the cost of healthcare by helping medical professionals make targeted treatment decisions earlier. T2MR enables rapid detection of pathogens, biomarkers and other abnormalities in a variety of unpurified patient sample types, including whole blood, plasma, serum, saliva, sputum, cerebral spinal fluid and urine, and can detect cellular targets at limits of detection as low as one colony forming unit per milliliter (“CFU/mL”). The Company’s initial development efforts target sepsis and Lyme disease, which are areas of significant unmet medical need in which existing therapies could be more effective with improved diagnostics. On September 22, 2014, the Company received market clearance from the U.S. Food and Drug Administration (“FDA”) for its first two products, the T2Dx® Instrument (the “T2Dx”) and T2Candida® Panel (“T2Candida”). On May 24, 2018, the Company received market clearance from the FDA for its T2Bacteria® Panel (“T2Bacteria”). On February 6, 2019, the FDA granted the Company’s T2ResistanceTM Panel (“T2Resistance”) designation as a Breakthrough Device. On August 2, 2019, the Center for Medicare & Medicaid Services (CMS) granted approval for a New Technology Add-on Payment (NTAP) for the T2Bacteria Panel for fiscal year 2020 and in September 2020, CMS extended the approval for 2021. On November 20, 2019, the Company’s T2Resistance Panel was granted a CE-Mark. On June 30, 2020, the Company announced the U.S. launch of its COVID-19 molecular diagnostic test, the T2SARS-CoV-2 Panel, after validation of the test meeting the FDA’s requirements for an Emergency Use Authorization (EUA). In August 2020, the FDA issued EUA for the Company’s T2SARS-CoV-2 Panel. The test is designed to detect the presence of the SARS-CoV-2 virus in a nasopharyngeal swab sample.  

Liquidity and Going Concern

At September 30, 2020, the Company had cash and cash equivalents of $19.1 million, marketable securities of $42.2 million, an accumulated deficit of $413.1 million, a stockholders’ equity of $17.6 million, and has experienced cash outflows from operating activities over the past years. The future success of the Company is dependent on its ability to successfully commercialize its products, obtain regulatory clearance for and successfully launch its future product candidates, obtain additional capital and ultimately attain profitable operations. Historically, the Company has funded its operations primarily through its August 2014 initial public offering, its December 2015 public offering, its September 2016 private investment in public equity (“PIPE”) financing, its September 2017 public offering, its June 2018 public offering, its July 2019 establishment of an Equity Distribution Agreement and Equity Purchase Agreement, private placements of redeemable convertible preferred stock and through debt financing arrangements.

The Company is subject to a number of risks similar to other early commercial stage life science companies, including, but not limited to commercially launching the Company’s products, development and market acceptance of the Company’s product candidates, development by its competitors of new technological innovations, protection of proprietary technology, and raising additional capital.

6


 

The COVID-19 pandemic has impacted and may continue to impact operations. The Company has established protocols for continued manufacturing, distribution and servicing of its products with safe social distancing and personal protective equipment measures and for remote work for certain employees not essential to on-site operations. To date these measures have been successful but may not continue to function should the pandemic escalate and impact personnel. The Company’s hospital customers have restricted the sales team’s access to their facilities and as a result, the Company significantly reduced its sales and general and administrative staffing levels to reduce expenses. The Company’s customers may reduce their purchases of products. Customers may cease to comply with the terms of sales agreements and this may impact the ability to recognize revenue and hinder receivables collections. The Company has a significant development contract with a United States government agency and should the agency reduce, cancel or not grant additional milestone projects, the Company’s ability to continue its future product development may be impacted. The ability of the Company’s shipping carriers to deliver products to customers may be disrupted. The Company has reviewed its suppliers and quantities of key materials and believes that it has sufficient stocks and alternate sources of critical materials including personal protective equipment should the supply chains become disrupted, although raw materials for the manufacturing of reagents is in high demand, and interruptions in supply are difficult to predict. As further described in Note 5, the Company believes the pandemic’s impact on its sales has impacted the recoverability of the value of T2-owned instruments and components. The COVID-19 pandemic also caused the Company to reassess its build plan and evaluate its inventories accordingly, which resulted in an additional charge to cost of product revenue.

Having obtained authorization from the FDA to market the T2Dx, T2Candida, and T2Bacteria, the Company has incurred significant commercialization expenses related to product sales, marketing, manufacturing and distribution. The Company may seek to fund its operations through public equity, private equity or debt financings, as well as other sources. However, the Company may be unable to raise additional funds or enter into such other arrangements when needed, on favorable terms, or at all. The Company’s failure to raise capital or enter into such other arrangements if and when needed would have a negative impact on the Company’s business, results of operations, financial condition and the Company’s ability to develop and commercialize T2Dx, T2Candida, T2Bacteria and other product candidates.

Pursuant to the requirements of Accounting Standards Codification (“ASC”) 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.

Management believes that its existing cash and cash equivalents and marketable securities at September 30, 2020 will be sufficient to allow the Company to fund its current operating plan, at least a year from issuance of these financial statements. Certain elements of the Company’s operating plan are outside of the Company’s control, those elements cannot be considered probable; under ASC 205-40, the future receipt of potential funding from the Company’s Co-Development partners and other resources cannot be considered probable at this time because none of the plans are entirely within the Company’s control. During the three months ended March 31, 2020, management implemented a cost improvement strategy which is focused on reducing operating expenses and improving cost of goods sold. The Company reduced its total employee headcount by 22% as compared to headcount at December 31, 2019, resulting in severance of $0.4 million, all of which was paid by September 30, 2020. The Term Loan Agreement with CRG Servicing LLC (“CRG”) (Note 6) has certain covenants which require the Company to achieve certain annual revenue targets, whereby the Company is required to pay double the amount of any shortfall as an acceleration of principal payments, and maintain a minimum cash balance of $5.0 million. As of the date of these financial statements, it is probable that the Company will achieve the revenue target of $15.0 million for the twenty-four month period ended December 31, 2020, however there are no assurances that the Company will achieve the revenue target of $43.0 million for the twenty-four month period ended December 31, 2021. Should the Company fail to meet the revenue target, it would seek a waiver of this provision. There can be no assurances that the Company would be successful in obtaining a waiver. If the Company is unsuccessful in obtaining a waiver, it would pay the cure amount set forth under the Term Loan Agreement. While the Company believes it can continue as a going concern for at least a year from issuance of these financial statements, there can be no assurances the Company will continue to be in compliance with the cash covenant in future periods without additional funding.

On April 7, 2020, the Company received a letter from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, for the last thirty consecutive business days, the bid price for the Company’s common stock had closed below the minimum $1.00 per share requirement for continued listing on the Nasdaq Global Market under Nasdaq Listing Rule 5450(a)(1). On June 16, 2020, the Company received a letter from the Nasdaq stating that the Company had regained compliance.

7


 

2. Summary of Significant Accounting Policies

Basis of Presentation

The Company’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States GAAP as defined in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). The Company’s condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, T2 Biosystems Securities Corporation. All intercompany balances and transactions have been eliminated.  

Unaudited Interim Financial Information

Certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

The accompanying interim condensed consolidated balance sheet as of September 30, 2020, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2020 and 2019, the condensed consolidated statements of stockholders’ equity (deficit) for the three and nine months ended September 30, 2020 and 2019, the condensed consolidated statements of cash flows for the nine months ended September 30, 2020 and 2019 and the related financial data and other information disclosed in these notes are unaudited. The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements, and, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of September 30, 2020, and the results of its operations for the three and nine months ended September 30, 2020 and 2019 and its cash flows for the nine months ended September 30, 2020 and 2019. The results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020, any other interim periods, or any future year or period.

Segment Information

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the Chief Executive Officer. The Company views its operations and manages its business in one operating segment, which is the business of developing and, upon regulatory clearance, commercializing its diagnostic products aimed at lowering mortality rates, improving patient outcomes and reducing the cost of healthcare by helping medical professionals make targeted treatment decisions earlier.

Geographic Information

The Company sells its products domestically and internationally. Total international sales were approximately $0.6 million or 12% of total revenue and $0.6 million or 36% of total revenue for the three months ended September 30, 2020 and 2019, respectively. Total international sales were approximately $1.4 million or 13% of total revenue and $1.8 million and 34% of total revenue for the nine months ended September 30, 2020 and 2019, respectively.

For the three and nine months ended September 30, 2020, there was no international customer that represented greater than 10% of total revenue. For the three and nine months ended September 30, 2019, there were no international customers that represented greater than 10% of its total revenue.

As of September 30, 2020 and December 31, 2019, the Company had outstanding receivables of $0.5 million and $1.2 million, respectively, from customers located outside of the U.S.

Net Loss Per Share

Basic net loss per share is calculated by dividing net loss by the weighted-average number of shares of common stock outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by adjusting the weighted-average number of shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. For purposes of the diluted net loss per share calculation, stock options and unvested restricted stock and restricted stock contingently issuable upon achievement of certain market conditions are considered to be common stock equivalents, but have been excluded from the calculation of diluted net loss per share, as their effect would be anti-

8


 

dilutive for all periods presented. Therefore, basic and diluted net loss per share applicable to common stockholders was the same for all periods presented.

Marketable Securities

The Company’s marketable securities typically consist of certificates of deposit and U.S. treasury securities, which are classified as available-for-sale and included in current and non-current assets. Available-for-sale securities are carried at fair value with unrealized gains and losses reported as a component of shareholders’ deficit in accumulated other comprehensive income (loss). Realized gains and losses, if any, are included in other income in the condensed consolidated statements of operations.

Available-for-sale securities are reviewed for possible impairment at least quarterly, or more frequently if circumstances arise that may indicate impairment. When the fair value of the securities declines below the amortized cost basis, impairment is indicated and it must be determined whether it is other than temporary. Impairment is considered to be other than temporary if the Company: (i) intends to sell the security, (ii) will more likely than not be forced to sell the security before recovering its cost, or (iii) does not expect to recover the security’s amortized cost basis. If the decline in fair value is considered other than temporary, the cost basis of the security is adjusted to its fair market value and the realized loss is reported in earnings. Subsequent increases or decreases in fair value are reported as a component of shareholders’ deficit in accumulated other comprehensive income (loss). There were no other-than-temporary unrealized losses as of September 30, 2020.

The following table summarizes the Company’s marketable securities at September 30, 2020 (in thousands):

 

 

 

September 30, 2020

 

 

 

Amortized Cost

 

 

Gross Unrealized Gains

 

 

Gross Unrealized Losses

 

 

Fair Value

 

Certificates of deposit

 

$

1,500

 

 

$

1

 

 

$

 

 

$

1,501

 

U.S. treasury securities

 

 

40,712