UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from to
Commission file number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
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Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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The |
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.
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).
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 |
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Emerging growth company |
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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 May 17, 2023, the registrant had
T2 BIOSYSTEMS, INC.
TABLE OF CONTENTS
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Item 1. |
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Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022 |
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Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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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)
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March 31, |
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December 31, |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Restricted cash |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and stockholders’ deficit |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Operating lease liability |
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Warrant liabilities |
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Deferred revenue |
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Total current liabilities |
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Notes payable |
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Operating lease liabilities, net of current portion |
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Deferred revenue, net of current portion |
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Derivative liability related to Term Loan |
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Accrued interest on term loan |
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Total liabilities |
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Stockholders’ deficit |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders’ deficit |
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Total liabilities and stockholders’ deficit |
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$ |
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$ |
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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)
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Three Months Ended |
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2023 |
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2022 |
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Revenue: |
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Product revenue |
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$ |
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$ |
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Contribution revenue |
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Total revenue |
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Costs and expenses: |
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Cost of product revenue |
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Research and development |
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Selling, general and administrative |
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Total costs and expenses |
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Loss from operations |
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Other income (expense): |
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Interest income |
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Interest expense |
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Change in fair value of derivative related to Term Loan |
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— |
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Change in fair value of warrant liabilities |
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( |
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— |
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Other income |
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— |
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Other expense |
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— |
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Other losses |
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Total other expense |
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Net loss and comprehensive loss |
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$ |
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$ |
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Net loss per share — basic and diluted |
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$ |
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$ |
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Weighted-average number of common shares used in computing |
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See accompanying notes to condensed consolidated financial statements.
2
T2 BIOSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(In thousands, except share data)
(Unaudited)
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Common |
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Additional |
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Accumulated Other |
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Total |
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Stock |
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Paid-In |
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Accumulated |
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Comprehensive |
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Stockholders’ |
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Shares |
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Amount |
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Capital |
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Deficit |
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Loss |
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Deficit |
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Balance at December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Issuance of common stock from vesting of restricted stock |
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— |
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— |
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— |
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— |
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— |
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Surrender of shares due to tax withholding |
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( |
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— |
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— |
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— |
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Issuance of common stock from secondary offering, net |
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— |
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— |
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— |
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Unrealized loss on marketable securities |
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— |
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— |
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— |
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— |
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( |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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Balance at March 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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Common |
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Additional |
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Accumulated Other |
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Total |
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Stock |
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Paid-In |
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Accumulated |
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Comprehensive |
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Stockholders’ |
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Shares |
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Amount |
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Capital |
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Deficit |
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Loss |
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Deficit |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
- |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Issuance of common stock from vesting of restricted stock |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock from secondary offering, net |
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— |
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— |
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Issuance of common stock and Pre-Funded Warrant from public offering, net |
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— |
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— |
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Issuance of common stock upon Common Stock Warrant cashless exercises |
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— |
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Issuance of common stock upon Pre-Funded Warrant exercises |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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Balance at March 31, 2023 |
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$ |
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$ |
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$ |
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$ |
- |
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$ |
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See accompanying notes to condensed consolidated financial statements.
3
T2 BIOSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
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Three Months Ended |
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2023 |
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2022 |
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Cash flows from operating activities |
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Net loss |
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$ |
( |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Non-cash lease expense |
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Stock-based compensation expense |
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Change in fair value of derivative related to Term Loan |
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— |
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Change in fair value of warrant liabilities |
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— |
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Issuance costs related to Common Stock Warrants |
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— |
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Loss on disposal of property and equipment |
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— |
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Non-cash interest expense |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Prepaid expenses and other assets |
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( |
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Inventories |
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Accounts payable |
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Accrued expenses and other liabilities |
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Deferred revenue |
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( |
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( |
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Operating lease liabilities |
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( |
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Net cash used in operating activities |
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Cash flows from investing activities |
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Purchases and manufacture of property and equipment |
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Net cash used in investing activities |
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Cash flows from financing activities |
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Payment of employee restricted stock tax withholdings |
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— |
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Proceeds from public offering, net of issuance costs |
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— |
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Proceeds from secondary offering, net of issuance costs |
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Net cash provided by financing activities |
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Net change in cash, cash equivalents and restricted cash |
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Cash, cash equivalents and restricted cash at beginning of period |
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Cash, cash equivalents and restricted cash at end of period |
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$ |
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$ |
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Supplemental disclosures of cash flow information |
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Cash paid for interest |
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$ |
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$ |
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Supplemental disclosures of noncash activities |
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Transfer of T2 owned instruments and components (from) to inventory |
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$ |
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$ |
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Cashless exercise of Common Stock Warrants |
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$ |
( |
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$ |
— |
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Purchases of property and equipment included in accounts payable and accrued expenses |
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$ |
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$ |
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March 31, |
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March 31, |
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Reconciliation of cash, cash equivalents and restricted cash at end of period |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Total cash, cash equivalents and restricted cash |
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$ |
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$ |
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See accompanying notes to condensed consolidated financial statements.
4
T2 BIOSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of Business
T2 Biosystems, Inc. and its subsidiary (the “Company,” “we,” or “T2”) have operations based in Lexington, Massachusetts. T2 Biosystems, Inc. was incorporated on April 27, 2006 as a Delaware corporation. 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 has developed 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. The Company's technology 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”). We are currently targeting a range of critically underserved healthcare conditions, focusing initially on those for which a rapid diagnosis will serve an important dual role – saving lives and reducing costs. The Company's current development efforts primarily target sepsis and Lyme disease, which are areas of significant unmet medical need in which existing therapies could be more effective with improved diagnostics.
Liquidity and Going Concern
At March 31, 2023, the Company had cash, cash equivalents, and restricted cash of $
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.
The Company’s T2Dx Instrument and T2Candida and T2Bacteria Panels are authorized for use in the United States by the Food and Drug Administration, or FDA. In June 2020 the FDA extended Emergency Use Authorization, or EUA, to the Company’s T2SARS-CoV-2 Panel. The Company believes the FDA will rescind the EUA for all COVID-19 diagnostic tests, and has indicated that it will provide a 180 day transition period. The COVID-19 pandemic has impacted and may continue to impact the Company’s operations as the pandemic shifts to an endemic health threat. Customers have begun to reduce their purchases of the Company’s COVID-19 test and the Company has not forecasted any COVID-19 test sales in 2023.
The Company has a significant development contract with the Biomedical Advanced Research and Development Authority (“BARDA”) and should BARDA reduce, cancel or not grant additional milestone projects, the Company’s ability to continue its future product development may be hindered.
The Company believes that its cash, cash equivalents, and restricted cash of $
As part of a strategic restructuring program, to preserve capital and be in a better position to explore all strategic alternatives while continuing to support customers and advance pipeline development, the Company initiated a reduction in force of nearly
5
The Term Loan Agreement with CRG Servicing LLC (“CRG”), as administrative agent and collateral agent (the "Term Loan Agreement") (Note 6) has a minimum liquidity covenant which requires the Company to maintain a minimum cash balance of $
The Nasdaq Stock Market LLC (“Nasdaq”) has $
On November 22, 2022, the Company received notice from the Nasdaq indicating that the Company was in violation of the $
On March 30, 2023, the Company received a letter from the Nasdaq indicating that, for the last thirty consecutive business days, the bid price for its common stock had closed below the minimum $
These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year after the date that the financial statements are issued. Management's plans to alleviate the conditions that raise substantial doubt include raising additional funding, earning payments pursuant to the Company’s contract with BARDA, delaying certain research projects and capital expenditures and eliminating certain future operating expenses in order to fund operations at reduced levels for the Company to continue as a going concern for a period of 12 months from the date these condensed consolidated financial statements are issued. Management has concluded the likelihood that its plan to successfully obtain sufficient funding from one or more of these sources or adequately reduce expenditures, while reasonably possible, is less than probable. Accordingly, the Company has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for a period of at least 12 months from the date of issuance of these financial statements. Even if we are able to complete the actions described in this paragraph or otherwise generate incremental liquidity, we may be forced to sell material assets or seek additional capital or be required to commence proceedings under Chapter 11 of the U.S. Bankruptcy Code. See Part II, Item 1A—“Risk Factors” in this Quarterly Report on Form 10-Q.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.
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 generally accepted accounting principles as found 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.
On October 12, 2022, we
6
and per share amounts (excluding authorized shares) in the condensed consolidated financial statements and accompanying notes have been retroactively restated to for the reverse split.
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, 2022.
The accompanying interim condensed consolidated balance sheet as of March 31, 2023, the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2023 and 2022, the condensed consolidated statements of stockholders’ deficit for the three months ended March 31, 2023 and 2022, the condensed consolidated statements of cash flows for the three months ended March 31, 2023 and 2022 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 March 31, 2023, and the results of its operations for the three months ended March 31, 2023 and 2022 and its cash flows for the three months ended March 31, 2023 and 2022. The results for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023, any other interim periods, or any future year or period.
Reclassification
Certain prior year amounts have been reclassified to conform to the current year presentation. Such reclassifications had no impact on the Company's reported total revenues, expenses, net loss, current assets, total assets, current liabilities, total liabilities, stockholders' equity (deficit) or cash flows. No reclassifications of prior period balances were material to the consolidated financial statements.
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
Going Concern
Pursuant to the requirements of Accounting Standards Codification 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern ("ASC 205-40"), 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.
Geographic Information
The Company sells its products domestically and internationally. Total international sales were approximately $
The following table shows customers that represent greater than 10% of total revenue for the period presented:
7
|
|
Three Months Ended |
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|
|||||
|
|
2023 |
|
|
2022 |
|
|
||
Customer A |
|
|
% |
|
|
% |
|
||
Customer B |
|
|
% |
|
|
% |
|
||
Customer A is a U.S. government customer (BARDA). Customer B is an international distributor.
The following table shows customers that represent greater than 10% of the accounts receivable balance for the period presented:
|
|
March 31, |
|
|
December 31, |
|
||
Customer A |
|
|
% |
|
|
% |
||
Customer B |
|
|
% |
|
|
% |
||
Customer A is a U.S. government customer (BARDA). Customer B is an international distributor.
As of March 31, 2023 and December 31, 2022, the Company had outstanding receivables of $
Net Loss Per Share
The Company has issued certain securities that are participating securities; therefore, the Company must apply the two-class method to determine basic and diluted earnings per share. To the extent that a dividend or distribution is declared or paid during the period, the Company applies the two-class method to determine the allocation of the dividends or distributions between the common shareholders and the holders of the participating securities. The Company’s participating securities do not have an obligation to share in the losses of the Company. To the extent that the Company remains in a net loss position, the two-class method will not apply since the entire net loss would be allocated to the common shareholders.
Basic net loss per share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period and potential common shares exercisable for little to no consideration, without consideration for other common stock equivalents.
Diluted net loss per share is calculated by adjusting the weighted-average number of shares outstanding and potential common shares exercisable for little to no consideration used to compute basic earnings per share for the dilutive effect of other common stock equivalents that were outstanding during the period, determined using either the if-converted method or the treasury-stock method.
Derivative Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives requiring bifurcation in accordance with ASC Topic 815, Derivatives and Hedging. Derivative instruments are measured at fair value at issuance and at each reporting date in accordance with ASC 820 with changes in fair value recognized in the period of change in the condensed consolidated statements of operations and comprehensive loss.
The Company determined that both the warrant issued in conjunction with the Series A redeemable convertible preferred stock in August of 2022 and the Common Stock Warrants issued in February 2023 are derivative instruments. The warrant liabilities are classified on the condensed consolidated balance sheets as current because settlement of the warrant liability could be required by the holder within 12 months of the balance sheet date. Changes in fair value are recognized in change in fair value of warrant liabilities in the period of change in the condensed consolidated statements of operations and comprehensive loss. See Notes 3 and 7.
The Company has identified a single compound derivative liability related to its Term Loan Agreement with CRG, that is classified as non-current on the condensed consolidated balance sheets to match the classification of the related Term Loan Agreement. Changes in fair value are recognized in change in fair value of derivative related to Term Loan in the period of change in the condensed consolidated statements of operations and comprehensive loss. See Note 6.
The Company does not designate its derivative instruments as hedging instruments.
8
Guarantees
As permitted under Delaware law, the Company indemnifies its officers and directors for certain events or occurrences while each such officer or director is, or was, serving at the Company’s request in such capacity. The term of the indemnification is the officer’s or director’s lifetime. The maximum potential amount of future payments the Company could be required to make is unlimited; however, the Company has directors’ and officers’ liability insurance coverage that limits its exposure and enables the Company to recover a portion of any future amounts paid.
The Company leases office, laboratory and manufacturing space under noncancelable operating leases. The Company has standard indemnification arrangements under the leases that require it to indemnify the landlords against all costs, expenses, fines, suits, claims, demands, liabilities, and actions directly resulting from any breach, violation or nonperformance of any covenant or condition of the Company’s leases. See Note 13 for a discussion about the Billerica, Massachusetts lease.
In the ordinary course of business, the Company enters into indemnification agreements with certain suppliers and business partners where the Company has certain indemnification obligations limited to the costs, expenses, fines, suits, claims, demands, liabilities and actions directly resulting from the Company’s gross negligence or willful misconduct, and in certain instances, breaches, violations or nonperformance of covenants or conditions under the agreements.
As of March 31, 2023 and December 31, 2022, the Company had not experienced any material losses related to these indemnification obligations, and no material claims with respect thereto were outstanding. The Company does not expect significant claims related to these indemnification obligations and, consequently, concluded that the fair value of these obligations is negligible, and no related reserves were established.
Leases
Lessee
Pursuant to ASC Topic 842, Leases (“ASC 842”), at the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and long-term lease liabilities. The Company has elected not to recognize on the balance sheet leases with terms of one year or less. The exercise of lease renewal options is at the Company's discretion and the periods subject to renewal option are not included in the measurement of the Company’s right-of-use assets and lease liabilities as the renewal options are not reasonably certain of exercise. The Company will continue to evaluate the renewal options and when they are reasonably certain of exercise, the Company will include the renewal period in its lease term. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. However, certain adjustments to the right-of-use asset may be required for items such as prepaid or accrued lease payments. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
In accordance with the guidance in ASC 842, components of a lease should be split into three categories: lease components (e.g. land, building, etc.), non-lease components (e.g. common area maintenance, consumables, etc.), and non-components (e.g. property taxes, insurance, etc.). Then the fixed and in-substance fixed contract consideration (including any related to non-components) must be allocated based on the respective relative fair values to the lease components and non-lease components.
The Company made the policy election to not separate lease and associated non-lease components. Each lease component and the related non-lease components are accounted for together as a single component.
Lessor
The Company derives revenue from leasing its T2-owned instruments through reagent rental agreements (see the Revenue Recognition section below). Customers typically have the right to cancel every twelve months but subject to penalty. As a result of the penalty, the customers are deemed reasonably certain of not exercising their termination rights resulting in a lease term of generally three years. These lease agreements impose no requirement on the customer to purchase the instrument, and the instrument is not transferred to the customer at the end of the lease term. The short-term nature of the lease agreements does not result in lease payments accumulating to an amount that exceeds substantially all of the fair value of the instrument nor is the lease term for the majority of the remaining economic life of the instrument. Instrument leases are generally classified as operating leases as they do not meet any of the sales-type lease or direct financing lease criteria per ASC 842 and are recognized ratably over the duration of the lease. In accordance with these contracts, customers only make payments when consumables are ordered and delivered thus making these payments variable by nature. The Company estimates the expected volume of consumables to be purchased by each customer over the lease term to measure and recognize rental and consumables revenue.
9
Generally, lease arrangements include both lease and non-lease components. The lease component relates to the customer’s right-to-use the T2-owned instrument over the lease term. The non-lease components relate to (1) consumables and (2) maintenance services. Because the timing and pattern of transfer for the operating lease component, the T2-owned instrument, and maintenance components of a reagent rental agreement are recognized over the same time period and in the same pattern, the Company elected the practical expedient to aggregate non-lease components with the associated lease component and account for the combined component as an operating lease for all instrument leases. In the evaluation of whether the lease component (T2-owned instrument) or the non-lease component associated with the lease component (maintenance) is the predominant component, the Company determined that the lease component is predominant as we believe the customer would ascribe more value to the use of the T2-owned instrument than that of the maintenance services. The T2-owned instrument lease and maintenance service performance obligations are classified as a single category of instrument rental revenue within product revenue in the condensed consolidated statements of operations and comprehensive loss (see disaggregated revenue table below in Revenue Recognition section). The consumables non-lease component does not meet the requirements to elect the practical expedient and thus must apply ASC Topic 606, Revenue from Contracts with Customers, as described below in the Revenue Recognition section.
The Company considers the economic life of its T2-owned instruments to be five years. The Company believes five years is representative of the period during which the instrument is expected to be economically usable by one or more users, with normal service, for the purpose for which it is intended. The residual value is estimated to be the value at the end of the lease term based on the anticipated fair market value of the units. The Company mitigates residual value risk of its leased instrument by performing regular management and maintenance, as necessary.
Revenue Recognition
The Company generates revenue from the sale of instruments, consumable diagnostic tests, related services, reagent rental agreements and government contributions. For arrangements in the scope of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), the Company determines revenue recognition through the following steps:
The amount of revenue recognized reflects the consideration the Company expects to be entitled to receive in exchange for these goods and services.
Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company's performance obligations are transferred to customers either at a point in time, typically upon shipment, or over time, as services are performed.
Most of the Company’s contracts with distributors in geographic regions outside the United States contain only a single performance obligation, whereas most of the Company’s contracts with direct sales customers in the United States contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Excluded from the transaction price are sales tax and other similar taxes which are presented on a net basis.
Product revenue is generated by the sale of instruments and consumable diagnostic tests predominantly through the Company’s direct sales force in the United States and distributors in geographic regions outside the United States. The Company generally does not offer product returns or exchange rights (other than those relating to defective goods under warranty) or price protection allowances to its customers, including its distributors. Payment terms granted to distributors are the same as those granted to end-user customers and payments are not dependent upon the distributors’ receipt of payment from their end-user customers.
The Company either sells instruments to customers and international distributors, or retains title and places the instrument at the customer site pursuant to a reagent rental agreement. When an instrument is purchased by a customer or international distributor, the
10
Company recognizes revenue when the related performance obligation is satisfied (i.e. when the control of an instrument has passed to the customer; typically, at shipping point).
When the instrument is placed under a reagent rental agreement, the Company’s customers generally agree to fixed term agreements, which can be extended, and incremental charges on each consumable diagnostic test purchased. Revenue from the sale of consumable diagnostic tests (under a reagent rental agreement) is generally recognized upon shipment. The transaction price from consumables purchases is allocated between the lease and nonlease components when related performance obligations are satisfied, as a component of lease and product revenue, and is included as Instrument Rentals in the below table. Revenue associated with reagent rental consumables purchases is currently classified as variable consideration and constrained until a purchase order is received and related performance obligations have been satisfied.
Revenue from the sale of consumable diagnostic tests (under instrument purchase agreements) is recognized when control has passed to the customer, typically at shipping point.
Shipping and handling costs billed to customers in connection with a product sale are recorded as a component of the transaction price and allocated to product revenue in the condensed consolidated statements of operations and comprehensive loss as they are incurred by the Company in fulfilling its performance obligations.
Direct sales of instruments include warranty, maintenance and technical support services typically for
Fees paid to member-owned group purchasing organizations (“GPOs”) are deducted from related product revenues.
The Company warrants that consumable diagnostic tests will be free from defects, when handled according to product specifications, for the stated life of the product. To fulfill valid warranty claims, the Company provides replacement product free of charge. Warranty expense is recognized based on the estimated defect rates of the consumable diagnostic tests.
Contribution Revenue
The government contract with BARDA is considered a government grant and not considered a contract with a customer and thus not subject to ASC 606. Revenue under the government BARDA contract is earned under a cost-sharing arrangement in which the Company is reimbursed for direct costs incurred plus allowable indirect costs. The government contract revenue is recognized as the related reimbursable expenses are incurred. The cost reimbursement that is reported as revenue is presented gross of the related reimbursable expenses in the Company’s condensed consolidated statements of operations and comprehensive loss; the related reimbursable expenses are expensed as incurred as research and development expense. The Company accounts for these contracts as a government grant by analogy to International Accounting Standards 20 (“IAS 20”), Accounting for Government Grants and Disclosure of Government Assistance.
The Company has a significant development contract with BARDA and should BARDA reduce, cancel or not grant additional milestone projects, the Company’s ability to continue future product development may be adversely impacted. Refer to Note 11 for further details regarding the development contract with BARDA.
11
Disaggregation of Revenue
The Company disaggregates revenue from contracts with customers by type of products and services, as it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
|
|
Three Months Ended, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Product revenue |
|
|
|
|
|
|
||
Instruments |
|
$ |
|
|
$ |
|
||
Consumables |
|
|
|
|
|
|
||
Instrument rentals |
|
|
|
|
|
|
||
Service |
|
|
|
|
|
|
||
Total product revenue |
|
|
|
|
|
|
||
Contribution revenue |
|
|
|
|
|
|
||
Total revenue |
|
$ |
|
|
$ |
|
||
Remaining Performance Obligations
Under ASC 606, the Company is required to disclose the aggregate amount of the transaction price that is allocated to unsatisfied or partially satisfied performance obligations as of March 31, 2023. However, the guidance provides certain practical expedients that limit this requirement, and therefore, the Company has elected to not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. The nature of the excluded unsatisfied performance obligations pursuant to the practical expedient include consumable shipments, service contracts, warranties and installation services that will be performed within
Judgments
Certain contracts with customers include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Once the performance obligations are determined, the Company determines the transaction price, which includes estimating the amount of variable consideration, based on the most likely amount, to be included in the transaction price, if any. The Company then allocates the transaction price to each performance obligation in the contract based on a relative standalone selling price method. The corresponding revenue is recognized as the related performance obligations are satisfied as discussed in the revenue categories above.
Judgment is required to determine the standalone selling price for each distinct performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as a range of selling prices, market conditions and the expected costs and margin related to the performance obligations.
Contract Assets and Liabilities
At March 31, 2023 and December 31, 2022, the Company recorded $
The Company’s contract liabilities consist of upfront payments for research and development contracts and maintenance services on instrument sales. Contract liabilities are classified in deferred revenue as current or non-current based on the timing of when revenue is expected to be recognized. At March 31, 2023 and December 31, 2022, the Company had contract liabilities of $
12
Cost of Product Revenue
Cost of product revenue includes the cost of materials, direct labor and manufacturing overhead costs used in the manufacture of consumable diagnostic tests sold to customers, related warranty and license and royalty fees. Cost of product revenue also includes depreciation on T2-owned revenue generating T2Dx instruments that have been placed with customers under reagent rental agreements; costs of materials, direct labor and manufacturing overhead costs on the T2Dx instruments sold to customers; and other costs such as customer support costs, royalties and license fees, warranty and repair and maintenance expense on the T2Dx instruments that have been placed with customers under reagent rental agreements.
Research and Development Costs
Costs incurred in the research and development of the Company’s product candidates are expensed as incurred. Research and development expenses consist of costs incurred in performing research and development activities, including activities associated with delivering products or services associated with contribution revenue, clinical trials to evaluate the clinical utility of product candidates, and costs associated with the enhancements of developed products. These costs include salaries and benefits, stock compensation, research related facility and overhead costs, laboratory supplies, equipment, depreciation on T2Dx instruments used for research and development activities and contract services.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of costs for our sales and marketing, finance, legal, human resources, business development and general management functions, as well as professional services, such as legal, consulting and accounting services. Other selling, general and administrative expenses include commercial support activity, facility-related costs, fees and expenses associated with obtaining and maintaining patents, clinical and economic studies and publications, marketing expenses, and travel expenses. We expense the majority of selling, general and administrative expenses as incurred.
Recent Accounting Standards
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.
Accounting Standards Adopted
On September 29, 2022, the FASB issued ASU 2022-04, Liabilities-Supplier Finance Programs (Subtopic 405-50) Disclosure of Supplier Finance Program Obligations. This ASU requires that a buyer in a supplier finance program disclose additional information about the program to allow financial statement users to better understand the effect of the programs on an entity's working capital, liquidity, and cash flows. This update is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on roll forward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company adopted ASU 2022-04 on January 1, 2023. The adoption did not have a material impact on the Company's financial statements.
3. Fair Value Measurements
The Company measures the following financial assets at fair value on a recurring basis. There were no transfers between levels of the fair value hierarchy during any of the periods presented. The following tables set forth the Company’s financial assets and
13
liabilities carried at fair value categorized using the lowest level of input applicable to each financial instrument as of March 31, 2023 and December 31, 2022 (in thousands):
|
|
Balance at |
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|
Quoted Prices |
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|
Significant |
|
|
Significant |
|
||||
Liabilities: |
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|
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|
|
|
|
|
|
|
|
||||
Warrant liabilities |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||
Derivative liability related to Term Loan |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||
|
|
Balance at |
|
|
Quoted Prices |
|
|
Significant |
|
|
Significant |
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warrant liabilities |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
Derivative liability related to Term Loan |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||
The Company maintains money market accounts classified as restricted cash, which are Level 1 assets, for $
The Company estimated the fair value of the warrant issued in conjunction with the Series A redeemable convertible preferred stock in August of 2022 (the "Series A Warrant") (Note 7) using the Black-Scholes Model, which uses multiple inputs including the Company’s stock price, the exercise price of the warrant, volatility of the Company’s stock price, the risk-free interest rate and the expected term of the warrant.
The estimated fair value of the Series A Warrant at March 31, 2023 was determined using the following assumptions:
Risk-free interest rate |
|
|
% |
|
|
Expected dividend yield |
|
|
% |
|
|
Expected volatility |
|
|
% |
|
|
Expected term |
|
|
|
||
The Company estimated the fair value of the Common Stock Warrant issued in February of 2023 (the “Common Stock Warrant”) (Note 7) using both the Black-Scholes Model and Monte Carlo simulation methods to model different potential settlement outcomes. These models use multiple inputs including the Company’s stock price, the exercise price of the warrant, volatility of the Company’s stock price, the risk-free interest rate and the expected term of the warrant. Such inputs may vary depending on the model applied and the underlying scenario assumptions. Key inputs included the warrant exercise price of $
The following table provides a roll-forward of the fair value of the Common Stock Warrants (in thousands):
Balance at December 31, 2022 |
|
$ |
— |
|
|
Issuance of Common Stock Warrant |
|
|
|
|
|
Settlement due to cashless exercise |
|
|
( |
) |
|
Change in fair value |
|
|
|
|
|
Balance at March 31, 2023 |
|
$ |
|
|
The Company has a single compound derivative instrument related to its Term Loan Agreement (Note 6) that requires the Company to pay additional interest of
14
The estimated fair value of the derivative at March 31, 2023 was determined using a probability-weighted discounted cash flow model that includes contingent interest payments under the following scenarios:
|
|
Probability |
|
|
|
|
% |
||
Balance at December 31, 2022 |
|
$ |
|
|
|
Change in fair value of derivative related to Term Loan |
|
|
|
|
|
Balance at March 31, 2023 |
|
$ |
|
|
The Company is required to disclose the fair value and the level within the fair value hierarchy for financial instruments that are not measured at fair value on a recurring basis. For certain financial instruments, including accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses, the carrying amounts approximate their fair values as of March 31, 2023 and December 31, 2022 because of their short-term nature. Cash and cash equivalents were classified as Level 1 and all other financial instruments were classified as Level 2 within the fair value hierarchy. The Company used Level 3 inputs to measure the fair value of its Term Loan Agreement. Based on these measurements, the Company concluded that the carrying value of the Term Loan Agreement approximates its fair value at March 31, 2023.
4. Restricted Cash
The Company is required to maintain security deposits for its office lease agreements. At December 31, 2022, the Company had lease security deposits, invested in money market accounts, aggregating $
5. Supplemental Balance Sheet Information
Inventories
Inventories are stated at the lower of cost or net realizable value on a first-in, first-out basis and are comprised of the following (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work-in-process |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Total inventories, net |
|
$ |
|
|
$ |
|
||
15
Property and Equipment
Property and equipment consist of the following (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
Office and computer equipment |
|
$ |
|
|
$ |
|
||
Software |
|
|
|
|
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|
||
Laboratory equipment |
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|
|
|
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|
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Furniture |
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|
||
Manufacturing equipment |
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|
||
Manufacturing tooling and molds |
|
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|
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|
||
T2-owned instruments and components |
|
|
|
|
|
|
||
Leased T2-owned instruments |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
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|
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|
||
Construction in progress |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
$ |
|
|
$ |
|
||
Construction in progress is primarily comprised of equipment that has not been placed in service. T2-owned instruments and components is comprised of raw materials and work-in-process inventory that are expected to be used or used to produce T2-owned instrument and completed instruments that will be used for internal research and development, clinical studies and reagent rental agreement with customers. At March 31, 2023 and December 31, 2022, there were $
.
Accrued Expenses
Accrued expenses consist of the following (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
Accrued payroll and compensation |
|
$ |
|
|
$ |
|
||
Accrued clinical trial and development expenses |
|
|
|
|
|
|
||
Accrued professional services |
|
|
|
|
|
|
||
Accrued interest |
|
|
|
|
|
|
||
Other accrued expenses |
|
|
|
|
|
|
||
Total accrued expenses and other current liabilities |
|
$ |
|
|
$ |
|
||
Accrued professional services at December 31, 2022 includes a $
6. Notes Payable
Future principal payments on the notes payable are as follows (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
Term Loan Agreement including PIK interest, before unamortized discount and issuance costs |
|
$ |
|
|
$ |
|
||
Less: unaccrued paid-in-kind interest |
|
|
( |
) |
|
|
( |
) |
Less: unamortized discount and deferred issuance costs |
|
|
( |
) |
|
|
( |
) |
Total notes payable |
|
$ |
|
|
$ |
|
||
16
The Term Loan Agreement with CRG is classified as non-current at March 31, 2023 and at December 31, 2022, as the Company amended the agreement in November 2022, extended the interest only period and maturity to
The Term Loan Agreement includes a subjective acceleration clause whereby an event of default, including a material adverse change in the business, operations, or conditions (financial or otherwise), could result in the acceleration of the obligations under the Term Loan Agreement. Also, at CRG's discretion, a default interest rate of an additional
In January 2023, CRG waived certain specified events of default associated with the Company's issuance of shares of Series A convertible preferred stock in August 2022 and the subsequent redemption. There were no other covenant violations during the three-month period ended March 31, 2023.
Term Loan Agreement
In December 2016, the Company entered into a Term Loan Agreement with CRG and borrowed $
Interest on borrowings, as amended, accrue at
In connection with a 2019 amendment of the Term Loan Agreement, the Company issued to CRG warrants to purchase
The Company may prepay principal at any time partially or in full without prepayment penalty. Borrowings are collateralized by a lien on substantially all Company assets, including intellectual property. The Term Loan Agreement provides for affirmative and negative covenants including a requirement to maintain a minimum cash balance of $
Amendments
In 2019, the Term Loan Agreement was amended to reduce minimum revenue targets, extend the interest-only period, extend the principal repayment period and to increase the final payment fee from
In January 2021, the Term Loan Agreement was amended to extend the interest-only payment period until December 30, 2022, extend the initial principal repayment until December 30, 2022, and to reduce the minimum product revenue target for the twenty-four month period beginning on January 1, 2020. The Company did not pay or provide any consideration in exchange for this amendment. The Company accounted for the January 2021 amendment as a modification to the Term Loan Agreement. In June 2021, the Company satisfied the remaining revenue covenant.
In February 2022, the Term Loan Agreement was amended to extend the interest-only and the principal maturity dates to
17
for as a troubled debt restructuring. The future undiscounted cash outflows required under the amended agreement exceed the carrying value of the debt immediately prior to the amendment and the amendment did not result in a gain on restructuring.
In November 2022, CRG amended the Term Loan Agreement, extending the interest only period and principal maturity to
7. Warrants
Series A Warrant
On August 15, 2022, the Company issued an aggregate of
On February 17, 2023, the Company issued and sold shares of common stock, pre-funded warrants to purchase common stock and warrants to purchase common stock to an underwriter pursuant to an underwriting agreement (see discussion below). The terms of that offering triggered an adjustment to the exercise price of the Series A Warrant to $
The Company is required to measure the Series A Warrant at fair value at inception and in subsequent reporting periods with changes in fair value recognized in change in fair value of warrant liabilities in the period of change in the condensed consolidated statements of operations and comprehensive loss. The fair value of the liability related to the Series A Warrant at inception was $
Pre-Funded Warrants and Common Stock Warrants
On February 17, 2023, the Company sold
The total proceeds of $
The Pre-Funded Warrants have (i) an exercise price per share of Common Stock equal to $
18
The Company determined that the Pre-Funded Warrants are indexed to the Company’s own stock and meet the requirements for equity classification. Proceeds allocated to such warrants totaled $
The Common Stock Warrants have (i) an exercise price per share of common stock equal to $
The Company determined that the Common Stock Warrants are not indexed to the Company’s own stock and therefore are precluded from equity classification. In addition, the Common Stock Warrant liability meets the definition of a derivative instrument. The Common Stock Warrants will be measured at fair value at inception and in subsequent reporting periods with changes in fair value recognized in income as change in fair value of warrant liabilities in the period of change in the condensed consolidated statements of operations and comprehensive loss. The fair value of the Common Stock Warrant liability at inception was $
The Company has also issued certain warrants in conjunction with its Term Loan Agreement. (see Note 6).
8. Stockholders’ Deficit
Preferred Stock
We have authorized the issuance of up to
Common Stock
We have authorized the issuance of
Equity Distribution Agreement
The Company entered into a Sales Agreement with Canaccord Genuity (the “Sales Agreement”), through which the Company may sell up to $
19
9. Stock-Based Compensation
Stock Incentive Plans
2006 Stock Incentive Plan
The Company’s 2006 Stock Option Plan (“2006 Plan”) was established for granting stock incentive awards to directors, officers, employees and consultants of the Company. Upon closing of the Company’s IPO in August 2014, the Company ceased granting stock incentive awards under the 2006 Plan. The 2006 Plan provided for the grant of incentive and non-qualified stock options and restricted stock grants as determined by the Company’s board of directors. Under the 2006 Plan, stock options were generally granted with exercise prices equal to or greater than the fair value of the common stock as determined by the board of directors, expired no later than
2014 Stock Incentive Plan
The Company’s 2014 Incentive Award Plan (“2014 Plan”, and together with the 2006 Plan, the “Stock Incentive Plans”) provides for the issuance of shares of common stock in the form of stock options, awards of restricted stock, awards of restricted stock units, performance awards, dividend equivalent awards, stock payment awards and stock appreciation rights to directors, officers, employees and consultants of the Company. Since the establishment of the 2014 Plan, the Company has primarily granted stock options and restricted stock units. Generally, stock options are granted with exercise prices equal to or greater than the fair value of the common stock on the date of grant, expire no later than
The number of shares reserved for future issuance under the 2014 Plan is the sum of (1)
Inducement Award Plan
The Company’s Amended and Restated Inducement Award Plan (“Inducement Plan”), which was adopted in March 2018 without stockholder approval pursuant to Rule 5635(c)(4) of The Nasdaq Stock Market LLC listing rules (“Rule 5635(c)(4)”) and most recently amended and restated in December 2021, provides for the grant of equity awards to new employees, including options, restricted stock awards, restricted stock units, performance awards, dividend equivalent awards, stock payment awards and stock appreciation rights. In accordance with Rule 5635(c)(4), awards under the Inducement Plan may only be made to a newly hired employee who has not previously been a member of the Company's Board of Directors, or an employee who is being rehired following a bona fide period of non-employment by us as a material inducement to the employee’s entering into employment with us. The aggregate number of shares of common stock which may be issued or transferred pursuant to awards under the Inducement Plan is
Stock Options
The aggregate fair value of stock options granted during the three months ended March 31, 2023 was immaterial. During the three months ended March 31, 2022, the Company granted stock options with an aggregate fair value of $
20
The following is a summary of option activity under the Stock Incentive Plans and Inducement Plan (in thousands, except share and per share amounts):
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Number of |
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Weighted-Average |
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Weighted-Average |
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Aggregate Intrinsic |
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Outstanding at December 31, 2022 |
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$ |
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$ |
— |
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Granted |
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Exercised |
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— |
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— |
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— |
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— |
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Forfeited |
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( |
) |
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Cancelled |
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( |
) |
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Outstanding at March 31, 2023 |
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$ |
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$ |
— |
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Exercisable at March 31, 2023 |
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$ |
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$ |
— |
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Vested or expected to vest at March 31, 2023 |
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$ |
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$ |
— |
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Three Months Ended |
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March 31, |
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2023 |
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2022 |
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Weighted-average risk-free interest rate |
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% |
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% |
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Expected dividend yield |
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— |
% |
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— |
% |
Expected volatility |
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% |
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% |
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Expected terms |
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The total fair values of options that vested during the three months ended March 31, 2023 and 2022 were $
As of March 31, 2023, there was $
Restricted Stock Units
During the three months ended March 31, 2023, the Company awarded restricted stock units to certain employees and directors at no cost to them. The restricted stock units, excluding any restricted stock units with market conditions, vest through the passage of time, assuming continued service. Restricted stock units are not included in issued and outstanding common stock until the underlying shares are vested and released. The fair value of the restricted stock units, at the time of the grant, is expensed on a straight line basis. The granted restricted stock units had an aggregate fair value of $
The following is a summary of restricted stock unit activity under the 2014 Plan and Inducement Plan:
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Number of |
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Weighted-Average |
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||
Nonvested at December 31, 2022 |
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$ |
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Granted |
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Vested |
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( |
) |
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Forfeited |
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( |
) |
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Nonvested at March 31, 2023 |
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$ |
|
||
21
As of March 31, 2023, there was $
Employee Stock Purchase Plan
Under the 2014 Employee Stock Purchase Plan (the “2014 ESPP”) participants may purchase the Company’s common stock during semi-annual offering periods at
The 2014 ESPP, which was amended and restated effective August 6, 2020, provides for the issuance of up to
Stock-Based Compensation Expense
The following table summarizes the stock-based compensation expense resulting from awards granted under Stock Incentive Plans, the Inducement Plan and the 2014 ESPP, that was recorded in the Company’s results of operations for the periods presented (in thousands):
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Three Months Ended |
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2023 |
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2022 |
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Cost of product revenue |
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$ |
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$ |
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Research and development |
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Selling, general and administrative |
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Total stock-based compensation expense |
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$ |
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$ |
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||
For the three months ended March 31, 2023 and 2022, stock-based compensation expenses capitalized as part of inventory or T2Dx instruments and components were immaterial.
10. Net Loss Per Share
The Company applies the two-class method for computing earnings per share because its Series A Warrants, Pre-Funded Warrants and Common Stock Warrants are participating securities. Under the two-class method, net income for the period is allocated between common stockholders and holders of the participating securities according to dividends declared, if any, and participation rights in undistributed earnings. Because the Company incurred a net loss for the three months ended March 31, 2023, and the holders of the participating securities do not have the contractual obligation to share in the losses of the Company, none of the net loss attributable to common stockholders was allocated to the participating securities when computing earnings per share. The Company did not have any participating securities outstanding for the three-month period ended March 31, 2022.
The Pre-Funded Warrants allow the holders to acquire a specified number of common shares at a nominal exercise price of $
22
the underlying shares are considered outstanding at the issuance of the Pre-Funded Warrants for purposes of calculating the weighted-average number of shares of common stock outstanding in basic and diluted earnings per share.
The following shares were excluded from the calculation of diluted net loss per share applicable to common stockholders, prior to the application of the treasury stock or if-converted methods, because their effect would have been anti-dilutive for the periods presented:
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Three Months Ended |
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2023 |
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2022 |
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Options to purchase common shares |
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Restricted stock units |
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Term Loan Warrants |
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Series A Warrant |
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|
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|
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— |
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Common Stock warrants |
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— |
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Total |
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11. U.S. Government Contract
In September 2019, BARDA awarded the Company a milestone-based contract, with an initial value of $
In April 2021, BARDA agreed to accelerate product development by modifying the contract to advance future deliverables into the currently funded Option 1 of the BARDA contract for T2NxT, T2Biothreat, T2Resistance and T2AMR. The modification does not change the overall total potential value of the BARDA contract.
On March 31, 2022, the Company announced that BARDA had exercised Option 2B under the existing multiple-year cost-share contract between BARDA and the Company and is providing an additional $
The option exercise occurred simultaneously on March 31, 2022 with a modification to the BARDA contract to make immaterial changes to, among other things, the statement of work.
In September 2022, BARDA exercised Option 3 and agreed to provide an additional $
The Company recorded contribution revenue of $
The Company had
12. Leases
Operating Leases
The Company leases certain office space, laboratory space and manufacturing space. At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. The Company does
In August 2010, the Company entered into an operating lease for office and laboratory space at its headquarters in Lexington, Massachusetts. The lease commenced in January 2011, with the Company providing a security deposit of $
23
cash in the condensed consolidated balance sheets. In March 2017, the Company entered into an amendment to extend the term to . In October 2020, the Company entered into an amendment to extend the term to
In May 2013, the Company entered into an operating lease for additional office, laboratory and manufacturing space in Wilmington, Massachusetts. In August 2018, the Company entered into an amendment to extend the term to . In October 2020, the Company entered into an amendment to extend the term to
In November 2014, the Company entered into a lease for additional laboratory space in Lexington, Massachusetts. The lease term commenced in April 2015 and extended for
In September 2021, the Company entered into a lease for office, research, laboratory and manufacturing space in Billerica, Massachusetts. The lease has a term of
Operating leases are amortized over the lease term and included in costs and expenses in the condensed consolidated statement of operations and comprehensive loss. Variable lease costs are recognized in costs and expenses in the condensed consolidated statement of operations and comprehensive loss as incurred. Variable lease costs may include costs such as common area maintenance, utilities, real estate taxes or other costs. Expenses related to short-term leases were not material for periods presented.
13. Commitments and Contingencies
Contingencies
In September 2021, the Company entered into a lease for office, research, laboratory and manufacturing space in Billerica, Massachusetts. The lease has a term of
24
License Agreement
In 2006, the Company entered into a license agreement with a third party, pursuant to which the third party granted the Company an exclusive, worldwide, sublicensable license under certain patent rights to make, use, import and commercialize products and processes for diagnostic, industrial and research and development purposes. The Company agreed to pay an annual license fee ranging from $
Letter Agreements
On March 30, 2023, the Company entered into letter agreements with Mr. Sprague, Mr. Giffin, and Mr. Gibbs that provide for the payment of a retention bonus in the total aggregate amount of $
14. Subsequent Events
Waiver and Consent to Term Loan Agreement with CRG
On May 19, 2023, the Term Loan Agreement with CRG was amended to reduce the minimum cash covenant to $
25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry within the meaning of the Private Securities Litigation Reform Act of 1955, as amended. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including, without limitation, statements regarding our future results of operations and financial position, business strategy, prospective products and product candidates, their expected performance and impact on healthcare costs, marketing clearance from the FDA, reimbursement for our product candidates, research and development costs, timing of regulatory filings, timing and likelihood of success, plans and objectives of management for future operations, availability of raw materials and components for our products, availability of funding for such operations and future results of anticipated products, are forward-looking statements. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward looking statements are subject to numerous risks, including, without limitation, the following:
26
These forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q. Unless required by U.S. federal securities laws, we do not intend to update any of these forward-looking statements to reflect circumstances or events that occur after the statement is made or to conform these statements to actual results. The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q, and Part I, Item 1A and Part II, Item 7A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, as updated by Part II, Item 1A—“Risk Factors” in this Quarterly Report on Form 10-Q.
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022.
Business Overview
Overview
We are an in vitro diagnostics company and leader in the rapid detection of sepsis-causing pathogens and antibiotic resistance genes. We are dedicated to improving patient care and reducing the cost of care by helping clinicians effectively treat patients faster than ever before. We have developed innovative products that offer a rapid, sensitive and simple alternative to existing diagnostic methodologies. We are developing a broad set of applications aimed at improving patient outcomes, reducing the cost of healthcare, and lowering mortality rates by helping medical professionals make earlier targeted treatment decisions. Our technology enables rapid detection of pathogens, biomarkers and other abnormalities in a variety of unpurified patient sample types, including whole blood, plasma, serum, saliva, sputum and urine, and can detect cellular targets at limits of detection as low as one colony forming unit per milliliter, or CFU/mL. We are currently targeting a range of critically underserved healthcare conditions, focusing initially on those for which a rapid diagnosis will serve an important dual role – saving lives and reducing costs. Our current development efforts primarily target sepsis and Lyme disease, which represent areas of significant unmet medical need in which existing therapies could be more effective with improved diagnostics.
Our primary commercial products include the T2Dx® Instrument, the T2Candida® Panel, the T2Bacteria® Panel, the T2Resistance® Panel, and the T2SARS-CoV-2™ Panel.
We have never been profitable and have incurred net losses in each year since inception. Our accumulated deficit at March 31, 2023 was $552.2 million and we have experienced cash outflows from operating activities over the past years. Substantially all of our net losses resulted from costs incurred in connection with our research and development programs and from selling, general and administrative costs associated with our operations. We have incurred significant commercialization expenses related to product sales, marketing, manufacturing and distribution of our FDA-cleared products, the T2Dx Instrument, T2Candida Panel and T2Bacteria Panel. In addition, we will continue to incur significant costs and expenses as we continue to develop other product candidates, improve existing products and maintain, expand and protect our intellectual property portfolio. We may seek to fund our operations through public equity or private equity or debt financings, as well as other sources. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements if and when needed would have a negative impact on our business, results of operations and financial condition and our ability to develop, commercialize and drive adoption of the T2Dx Instrument, T2Candida, T2Bacteria, T2Resistance, T2SARS-CoV-2 and future products.
We are subject to a number of risks similar to other early commercial stage life science companies, including, but not limited to commercially launching our products, development and market acceptance of our product candidates, development by our competitors of new technological innovations, protection of proprietary technology, and raising additional capital.
The COVID-19 pandemic has impacted and may continue to impact the Company's operations as the pandemic shifts to an endemic health threat. Customers have significantly reduced their purchases of the Company's COVID-19 tests and we have forecasted no COVID-19 test sales in 2023.
27
We believe that our cash, cash equivalents, and restricted cash of $10.7 million at March 31, 2023 will not be sufficient to fund our current operating plan through the second quarter of 2023. Certain elements of our operating plan cannot be considered probable, and in order to support our business we initiated a process to explore a range of strategic alternatives focused on maximizing value.
As part of our strategic restructuring program, to preserve capital and be in a better position to explore all strategic alternatives while continuing to support our customers and advance pipeline development, we initiated a reduction in force of nearly 30% of the Company’s workforce on May 19, 2023. Additionally, we are focused on pursuing alternative strategic options, including an acquisition, merger, reverse merger, other business combination, sale of assets or licensing. We are also exploring additional equity financing and converting our outstanding indebtedness into equity. Failure to secure any of these strategic options prior to the third quarter of 2023 will significantly impair our ability to continue operating our business and we may be forced to cease operations, commence bankruptcy cases, or otherwise wind down our business.
The Term Loan Agreement with CRG Servicing LLC (“CRG”), as administrative agent and collateral agent (Note 6) has a minimum liquidity covenant which requires us to maintain a minimum cash balance of $5.0 million. In February 2022, CRG, the lenders party thereto and we amended the Term Loan Agreement, extending the interest only period and maturity to December 30, 2023. In November 2022, CRG amended the Term Loan Agreement, extending the interest only period and maturity to December 30, 2024. On May 15, 2023, we notified CRG that we were not in compliance with the minimum liquidity covenant as of May 12, 2023 and on May 19, 2023, we, the lenders party thereto and CRG entered into a waiver and consent with respect to the Term Loan Agreement, reducing the minimum liquidity covenant to $500,000 until December 31, 2023.
The Nasdaq has $1.00 minimum bid price and $35 million minimum market value rules. Since 2021 we have violated, appealed to Nasdaq and cured its violation of these rules several times.
On November 22, 2022, we received notice from the Nasdaq indicating that we were in violation of the $35 million minimum market value rule. We have until May 22, 2023, to regain compliance which includes a closing market value of $35 million or more for a minimum of ten consecutive business days. If compliance in not achieved by May 22, 2023, we believe the Nasdaq will notify us that our securities are subject to delisting. In the event we receive such a delisting notice, we intend to apply for an extension to the compliance period or appeal to a Nasdaq Hearings Panel.
On March 30, 2023, we received a letter from the Nasdaq indicating that, for the last thirty consecutive business days, the bid price for our 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). Under Nasdaq rules, we have 180 calendar days (September 26, 2023) to regain compliance by increasing the stock price to over $1.00. Absent significant appreciation in our stock price, we plan to submit an appeal to receive a 180-day extension to regain compliance, and we believe that the receipt of an extension is probable, given the current market dynamics and hundreds of companies in similar situations. To earn the extension, we will likely be required to provide a plan that could include certain commitments including a potential reverse stock split.
These conditions raise substantial doubt regarding our ability to continue as a going concern for a period of one year after the date that the financial statements are issued. Management's plans to alleviate the conditions that raise substantial doubt include raising additional funding, earning payments pursuant to our contract with BARDA, delaying certain research projects and capital expenditures and eliminating certain future operating expenses in order to fund operations at reduced levels for us to continue as a going concern for a period of 12 months from the date the financial statements are issued. Management has concluded the likelihood that its plan to successfully obtain sufficient funding from one or more of these sources or adequately reduce expenditures, while reasonably possible, is less than probable. Accordingly, we have concluded that substantial doubt exists about our ability to continue as a going concern for a period of at least 12 months from the date of issuance of these condensed consolidated financial statements. Even if we are able to complete the actions described in this paragraph or otherwise generate incremental liquidity, we may be forced to sell material assets or seek additional capital or be required to commence proceedings under Chapter 11 of the U.S. Bankruptcy Code. See Part II, Item 1A—“Risk Factors” in this Quarterly Report on Form 10-Q
Product History
In September 2014, we received marketing authorization from the United States Food and Drug Administration, or FDA, for our first two products, the T2Dx Instrument and the T2Candida Panel, or T2Candida, which have the ability to rapidly identify the five most clinically relevant species of Candida, a fungal pathogen known to cause sepsis, directly from whole blood specimens. The T2Dx Instrument and T2Candida Panel were CE marked in the European Union, or EU, in July 2014.
In May 2018, we received market clearance from the FDA for the T2Bacteria® Panel, or T2Bacteria, which runs on the T2Dx Instrument and has the ability to rapidly identify five of the most common and deadly sepsis-causing bacteria directly from whole blood specimens. The T2Bacteria Panel was CE marked in the EU in June 2017.
28
In February 2019, our T2Resistance®Panel, or T2Resistance, was granted FDA Breakthrough Device designation and in November 2019, it was CE marked in the EU. In December 2021, we initiated a U.S. clinical trial for the T2Resistance Panel.
In September 2019, the Biomedical Advanced Research and Development Authority, or BARDA, awarded us a milestone-based contract, with an initial value of $6 million, and a potential value of up to $62 million, for the development of a next-generation diagnostic instrument, a comprehensive sepsis panel, and a multi-target biothreat panel. In September 2020, BARDA exercised the first contract option valued at $10.5 million. In April 2021, BARDA agreed to modify the contract to accelerate product development by advancing future deliverables, and adding a U.S. T2Resistance Panel into Option 1 of the BARDA contract. In September 2021, BARDA exercised Option 2A valued at approximately $6.4 million to further advance the new product development initiatives. In March 2022, BARDA exercised Option 2B valued at approximately $4.4 million. In December 2021, we initiated the U.S. clinical trials for the T2Resistance and T2Biothreat Panels. In May 2022, BARDA exercised Option 3 valued at approximately $3.7 million to complete the U.S. clinical trials for the T2Resistance®Panel and T2Biothreat Panel and subsequently submit applications to the FDA for U.S. regulatory clearance for those product candidates. In December 2022 the T2Biothreat clinical evaluation was completed.
In June 2020, we launched the T2SARS-CoV-2 Panel, our COVID-19 molecular diagnostic test, after validation of the test pursuant to the FDA’s policy permitting COVID-19 tests to be marketed prior to receipt of an Emergency Use Authorization, or EUA, subject to certain prerequisites. In August 2020, the FDA granted an EUA to the T2SARS-CoV-2 Panel for the qualitative direct detection of nucleic acid from SARS-CoV-2 in upper respiratory specimens (such as nasal, mid-turbinate, nasopharyngeal, and oropharyngeal swab specimens) and bronchoalveolar lavage specimens from individuals suspected of COVID-19 by their healthcare provider. We expect to continue to experience a decline in COVID-19 product sales tied to our T2SARS-CoV-2 Panel, and the focus of our go-to-market strategy continues to be increasing sales of our sepsis test panels, expanding the installed base of our T2Dx Instruments, and solidifying commercial plans for our T2Lyme Panel.
On May 8, 2023, we filed an FDA 510(k) submission for the T2Biothreat™ Panel, a product that we developed in collaboration with the U.S. Department of Health and Human Services, Administration for Strategic Preparedness and Response, Biomedical Advanced Research and Development Authority (BARDA). The T2Biothreat Panel is a fully-automated, direct-from-blood test designed to run on the FDA-cleared T2Dx® Instrument and simultaneously detects six biothreat pathogens identified as threats by the U.S. Centers for Disease Control and Prevention, or CDC, including the organisms that cause anthrax, tularemia glanders, plague and typhus.
On May 19, 2023, we filed an application for Breakthrough Device Designation with the FDA for the T2Cauris Panel. The T2Cauris Panel is a fully-automated, direct-from-blood test designed to run on the FDA-cleared T2Dx®Instrument designed to rapidly detect the Candida auris pathogen. Candida auris is an emerging multidrug-resistant yeast causing invasive health care-associated infection with high mortality worldwide which the Director of the CDC has called a “catastrophic threat."
Financial Overview
Revenue
We generate revenue from the sale of our products, related services, reagent rental agreements and government contributions.
Grants received, including cost reimbursement agreements, are assessed to determine if the agreement should be accounted for as an exchange transaction or a contribution. An agreement is accounted for as a contribution if the resource provider does not receive commensurate value in return for the assets transferred.
Product revenue is generated by the sale of instruments and consumable diagnostic tests predominantly through our direct sales force in the United States and distributors in geographic regions outside the United States. We generally do not offer product returns or exchange rights (other than those relating to defective goods under warranty) or price protection allowances to our customers, including our distributors. Payment terms granted to distributors are the same as those granted to end-user customers and payments are not dependent upon the distributors’ receipt of payment from their end-user customers. We either sell instruments to customers and international distributors, or retain title and place the instrument at the customer site pursuant to a reagent rental agreement. When the instrument is placed under a reagent rental agreement, our customers generally agree to fixed term agreements, which can be extended, and incremental charges on each consumable diagnostic test purchased. Shipping and handling costs are billed to customers in connection with a product sale.
Fees paid to member-owned group purchasing organizations (“GPOs”) are deducted from related product revenues.
Direct sales of instruments include warranty, maintenance and technical support services typically for one year following the installation of the purchased instrument (“Maintenance Services”). Maintenance Services are separate performance obligations as they
29
are service based warranties and are recognized on a straight-line basis over the service delivery period. After the completion of the initial Maintenance Services period, customers have the option to renew or extend the Maintenance Services typically for additional one-year periods in exchange for additional consideration. The extended Maintenance Services are also service based warranties that represent separate purchasing decisions.
We warrant that consumable diagnostic tests will be free from defects, when handled according to product specifications, for the stated life of the product. To fulfill valid warranty claims, we provide replacement product free of charge.
Our current sales strategy is to drive adoption of our test platform installed base in hospitals, to increase test use by our existing hospital customers, and to convert T2SARS-CoV-2 customers to sepsis testing. Accordingly, we expect the following to occur:
We have a significant development contract with BARDA and should BARDA reduce, cancel or not grant additional milestone projects, our ability to continue certain future product development programs may be impacted.
Cost of Product Revenue
Cost of product revenue includes the cost of materials, direct labor and manufacturing overhead costs used in the manufacture of our consumable diagnostic tests sold to customers and related license and royalty fees. Cost of product revenue also includes depreciation on the revenue-generating T2Dx instruments that have been placed with our customers under reagent rental agreements; costs of materials, direct labor and manufacturing overhead costs on the T2Dx instruments sold to customers; and other costs such as customer support costs, warranty and repair and maintenance expense on the T2Dx instruments that have been placed with our customers under reagent rental agreements. We manufacture the T2Dx instruments and part of our consumable diagnostic tests in our facilities. We outsource the manufacturing of components of our consumable diagnostic tests to contract manufacturers. We expect cost of product revenue to decrease as a percentage of revenue as a result of the cost of product revenue improvement initiatives.
Research and development expenses
Our research and development expenses consist primarily of costs incurred for the development of our technology and product candidates, technology improvements and enhancements, clinical trials to evaluate the clinical utility of our product candidates, and laboratory development and expansion, and include salaries and benefits, including stock-based compensation, research related facility and overhead costs, laboratory supplies, equipment, depreciation on T2Dx instruments used in research and development activities and contract services. Research and development expenses also include costs of delivering products or services associated with contribution revenue. We expense all research and development costs as incurred.
We anticipate our overall research and development expenses to remain consistent. We expect to continue developing additional product candidates, improving existing products, and conducting ongoing and new clinical trials. We have a significant development contract with BARDA and should BARDA reduce, cancel or not grant additional milestone projects, our ability to continue our future product development may be impacted.
Selling, general and administrative expenses
Selling, general and administrative expenses consist primarily of costs for our sales, marketing, service, medical affairs, finance, legal, human resources, information technology, and general management functions, as well as professional services, such as legal, consulting and accounting services. Other selling, general and administrative expenses include commercial support activity, facility-related costs, fees and expenses associated with obtaining and maintaining patents, clinical and economic studies and publications, marketing expenses, and travel expenses. We expense the majority of selling, general and administrative expenses as incurred. We expect selling, general and administrative expenses to decrease as a percentage of revenue in future periods.
30
Interest income
Interest income consists of interest earned on our cash and cash equivalents.
Interest expense
Interest expense consists primarily of interest expense on our notes payable, the amortization of deferred financing costs and debt discount.
Change in fair value of derivative related to Term Loan
The change in fair value of derivative related to Term Loan consists of the change in fair value of the derivative associated with the CRG Term Loan Agreement.
Change in fair value of warrant liabilities
The change in fair value of warrant liabilities consists of the changes in fair value of the Common Stock Warrants, Pre-Funded Warrants and Series A Warrant.
Other income
Other income consists of dividend and other investment income.
Other expense
Other expense consists of non-recurring expenses, including issuance costs allocated to the Common Stock Warrants.
Other losses
Other losses consists of non-recurring losses, including the loss on disposal of property and equipment.
Critical Accounting Policies and Use of Estimates
We have prepared our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States. Our preparation of these condensed consolidated financial statements requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, expenses, and related disclosures at the date of the condensed consolidated financial statements, as well as revenue and expenses recorded during those periods. We evaluated our estimates and judgments on an ongoing basis. We based our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions.
The items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022 remained materially consistent. For a description of those critical accounting policies, please refer to our Annual Report on Form 10-K filing for the year ended December 31, 2022.
31
Results of Operations for the Three Months Ended March 31, 2023 and 2022
|
|
Three Months Ended |
|
|
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|||
|
|
(in thousands) |
|
|||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|||
Product revenue |
|
$ |
1,655 |
|
|
$ |
3,844 |
|
|
$ |
(2,189 |
) |
Contribution revenue |
|
|
423 |
|
|
|
3,390 |
|
|
|
(2,967 |
) |
Total revenue |
|
|
2,078 |
|
|
|
7,234 |
|
|
|
(5,156 |
) |
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|||
Cost of product revenue |
|
|
3,995 |
|
|
|
6,205 |
|
|
|
(2,210 |
) |
Research and development |
|
|
4,471 |
|
|
|
6,656 |
|
|
|
(2,185 |
) |
Selling, general and administrative |
|
|
7,299 |
|
|
|
9,230 |
|
|
|
(1,931 |
) |
Total costs and expenses |
|
|
15,765 |
|
|
|
22,091 |
|
|
|
(6,326 |
) |
Loss from operations |
|
|
(13,687 |
) |
|
|
(14,857 |
) |
|
|
1,170 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|||
Interest income |
|
|
2 |
|
|
|
3 |
|
|
|
(1 |
) |
Interest expense |
|
|
(1,522 |
) |
|
|
(1,650 |
) |
|
|
128 |
|
Change in fair value of derivative related to Term Loan |
|
|
(770 |
) |
|
|
— |
|
|
|
(770 |
) |
Change in fair value of warrant liabilities |
|
|
(1,304 |
) |
|
|
— |
|
|
|
(1,304 |
) |
Other income |
|
|
— |
|
|
|
11 |
|
|
|
(11 |
) |
Other expense |
|
|
(682 |
) |
|
|
— |
|
|
|
(682 |
) |
Other gains (losses) |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
— |
|
Total other expense |
|
|
(4,278 |
) |
|
|
(1,638 |
) |
|
|
(2,640 |
) |
Net loss |
|
$ |
(17,965 |
) |
|
$ |
(16,495 |
) |
|
$ |
(1,470 |
) |
Product revenue
Product revenue was $1.7 million for the three months ended March 31, 2023 compared to $3.8 million for the three months ended March 31, 2022, a decrease of $2.2 million, which was driven by lower consumables sales of $1.8 million mostly due to a decrease in sales of T2SARS-CoV-2, lower T2Dx sales of $0.3 million and lower revenue under our service agreements of $0.1 million.
Contribution revenue
Contribution revenue relates to our BARDA agreement and was $0.4 million for the three months ended March 31, 2023, compared to $3.4 million for the three months ended March 31, 2022. The decrease of $3.0 million was due to timing of the contract activity and less option amount available under Option 3, which was available for the first quarter of 2023, compared to Option 2A, which was available for the first quarter of 2022.
Cost of product revenue
Cost of product revenue was $4.0 million for the three months ended March 31, 2023, compared to $6.2 million for the three months ended March 31, 2022, a decrease of $2.2 million. The decrease was driven by $0.7 million of decreased costs primarily related to lower consumable sales of T2SARS-CoV-2, $0.5 million of costs related to lower instrument sales, $0.4 million of lower service and repair costs, $0.4 million of lower shipping and other costs, $0.1 million of lower royalties, and $0.1 million of lower costs due to the effect of a change in build plan and manufacturing inefficiencies.
Research and development expenses
Research and development expenses were $4.5 million for the three months ended March 31, 2023 compared to $6.7 million for the three months ended March 31, 2022, a decrease of $2.2 million. Lab and facility expenses decreased by $1.4 million primarily due to the timing of BARDA Option 3 compared to Option 2A and the purchase of less lab supplies due to lower employee headcount, consulting expenses decreased by $0.7 million for BARDA, and payroll related and stock based compensation expenses decreased by $0.4 million due to lower employee headcount. These decreases were partially offset by a $0.2 million increase in material costs and a $0.1 million increase of clinical-related expenses primarily for our T2Resistance Panel 510(k) Study partially offset by T2Biothreat Panel.
32
Selling, general and administrative expenses
Selling, general and administrative expenses were $7.3 million for the three months ended March 31, 2023, compared to $9.2 million for the three months ended March 31, 2022, a decrease of $1.9 million. The decrease was driven by lower payroll related expenses of $1.3 million and lower stock based compensation expenses of $0.5 million primarily due to lower employee headcount and lower other expenses of $0.2 million primarily due to less IT support services and less facilities costs, partially offset by a $0.1 million increase in consulting expenses due to increased legal expenses.
Interest income
Interest income was immaterial for the three months ended March 31, 2023 and 2022.
Interest expense
Interest expense was $1.5 million for the three months ended March 31, 2023, compared to $1.7 million for the three months ended March 31, 2022. Interest expense decreased by $0.2 million primarily due to the February 2022 and November 2022 amendments to the CRG Term Loan Agreement which extended the interest only period and maturity date.
Change in fair value of derivative related to Term Loan
The change in fair value of the derivative instrument associated with the CRG Term Loan Agreement (See Note 6 of the notes to our condensed consolidated financial statements) was $0.8 million of expense for the three months ended March 31, 2023. There was no change in fair value of the derivative instrument for the three months ended March 31, 2022.
Change in fair value of warrant liabilities
The change in fair value of the warrant liabilities consists of a $1.3 million reduction of expense primarily associated with the Common Stock Warrants and Pre-Funded Warrants (See Note 7 of the notes to our condensed consolidated financial statements) for the three months ended March 31, 2023. There was no change in fair value of warrant liabilities recorded during the three months ended March 31, 2022.
Other income
Other income was not recorded for the three months ended March 31, 2023 and was immaterial for the three months ended March 31, 2022.
Other expense
Other expense relates to the issuance costs allocated to the Common Stock Warrants and was $0.7 million for the three months ended March 31, 2023. Other expense was not recorded for the three months ended March 31, 2022.
Other losses
Other losses were immaterial for the three months ended March 31, 2023 and 2022.
Liquidity and Capital Resources
We have incurred losses and cumulative negative cash flows from operations since our inception, and as of March 31, 2023 and December 31, 2022, we had an accumulated deficit of $552.2 million and $534.2 million, respectively. We have incurred significant commercialization expenses related to product sales, marketing, manufacturing and distribution. We may seek to continue to fund our operations through public equity or private equity or debt financings, as well as other sources. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements if and when needed would have a negative impact on our business, results of operations and financial condition.
33
Historically, the Company has primarily funded its operations through public equity and private debt financings. The Company believes its cash position is insufficient to fund future operations through the second quarter of 2023 and in order to support our business, we initiated a process to explore a range of alternatives focusing on maximizing value.
Equity Distribution Agreement
On March 31, 2021, we entered into a Sales Agreement (“Sales Agreement”) with Canaccord Genuity LLC, as agent ("Canaccord"), pursuant to which we may offer and sell shares of common stock, for aggregate gross sale proceeds of up to $75.0 million from time to time from the effective date of the respective registration statement through Canaccord. We sold 653,122 shares of common stock for net proceeds of $0.9 million during the three months ended March 31, 2023. We sold 70,987 shares under the Sales Agreement for net proceeds of $1.4 million after expenses during the three months ended March 31, 2022.
We pay Canaccord for its services of acting as agent 3% of the gross proceeds from the sale of the shares pursuant to the Sales Agreement. Legal and accounting fees are reclassified to share capital upon issuance of shares under the Sales Agreement.
Plan of operations and future funding requirements
As of March 31, 2023 and December 31, 2022, we had unrestricted cash and cash equivalents of approximately $10.1 million and $10.3 million, respectively. Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, costs related to our products, clinical trials, laboratory and related supplies, supplies and materials used in manufacturing, legal and other regulatory expenses and general overhead costs.
Until such time as we can generate substantial product revenue, we expect to finance our cash needs, beyond what is currently available or on hand, through a combination of equity offerings, debt financings and revenue from existing and potential research and development and other collaboration agreements. If we raise additional funds in the future, we may need to relinquish valuable rights to our technologies, future revenue streams or grant licenses on terms that may not be favorable to us.
The COVID-19 pandemic has impacted and may continue to impact the Company’s operations as the pandemic shifts to an endemic health threat. Customers have begun to reduce their purchases of the Company’s COVID test products and the Company believes this trend will continue.
Going Concern
We believe that our cash, cash equivalents, and restricted cash of $10.7 million at March 31, 2023 will not be sufficient to fund our current operating plan through the second quarter of 2023. Certain elements of our operating plan cannot be considered probable, and in order to support our business we initiated a process to explore a range of strategic alternatives focused on maximizing value.
As part of our strategic restructuring program, to preserve capital and be in a better position to explore all strategic alternatives while continuing to support our customers and advance pipeline development, we initiated a reduction in force of nearly 30% of the Company’s workforce on May 19, 2023. Additionally, we are focused on pursuing alternative strategic options, including an acquisition, merger, reverse merger, other business combination, sale of assets or licensing. We are also exploring additional equity financing and converting our outstanding indebtedness into equity. Failure to secure any of these strategic options prior to the third quarter of 2023 will significantly impair our ability to continue operating our business and we may be forced to cease operations, commence bankruptcy cases, or otherwise wind down our business.
The Term Loan Agreement with CRG Servicing LLC, as administrative agent and collateral agent (“CRG”) (Note 6) has a minimum liquidity covenant which requires us to maintain a minimum cash balance of $5.0 million. In February 2022, CRG, the lenders party thereto and we amended the Term Loan Agreement, extending the interest only period and maturity to December 30, 2023. In November 2022, CRG amended the Term Loan Agreement, extending the interest only period and maturity to December 30, 2024. On May 15, 2023, we notified CRG that we were not in compliance with the minimum liquidity covenant as of May 12, 2023 and on May 19, 2023, we, the lenders party thereto and CRG entered into a waiver and consent with respect to the Term Loan Agreement, reducing the minimum liquidity covenant to $500,000 until December 31, 2023.
The Nasdaq has $1.00 minimum bid price and $35 million minimum market value rules. Since 2021 the Company has violated, appealed to Nasdaq and cured its violation of these rules several times.
On November 22, 2022, we received notice from the Nasdaq indicating that we were in violation of the $35 million minimum market value rule. We have until May 22, 2023, to regain compliance which includes a closing market value of $35 million or more for a minimum of ten consecutive business days. If compliance in not achieved by May 22, 2023, we believe the Nasdaq will notify us that its securities are subject to delisting. In the event we receive such a delisting notice, we intend to apply for an extension to the compliance period or appeal to a Nasdaq Hearings Panel.
34
On March 30, 2023, we received a letter from the Nasdaq indicating that, for the last thirty consecutive business days, the bid price for our 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). Under Nasdaq rules, we have 180 calendar days (September 26, 2023) to regain compliance by increasing the stock price to over $1.00. Absent significant appreciation in our stock price, we plan to submit an appeal to receive a 180-day extension to regain compliance, and we believe that the receipt of an extension is probable, given the current market dynamics and hundreds of companies in similar situations. To earn the extension, we will likely be required to provide a plan that could include certain commitments including a potential reverse stock split.
These conditions raise substantial doubt regarding our ability to continue as a going concern for a period of one year after the date that the financial statements are issued. Management's plans to alleviate the conditions that raise substantial doubt include raising additional funding, earning payments pursuant to our contract with BARDA, delaying certain research projects and capital expenditures and eliminating certain future operating expenses in order to fund operations at reduced levels for us to continue as a going concern for a period of 12 months from the date the financial statements are issued. Management has concluded the likelihood that its plan to successfully obtain sufficient funding from one or more of these sources or adequately reduce expenditures, while reasonably possible, is less than probable. Accordingly, we have concluded that substantial doubt exists about our ability to continue as a going concern for a period of at least 12 months from the date of issuance of these condensed consolidated financial statements. Even if we are able to complete the actions described in this paragraph or otherwise generate incremental liquidity, we may be forced to sell material assets or seek additional capital or be required to commence proceedings under Chapter 11 of the U.S. Bankruptcy Code. See Part II, Item 1A—“Risk Factors” in this Quarterly Report on Form 10-Q
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.
Cash flows
The following is a summary of cash flows for each of the periods set forth below:
|
|
Three Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(in thousands) |
|
|||||
Net cash (used in) provided by: |
|
|
|
|
|
|
||
Operating activities |
|
$ |
(12,940 |
) |
|
$ |
(14,441 |
) |
Investing activities |
|
|
(120 |
) |
|
|
(29 |
) |
Financing activities |
|
|
11,848 |
|
|
|
1,202 |
|
Net change in cash, cash equivalents and restricted cash |
|
$ |
(1,212 |
) |
|
$ |
(13,268 |
) |
Net cash used in operating activities
Net cash used in operating activities was approximately $12.9 million for the three months ended March 31, 2023 and consisted of a net loss of $18.0 million adjusted for non-cash items including stock-based compensation expense of $1.8 million, a change in fair value of the derivative related to Term Loan of $0.8 million, non-cash interest expense of $0.5 million, non-cash lease expense of $0.3 million, depreciation and amortization expense of $0.3 million, a change in fair value of warrant liabilities of $1.3 million, issuance costs related to Common Stock Warrants of $0.7 million, and a net change in operating assets and liabilities of $0.7 million. The net change in operating assets and liabilities was primarily driven by a decrease in accrued expenses of $2.2 million primarily due to the payout of 2022 bonuses, a decrease in accounts receivable of $0.8 million due to payment from BARDA and the timing and volume of instrument and consumable sales, a decrease in operating lease liabilities of $0.3 million, a decrease in prepaid expenses and other assets of $0.1 million due to expensing of the $0.1 million rent deposit for the Billerica lease, partially offset by an increase in accounts payable of $1.8 million due to timing of invoices and payments and an increase in inventory of $0.9 million due to market increases for securing raw materials and bulk materials purchases.
Net cash used in operating activities was approximately $14.5 million for the three months ended March 31, 2022, and consisted of a net loss of $16.5 million adjusted for non-cash items including stock-based compensation expense of $2.6 million, non-cash interest expense of $0.5 million, non-cash lease expense of $0.3 million, and depreciation and amortization expense of $0.3 million. The net change in operating assets and liabilities was primarily driven by a decrease in accounts receivable of $0.8 million, an increase in prepaid expenses and other assets of $1.5 million due to timing of payments, an increase in inventory of $1.5 million due to bulk materials purchases for favorable pricing, an increase in accounts payable of $0.6 million due to increased spend on inventory and lab supplies, an increase in accrued expenses of $0.5 million due to increased employee costs, a decrease in deferred revenue of $0.2 million, and a decrease in operating lease liabilities of $0.3 million.
35
Net cash provided by investing activities
Net cash provided by investing activities was $0.1 million for the three months ended March 31, 2023, and consisted of equipment purchases.
Net cash used in investing activities was immaterial for the three months ended March 31, 2022.
Net cash provided by financing activities
Net cash provided by financing activities was approximately $11.8 million for the three months ended March 31, 2023, and consisted primarily of proceeds from public offering, net of issuance costs, of $10.9 million and proceeds from sales of our common stock under the New Sales Agreement, net of issuance costs, of $0.9 million.
Net cash provided by financing activities was approximately $1.2 million for the three months ended March 31, 2022, and consisted primarily of proceeds from sales of our common stock under the Sales Agreement, net of issuance costs, of $1.4 million, offset by payment of employee restricted stock tax withholdings of $0.2 million.
Borrowing Arrangements
Term Loan Agreement
In December 2016, we entered into a Term Loan Agreement with CRG. We borrowed $40.0 million pursuant to the Term Loan Agreement, which has a six-year term with three years (through December 30, 2019) of interest-only payments, which period was extended to four years (through December 30, 2020) upon achieving the Approval Milestone, after which quarterly principal and interest payments would be due through the December 30, 2022 maturity date. In February 2022, we amended our agreement with CRG to extend the maturity date from December 30, 2022 to December 30, 2023. In November 2022, CRG amended the Term Loan Agreement, extending the interest only period and maturity to December 30, 2024. Interest on the amounts borrowed under the Term Loan Agreement accrues at an annual fixed rate of (a) prior to the Approval Milestone, 12.50%, 4.0% of which may be deferred during the interest-only period by adding such amount to the aggregate principal loan amount and (b) following the Approval Milestone, 11.50%, 3.5% of which may be deferred during the interest-only period by adding such amount to the aggregate principal loan amount. In addition, if we achieve certain financial performance metrics, the loan will convert to interest-only until the December 30, 2024 maturity, at which time all unpaid principal and accrued unpaid interest will be due and payable. We are required to pay CRG a financing fee based on the loan principal amount drawn. We are also required to pay a final payment fee of 8%, subsequently amended to 10%, of the principal outstanding upon repayment. We are accruing the final payment fee as interest expense and it is included as a non-current liability at March 31, 2023 and December 31, 2022 on the balance sheet to conform to the classification of the associated debt in those periods.
The Term Loan Agreement with CRG is classified as a non-current liability at December 31, 2022 as the Company amended the agreement in November 2022, which extended the maturity date to December 30, 2024 and obtained a waiver for default in January 2023. The Term Loan Agreement with CRG is classified as a non-current liability at December 31, 2021 as the Company amended the agreement in February 2022, which extended the maturity date to December 30, 2023. We have assessed the classification of the note payable as non-current based on facts and circumstances as of the date of this filing. Management continues to reassess at each balance sheet and filing date based on facts and circumstances and can provide no assurances regarding the probability of meeting its minimum liquidity covenant in future periods.
We may prepay all or a portion of the outstanding principal and accrued unpaid interest under the Term Loan Agreement at any time upon prior notice subject to a certain prepayment fee during the first five years of the term and no prepayment fee thereafter. As security for our obligations under the Term Loan Agreement, we entered into a security agreement with CRG whereby we granted a lien on substantially all of its assets, including intellectual property. The Term Loan Agreement also contains customary affirmative and negative covenants for a credit facility of this size and type, including a requirement to maintain a minimum cash balance of $5.0 million.
In 2019, the Term Loan Agreement was amended to reduce minimum revenue targets, extend the interest-only period and extend the principal repayment. The final payment fee was increased from 8% to 10% of the principal amount outstanding upon repayment. We issued to CRG warrants to purchase 11,365 shares of the Company’s common stock (“New Warrants”) (See Note 6 of the notes to our condensed consolidated financial statements) at an exercise price of $77.50, with typical provisions for termination upon a change of control or a sale of all or substantially all of our assets. We also reduced the exercise price for the warrants previously issued to CRG to purchase an aggregate of 10,579 shares of our common stock to $77.50. All of the New Warrants are exercisable any time prior to September 9, 2029, and all of the previously issued warrants are exercisable any time prior to December 30, 2026.
In January 2021, the Term Loan Agreement was amended to extend the interest-only payment period through December 30, 2022, to extend the initial principal repayment to December 30, 2022, and to significantly reduce the revenue covenant for the 24-month period beginning on January 1, 2020. We did not pay or provide any consideration in exchange for this amendment. We accounted for the
36
January 2021 amendment as a modification to the Term Loan Agreement. In June 2021, the Company satisfied the only remaining revenue covenant which was for the 24-month period beginning on January 1, 2020.
In February 2022, the Term Loan Agreement was amended to extend the interest-only payment period through December 30, 2023, and to extend the initial principal repayment to December 30, 2023. In November 2022, CRG amended the Term Loan, extending the interest only period and maturity to December 30, 2024. On May 19, 2023, we, the lenders party thereto and CRG entered into a waiver and consent with respect to the Term Loan Agreement, reducing the minimum liquidity covenant to $500,000 until December 31, 2023.
We did not pay or provide any consideration in exchange for these amendments. As the effective borrowing rate under the amended agreements was less than the effective borrowing rate under the previous agreement, a concession was deemed to have been granted under ASC 470-60. As a concession was granted, the agreements were accounted for as troubled debt restructurings under ASC 470-60. The amendments did not result in a gain on restructuring as the future undiscounted cash outflows required under the amended agreements exceed the carrying value of the debt immediately prior to the amendment.
The Term Loan Agreement includes a subjective acceleration clause whereby an event of default, including a material adverse change in the business, operations, or conditions (financial or otherwise), could result in the acceleration of the obligations under the Term Loan Agreement. Under certain circumstances, a default interest rate of an additional 4.0% per annum will apply at the election of CRG on all outstanding obligations during the occurrence and continuance of an event of default. CRG has not exercised its right under this clause.
We assessed the terms and features of the Term Loan Agreement, including the interest-only period dependent on the achievement of the Approval Milestone and the acceleration of the obligations under the Term Loan Agreement under an event of default, of the Term Loan Agreement in order to identify any potential embedded features that would require bifurcation. In addition, under certain circumstances, a default interest rate of an additional 4.0% per annum will apply at the election of CRG on all outstanding obligations during the occurrence and continuance of an event of default, we concluded that the features of the Term Loan Agreement are not clearly and closely related to the host instrument, and represent a single compound derivative that is required to be re-measured at fair value on a quarterly basis.
The fair value of the derivative at March 31, 2023 is $1.9 million and is classified as a non-current liability on the balance sheet at March 31, 2023 to match the classification of the related Term Loan Agreement. The fair value of the derivative at December 31, 2022 is $1.1 million and is classified as a non-current liability on the balance sheet at December 31, 2022 to match the classification of the related Term Loan Agreement.
Contractual Obligations and Commitments
There were no other material changes to our contractual obligations and commitments from those described under Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Annual Report on Form 10-K for the year ended December 31, 2022.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a smaller reporting company, we are not required to provide this information.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Management, with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of March 31, 2023. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported on a timely basis and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure.
Based on the evaluation of our disclosure controls and procedures as March 31, 2023, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, the Company’s disclosure controls and procedures were not effective due to a material weakness in our internal control over the timeliness of assumptions and accounting conclusions reached in valuing the common stock warrants sold in the Company’s February 17, 2023 public offering.
Management determined that assumptions and valuation methodologies used to initially value and classify the warrants sold in the Company’s February 17, 2023, public offering were inconsistent with the recent generally accepted accounting principles and the time required to refine the assumptions and methodologies and reach appropriate accounting and disclosure conclusions prevented the
37
Company from filing its Form 10-Q timely and required an extension. During future reporting periods the Company will establish enhanced evaluation considerations including the timely use of 3rd party experts to prevent future occurrences
(b) Changes in Internal Control over Financial Reporting
Except as noted above, there have been no changes to the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
38
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
On September 8, 2021, the Company entered into a 10-year lease agreement (the “Lease”) with Farley White Concord Road, LLC (the “Landlord”), pursuant to which the Company leased approximately 70,125 square feet for its occupancy and use as office, laboratory and commercial manufacturing space at 290 Concord Road, Billerica, Massachusetts (the “Premises").
On January 17, 2023, the Landlord sent a Notice of Termination (the “Notice”) of the Lease to the Company. The Notice provides that the Landlord terminated the Lease because of the Company’s alleged failure to perform its obligations under the Lease in a timely manner and the Company’s alleged breach of the covenant of good faith and fair dealing. In connection with the Notice, on January 18, 2023, the Landlord filed a complaint in the Massachusetts Superior Court and has unilaterally deducted the Company’s $1,000,000 security deposit for its alleged damages. In addition, the Landlord is seeking damages for unpaid rent, brokerage fees, transaction costs, attorney's fees and court costs.
On March 1, 2023, the Company filed a response to the Landlord’s complaint and a counterclaim alleging that the Landlord breached its obligations under the contract and unlawfully drew on the security deposit, in addition to breaching its covenants of good faith and fair dealing, making fraudulent misrepresentations, and engaging in deceptive and unfair trade practices.
We believe the Landlord's claims are without merit and we intend to vigorously contest the claim.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. Other than as set forth below, there have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.
Our management has performed an analysis of our ability to continue as a going concern and has identified substantial doubt about our ability to continue as a going concern.
As of March 31, 2023, we had $10.1 million in unrestricted cash and cash equivalents which, without additional funding, will not be sufficient to meet our obligations within the next twelve months from the date of issuance of this Quarterly Report. Based on their assessment, our management has raised concerns about our ability to continue as a going concern. As substantial doubt about our ability to continue as a going concern exists, our ability to finance our operations through equity financings or otherwise could be impaired. Our ability to fund working capital, make capital expenditures, and service our debt depends on our ability to generate cash from operating activities, which is subject to its future operating success, and obtain financing on reasonable terms, which is subject to factors beyond our control, including general economic, political, and financial market conditions. The capital markets have in the past experienced, are currently experiencing, and may in the future experience, periods of upheaval that could impact the availability and cost of financing and there can be no assurances that such financing will be available to the Company on satisfactory terms, or at all. Additionally, on March 31, 2023, the date we filed our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, we became subject to the offering limits in General Instruction I.B.6 of Form S-3. We therefore limited to only offering and selling shares of common stock with an aggregate offering price of up to one-third of our public float (as calculated pursuant to General Instruction I.B.6) pursuant to our Sales Agreement with Canaccord. The proceeds of any sales pursuant to the Sales Agreement would therefore be insufficient to meet our financial obligations for the next twelve months from the date of issuance of this Quarterly Report without additional financing or other strategic alternatives. Management continues to explore raising additional capital through equity financing to supplement the Company’s capitalization and liquidity, but there can be no assurance that such financing will be available on terms commercially acceptable to the Company, or at all. If we are unsuccessful in our operations to restructure and secure new financing, or if such incremental financing is not sufficient to fund our operations for the foreseeable future, we may be forced to sell material assets or need to commence proceedings under Chapter 11 of the U.S. Bankruptcy Code, which would harm our business, financial condition, and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
39
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
On May 19, 2023, T2 Biosystems, Inc. (the “Company”) entered into a waiver and consent (the “Waiver”) to that certain Term Loan Agreement, dated as of December 30, 2016, by and among the Company, CRG Servicing LLC, as administrative agent and collateral agent (in such capacities, the “Administrative Agent”) and the lenders named therein (as amended from time to time to date, the “Loan Agreement”). Pursuant to the Waiver, the Administrative Agent and the lenders party to the Waiver, which constitute the Majority Lenders (as required by the Loan Agreement), waive certain Specified Events of Default as defined therein associated with the Company’s failure to maintain minimum Liquidity as defined therein of $5 million. The Company did not receive a notice of default under the Loan Agreement from the Administrative Agent in connection with these Specified Events of Default and there was no acceleration of the financial obligations thereunder. The parties to the Loan Agreement further agreed that the minimum Liquidity requirement shall be reduced to $500,000 until December 31, 2023.
40
Item 6. Exhibits, Financial Statement Schedules
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3.1 |
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3.2 |
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3.3 |
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3.4 |
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4.1 |
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4.2 |
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4.3 |
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4.4 |
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4.5 |
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4.6 |
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10.1*† |
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10.2* |
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Waiver and Consent to Term Loan Agreement with CRG Servicing LLC, dated May 19, 2023 |
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31.1* |
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31.2* |
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32.1** |
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32.2** |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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101.SCH* |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL* |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF* |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB* |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE* |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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Exhibit Number |
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Exhibit Description |
104* |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith
** Furnished herewith
† Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 406 under the Securities Act of 1933, or the Securities Act.
42
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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T2 BIOSYSTEMS, INC. |
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Date: May 22, 2023 |
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By: |
/s/ JOHN SPERZEL |
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John Sperzel |
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President, Chief Executive Officer and Chairman of the Board |
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(principal executive officer) |
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Date: May 22, 2023 |
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By: |
/s/ JOHN M. SPRAGUE |
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John M. Sprague |
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Chief Financial Officer |
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(principal financial and accounting officer) |
43
Exhibit 10.1
[****] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT |
1. CONTRACT ID CODE |
PAGE OF PAGES |
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1 |
6 |
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2. AMENDMENT/MODIFICATION NO. P00013 |
3. EFFECTIVE DATE See Block 16C |
4. REQUISITION/PURCHASE REQ. NO. |
5. PROJECT NO. (If applicable) |
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6. ISSUED BY |
CODE |
ASPR-BARDA |
7. ADMINISTERED BY (If other than Item 6) |
CODE |
ASPR-BARDA |
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ASPR-BARDA 200 Independence Ave., S.W. Room 640-G Washington DC 20201 |
ASPR-BARDA US DEPT OF HEALTH & HUMAN SERVICES BIOMEDICAL ADVANCED RESEACH & DEVELOPMENT AUT 200 Independence Ave., S.W. Washington DC 20201 |
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8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code) |
(x) |
9A. AMENDMENT OF SOLICITATION NO. |
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T2 BIOSYSTEMS, INC. 1512719 |
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Attn: MICHAEL GIBBS |
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9B. DATED (SEE ITEM 11) |
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T2 BIOSYSTEMS, INC. |
101 HARTWE |
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101 HARTWELL AVE |
x |
10A. MODIFICATION OF CONTRACT/ORDER NO. 75A50119C00053 |
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LEXINGTON MA 02421 |
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10B. DATED (SEE ITEM 13) 09/30/2019 |
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CODE |
1512719 |
FACILITY CODE |
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11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS |
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☐ |
The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers |
☐ is extended, |
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☐ |
is not extended. |
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Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended , by one of the following methods: (a) By completing Items 8 and 15, and returning copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted ; or (c) By separate letter or electronic communication which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you desire to change an offer already submitted , such change may be made by letter or electronic communication, provided each letter or electronic communication makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified. |
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12. ACCOUNTING AND APPROPRIATION DATA (If required) See Schedule |
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13. THIS ITEM ONLY APPLIES TO MODIFICATION OF CONTRACTS/ORDERS. IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14. |
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CHECK ONE |
A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A. |
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B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation data, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b). |
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X |
C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: FAR Part 43.103(a) - Bilateral Modification |
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D. OTHER (Specify type of modification and authority) |
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E. IMPORTANT: |
Contractor |
☐ |
is not |
☒ |
is required to sign this document and return 1 copies to the issuing office. |
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14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.) |
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Tax ID Number: |
20-4827488 |
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DUNS Number: |
803126320 |
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UEI: QVYNQM9WLJG3 |
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The purpose of this no-cost modification is to revise section B.4 Estimated Cost - Cost Sharing. |
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1). The total contract value for the base period was $8,854,249.00, of which T2 Biosystems, Inc. cost share was $2,875,256.00 (32%) and BARDA's cost share was $5,978,993.00 (68%). |
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2). The total contract value for the option periods T2 Biosystems, Inc. cost share was $33,528,784.00 (37%) and BARDA's cost share was $56,045,580.00 (63%), and Continued ... |
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Except as provided herein, all terms and conditions of the document referenced in Item 9 A or 10A, as heretofore changed, remains unchanged and in full force and effect . |
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15A. NAME AND TITLE OF SIGNER (Type or print) Roger Smith SVP Science R&D |
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print) RICHARD A. HALL |
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15B. CONTRACTOR/OFFEROR |
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15C. DATE SIGNED |
16B. UNITED STATES OF AMERICA |
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16C. DATE SIGNED |
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/s/ Roger Smith |
Digitally signed by Roger Smith |
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/s/ Richard Hall |
Digitally signed |
by Richard A. Hall -S 1 |
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Date: 2023.04.28 10:56:27 -04'00' |
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Date: 2023.05.0 |
08:58:04 -04'00' |
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(Signature of person authorized to sign) |
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(Signature of Contracting Officer) |
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Previous edition unusable |
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STANDARD FORM 30 (REV. 11/2016) |
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Prescribed by GSA FAR (48 CFR) 53.243 |
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[****] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.
CONTINUATION SHEET |
REFERENCE NO. OF DOCUMENT BEING CONTINUED 75A50119C00053/P00013 |
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PAGE OF |
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2 |
6 |
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NAME OF OFFEROR OR CONTRACTOR T2 BIOSYSTEMS, INC. 1512719 |
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ITEM NO. (A) |
SUPPLIES/SERVICES (B) |
QUANTITY (C) |
UNIT (D) |
UNIT PRICE (E) |
AMOUNT (F) |
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3).The total value of this contract (Base plus Options) is $[****], of which T2 Biosystems, Inc. cost share is $[****] (37%), and BARDA's cost share is $[****] (63%). See Block 14 Continuation Sheet. OTA: N Period of Performance: 04/01/2022 to 03/31/2025 |
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NSN 7540-01-152-8067 |
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OPTIONAL FORM 336 (4-86) Sponsored by GSA FAR (48 CFR) 53.110 |
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Contract No. 75A50119C00053 Modification No. P00013 |
Continuation Sheet Block 14 |
Page 3 of 6 |
**Yellow Highlights denotes applicable changes
Beginning with the effective date of this modification, the Government and the Contractor mutually agree as follows:
SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS,
ARTICLE B.3 OPTION PERIODS - the table included in this Article is hereby modified to reflect the following:
B.3. COST REIMBURSEMENT OPTIONS
Contract No. 75A50119C00053 Modification No. P00013 |
Continuation Sheet Block 14 |
Page 4 of 6 |
Option |
CLIN |
Period of Performance |
Supplies/Services |
BARDA Estimated Not to Exceed |
T2 Estimated Not to Exceed |
Overall Total Estimated Not to Exceed |
1 |
0002 |
09/14/2020 -10/15/2021 |
Option 1 Period: Optimize the T2 Biothreat Panel to meet requirements on the T2Dx device. Design, build, and optimize T2Nxt subsystems, and integrate those subsystems into a working device. Optimize the T2AMR Panel to detect targets |
$10,495,783 |
$3,925,669 |
$14,421,452 |
2A |
0003 |
09/30/2021-03/31/2022 |
Option 2A Continue T2Biothreat verification testing and initiate validation testing. Produce a functioning Beta instrument. Complete initial optimization studies and demonstrate required sensitivity with a manual process. Initiate T2Resistance Panel verification and clinical validation studies |
$6,357,371 |
$2,087,418 |
$8,444,789 |
2B |
0004 |
04/01/2022-09/30/2022 |
Option 2B Continue T2Biothreat verification testing and initiate validation testing. Produce a functioning Beta instrument. Complete initial optimization studies and demonstrate required sensitivity with a manual process. |
$4,389,160 |
$2,960,502 |
$7,349,662 |
3 |
0005 |
09/30/2022 -08/31/2023
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Option 3 Period: Complete validation testing of the T2Biothreat panel on the T2Dx instrument under BSL-3 and prepare and submit a 510(k) application to the FDA for the T2Biothreat panel for use on the T2Dx instrument. The contractor will also complete verification and validation testing and prepare and submit a 510(k) application to the FDA for the T2Resistance Panel for use on the T2Dx instrument. In AIM 1, the contractor will complete contrived sample verification studies of the T2Biothreat panel, prepare a 510(k) application and submit to FDA for clearance. In AIM 6, the contractor will complete verification and validation testing of the T2Resistance panel and prepare a 510(k) application and submit to FDA for clearance. |
$3,690,810 |
$6,999,220 |
$10,690,030 |
[***] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.
Contract No. 75A50119C00053 Modification No. P00013 |
Continuation Sheet Block 14 |
Page 5 of 6 |
4 |
0006 |
[****]-[****] |
Option 4 Period: [****] |
$[****] |
$[****] |
$[****] |
5 |
0007 |
[****]-[****] |
Option 5 Period: [****] |
$[****] |
$[****] |
$[****] |
6 |
0008 |
[****]-[****] |
Option 6 Period: [****] |
$[****] |
$[****] |
$[****] |
[***] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.
Contract No. 75A50119C00053 Modification No. P00013 |
Continuation Sheet Block 14 |
Page 6 of 6 |
Optional Services |
0009 |
TBD-TBD as Exercised |
Option 7 Period: [****] |
$[****] |
$[****] |
$[****] |
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TOTALS |
Only option years |
$[****] |
$[****] |
$[****] |
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TOTALS |
Base+ options |
$[****] |
$[****] |
$[****] |
B.4 ESTIMATED COST - COST SHARING
[****]
End of Modification P00013
[***] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.
Exhibit 10.2
WAIVER AND CONSENT
THIS WAIVER AND CONSENT, dated as of May 19, 2023 (this “Waiver”), is made among T2 BIOSYSTEMS, INC., a Delaware corporation (“Borrower”), CRG SERVICING LLC, as administrative agent and collateral agent (in such capacities, “Administrative Agent”) and the lenders listed on the signature pages hereof under the heading “LENDERS” (each, a “Lender” and, collectively, the “Lenders”), with respect to the Loan Agreement described below.
RECITALS
WHEREAS, Borrower, Administrative Agent and the Lenders are parties to the Term Loan Agreement, dated as of December 30, 2016, with the Subsidiary Guarantors from time to time party thereto (as amended by Amendment No. 1 to Term Loan Agreement, dated as of March 1, 2017, as further amended by Amendment No. 2 to Term Loan Agreement, dated as of December 18, 2017, as further amended by Amendment No. 3 to Term Loan Agreement, dated as of March 16, 2018, as further amended by Amendment No. 4 to Term Loan Agreement, dated as of March 13, 2019, as further amended by Amendment No. 5 to Term Loan Agreement, dated as of September 10, 2019, as further amended by Amendment No. 6, dated as of January 25, 2021, as further amended by Amendment No. 7, dated as of February 15, 2022, as further amended by Amendment No. 8, dated as of November 10, 2022, and as further amended by that certain Waiver, dated as of January 23, 2023, in each case, by and among Borrower, Administrative Agent and the lenders party thereto, and as further amended, supplemented or modified to date, the “Loan Agreement”);
WHEREAS, Borrower has requested that Administrative Agent and the Lenders (which Lenders constitute the Majority Lenders pursuant to Section 13.04 of the Loan Agreement) consent to the reduction of the minimum Liquidity amount required by Section 10.01 of the Loan Agreement from the date hereof through December 31, 2023 and waive certain provisions of the Loan Agreement, and Administrative Agent and such Lenders have agreed to consent to such reduction during such period and waive certain provisions of the Loan Agreement, in each case on the terms and conditions set forth in Section 2 hereof.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties agree as follows:
286071065 v1
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286071065 v1
3
286071065 v1
4
286071065 v1
[Remainder of page intentionally left blank]
5
286071065 v1
Exhibit 10.2
IN WITNESS WHEREOF, the parties hereto have duly executed this Waiver, as of the date first above written.
BORROWER:
T2 BIOSYSTEMS, INC.
By _/s/ John Sperzel_______________________
Name: John Sperzel
Title: CEO
[Signature Page to Waiver and Consent]
286071065 v1
ADMINISTRATIVE AGENT:
CRG SERVICING LLC
By: __/s/ Nathan Hukill_______________
Name: Nathan Hukill
Title: Authorized Signatory
LENDERS:
CRG PARTNERS III L.P.
By CRG PARTNERS III GP L.P., its General Partner
By CRG PARTNERS III GP LLC, its General Partner
By __/s/ Nathan Hukill_______________
Name: Nathan Hukill
Title: Authorized Signatory
CRG PARTNERS III – PARALLEL FUND “A” L.P.
By CRG PARTNERS III – PARALLEL FUND “A” GP L.P., its General Partner
By CRG PARTNERS III – PARALLEL FUND “A” GP LLC, its General Partner
By __/s/ Nathan Hukill_______________
Name: Nathan Hukill
Title: Authorized Signatory
CRG PARTNERS III (CAYMAN) UNLEV AIV I L.P.
By CRG PARTNERS III (CAYMAN) GP L.P., its General Partner
By CRG PARTNERS III (CAYMAN) GP LLC, its General Partner
By __/s/ Nathan Hukill_______________
Name: Nathan Hukill
Title: Authorized Signatory
[Signature Page to Waiver and Consent]
286071065 v1
Witness: ________________________________
Name: ________________________________
[Signature Page to Waiver and Consent]
286071065 v1
CRG PARTNERS III (CAYMAN) LEV AIV I L.P.
By CRG PARTNERS III (CAYMAN) GP L.P., its General Partner
By CRG PARTNERS III (CAYMAN) GP LLC, its General Partner
By __/s/ Nathan Hukill_______________
Name: Nathan Hukill
Title: Authorized Signatory
Witness: ________________________________
Name: ________________________________
CRG PARTNERS III PARALLEL FUND “B” (CAYMAN) L.P.
By CRG PARTNERS III (CAYMAN) GP L.P., its General Partner
By CRG PARTNERS III (CAYMAN) GP LLC, its General Partner
By __/s/ Nathan Hukill_______________
Name: Nathan Hukill
Title: Authorized Signatory
Witness: ________________________________
Name: ________________________________
[Signature Page to Waiver and Consent]
286071065 v1
Exhibit 31.1
CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John Sperzel, certify that:
/s/ John Sperzel |
John Sperzel |
President, Chief Executive Officer and Chairman of the Board of Directors |
(principal executive officer) |
Date: May 22, 2023
Exhibit 31.2
CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John M. Sprague, certify that:
/s/ John M. Sprague |
John M. Sprague |
Chief Financial Officer |
(principal accounting and financial officer) |
Date: May 22, 2023
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of T2 Biosystems, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John Sperzel, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ John Sperzel |
John Sperzel |
President and Chief Executive Officer (principal executive officer) |
Date: May 22, 2023
This certification accompanies each Report pursuant to §906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by §906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of T2 Biosystems, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John M. Sprague, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ John M. Sprague |
John M. Sprague |
Chief Financial Officer (principal accounting officer and financial officer) |
Date: May 22, 2023
This certification accompanies each Report pursuant to §906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by §906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.