This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. 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 and 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 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 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. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. 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:
• our ability to continue as a going concern; • our ability to regain compliance with Nasdaq listing requirements; • our status as an early commercial-stage company; • our expectation to incur losses in the future; • the market acceptance of our technology; • our ability to timely and successfully develop and commercialize our existing products and future product candidates; • the length and variability of our anticipated sales and adoption cycle; • our relatively limited sales history; • our ability to gain the support of leading hospitals and key thought leaders and publish the results of our clinical trials in peer-reviewed journals; • our ability to successfully manage our growth; • our future capital needs and our ability to raise additional funds; 23
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• the performance of our diagnostics; • our ability to compete in the highly competitive diagnostics market; • our ability to obtain marketing clearance from theU.S. Food and Drug Administration or regulatory clearance for new product candidates in other jurisdictions; • federal, state, and foreign regulatory requirements, including diagnostic product reimbursements and FDA regulation of our products and product candidates; • our ability to protect and enforce our intellectual property rights, including our trade secret-protected proprietary rights in our technology; • our ability to recruit, train and retain key personnel; • our dependence on third parties; • manufacturing and other product risks, including unforeseen interruptions in supply chain; • the impact of cybersecurity risks, including ransomware, phishing, and data breaches on our information technology systems; • the impact of short sellers and day traders on our share price; • the impact of the COVID-19 pandemic on our business, results of operations and financial positions; • the continued market demand for SARS-CoV-2 testing and our ability to convert T2SARS-CoV-2 customers to our other test panels.
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
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
Business 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, which is an area 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
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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,
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 our operations. We
have established protocols for continued manufacturing, distribution and
servicing of our products with safe social distancing and personal protective
equipment measures and for remote work for employees not essential to on-site
operations. To date these measures have been mostly successful but may not
continue to function should the pandemic escalate and further impact our
personnel. In 2020, our hospital customers restricted our sales team's access to
their facilities and as a result, we had significantly reduced our commercial
and general and administrative staffing levels at the beginning of the COVID-19
pandemic to reduce expenses. We have since hired sales, marketing, and medical
and clinical affairs personnel. Although we did not see any material impact to
accounts receivable during the three and six month period ended
We believe that our cash, cash equivalents, and restricted cash of
The Term Loan Agreement with
In
On
The option exercise occurred simultaneously on
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Our stock has been trading under$1.00 sinceSeptember 27, 2021 . OnNovember 5, 2021 , we received a letter fromThe Nasdaq Stock Market LLC ("Nasdaq") indicating that we were not in compliance with the requirement of Nasdaq Listing Rule 5450(a)(1) for continued listing on the Nasdaq Global Market as a result of the closing bid price of our common stock being below$1.00 per share (the "Bid Price Rule") for thirty consecutive business days. Under the Nasdaq rules, we had 180 days (or untilMay 4, 2022 ) to regain compliance by maintaining a minimum closing bid price of$1.00 per share of our common stock for at least ten consecutive trading days during such compliance period. OnMay 5, 2022 , we received a letter from Nasdaq informing us that our shares of common stock have failed to comply with the Bid Price Rule for continued listing and, as a result, our shares are subject to delisting. The letter further stated that we may appeal the Nasdaq Staff delisting determination to a Nasdaq listing qualifications hearings panel (the "Panel"). We filed an appeal and hearing request to the Nasdaq Staff's determination to stay the delisting of our shares of common stock from Nasdaq pending the Panel's decision. The Nasdaq Staff informed us that the delisting action had been stayed, pending a final written decision by the Panel, and the hearing date had been set forJune 2, 2022 . OnJune 9, 2022 , we received a letter from the Nasdaq notifying us that the Nasdaq had granted our request to be transferred to The Nasdaq Capital Market, effective at the open of trading onJune 13, 2022 , and our request for an exception to the Bid Price Rule untilNovember 1, 2022 . If we do not regain compliance during the extension, the Nasdaq will provide written notification to the us that our common stock will be delisted. At that time, we may appeal the relevant delisting determination.
On
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.
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Product revenue is generated by the sale of instruments and consumable
diagnostic tests predominantly through our direct sales force in
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 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 expand T2SARS-CoV-2 customers to sepsis testing. Accordingly, we expect the following to occur:
• recurring revenue from our consumable diagnostic tests will increase; and • become a more predictable and significant component of total revenue; and • we will gain manufacturing economies of scale through the growth in our sales, resulting in improving gross margins and operating margins.
We believe the COVID-19 pandemic hindered our
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 remain consistent or increase in support of increased activity under the BARDA agreement. We expect to continue developing additional product candidates, improving existing products, and
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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 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. We expect selling, general and administrative expenses to decrease as a percentage of revenue in future periods.
Interest income
Interest income consists of interest earned on our cash and cash equivalents.
Change in fair value of derivative instrument
The change in fair value of the derivative consists of the change in fair value of the derivative associated with the CRG Term Loan Agreement.
Interest expense
Interest expense consists primarily of interest expense on our notes payable and the amortization of deferred financing costs and debt discount.
Other income, net
Other income, net, consists of dividend and other investment income.
Critical Accounting Policies and Use of Estimates
We have prepared our condensed consolidated financial statements in accordance
with accounting principles generally accepted in
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
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Results of Operations for the Three Months Ended
Three Months Ended June 30, 2022 2021 Change (in thousands) Revenue: Product revenue$ 2,559 $ 3,678 $ (1,119 ) Contribution revenue 3,352 3,016 336 Total revenue 5,911 6,694 (783 ) Costs and expenses: Cost of product revenue 5,081 4,831 250 Research and development 8,025 5,399 2,626 Selling, general and administrative 7,824 7,244 580 Total costs and expenses 20,930 17,474 3,456 Loss from operations (15,019 ) (10,780 ) (4,239 ) Other income (expense): Interest income 2 6 (4 ) Change in fair value of derivative instrument (1,675 ) 181 (1,856 ) Interest expense (1,346 ) (1,881 ) 535 Other income, net 4 (1 ) 5 Total other expense (3,015 ) (1,695 ) (1,320 ) Net loss$ (18,034 ) $ (12,475 ) $ (5,559 ) Product revenue
Product revenue was
Contribution revenue
Contribution revenue relates to our BARDA agreement and was
Cost of product revenue
Cost of product revenue was
Research and development expenses
Research and development expenses were
Selling, general and administrative expenses
Selling, general and administrative expenses were
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payroll expenses due to higher average headcount partially offset by lower stock
based compensation expenses of
Interest income
Interest income was immaterial for the three months ended
Change in fair value of derivative instrument
The change in fair value of the derivative instrument was
Interest expense
Interest expense was
Other income, net
Other income, net, was immaterial for the three months ended
Results of Operations for the Six Months Ended
Six Months Ended June 30, 2022 2021 Change (in thousands) Revenue: Product revenue$ 6,403 $ 8,328 $ (1,925 ) Contribution revenue 6,742 5,322 1,420 Total revenue 13,145 13,650 (505 ) Costs and expenses: Cost of product revenue 11,286 10,621 665 Research and development 14,681 10,064 4,617 Selling, general and administrative 17,054 13,447 3,607 Total costs and expenses 43,021 34,132 8,889 Loss from operations (29,876 ) (20,482 ) (9,394 ) Other income (expense): Interest income 5 12 (7 ) Change in fair value of derivative instrument (1,675 ) 1,010 (2,685 ) Interest expense (2,996 ) (3,723 ) 727 Other income, net 13 48 (35 ) Total other expense (4,653 ) (2,653 ) (2,000 ) Net loss$ (34,529 ) $ (23,135 ) $ (11,394 ) Product revenue
Product revenue was
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Contribution revenue
Contribution revenue relates to our BARDA agreement and was
Cost of product revenue
Cost of product revenue was
Research and development expenses
Research and development expenses were
Selling, general and administrative expenses
Selling, general and administrative expenses were
Interest income
Interest income was immaterial for the six months ended
Change in fair value of derivative instrument
The change in fair value of the derivative instrument was
Interest expense
Interest expense was
Other income, net
Other income, net, was immaterial for the six months ended
Liquidity and Capital Resources
We have incurred losses and cumulative negative cash flows from operations since
our inception, and as of
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from the FDA and a CE mark in
Historically, we have funded our operations primarily through our
In
Equity Distribution Agreement
On
We agreed to pay Canaccord for its services of acting as agent 3% of the gross proceeds from the sale of the shares pursuant to the New Sales Agreement. Legal and accounting fees are reclassified to share capital upon issuance of shares under the New Sales Agreements.
Plan of operations and future funding requirements
As of
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 our operations. We
have established protocols for continued manufacturing, distribution and
servicing of our products with safe social distancing and personal protective
equipment measures and for remote work for employees not essential to on-site
operations. To date these measures have been mostly successful but may not
continue to function should the pandemic escalate and further impact our
personnel. In 2020, our hospital customers restricted our sales team's access to
their facilities and as a result, we had significantly reduced our commercial
and general and administrative staffing levels at the beginning of the COVID-19
pandemic to reduce expenses. We have since hired sales and marketing personnel.
Although we did not see any material impact to accounts receivable during the
six months ended
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Going Concern
We believe that our cash, cash equivalents, and restricted cash of
The Term Loan Agreement with
Our stock has been trading under$1.00 sinceSeptember 27, 2021 . OnNovember 5, 2021 , we received a letter fromThe Nasdaq Stock Market LLC ("Nasdaq") indicating that we were not in compliance with the requirement of Nasdaq Listing Rule 5450(a)(1) for continued listing on the Nasdaq Global Market as a result of the closing bid price of our common stock being below$1.00 per share (the "Bid Price Rule") for thirty consecutive business days. Under the Nasdaq rules, we had 180 days (or untilMay 4, 2022 ) to regain compliance by maintaining a minimum closing bid price of$1.00 per share of our common stock for at least ten consecutive trading days during such compliance period. OnMay 5, 2022 , we received a letter from Nasdaq informing us that our shares of common stock have failed to comply with the Bid Price Rule for continued listing and, as a result, our shares are subject to delisting. The letter further stated that we may appeal the Nasdaq Staff delisting determination to a Nasdaq listing qualifications hearings panel (the "Panel"). We filed an appeal and hearing request to the Nasdaq Staff's determination to stay the delisting of our shares of common stock from Nasdaq pending the Panel's decision. The Nasdaq Staff informed us that the delisting action had been stayed, pending a final written decision by the Panel, and the hearing date had been set forJune 2, 2022 . OnJune 9, 2022 , we received a letter from the Nasdaq notifying us that the Nasdaq had granted our request to be transferred to The Nasdaq Capital Market, effective at the open of trading onJune 13, 2022 , and our request for an exception to the Bid Price Rule untilNovember 1, 2022 . If we do not regain compliance during the extension, the Nasdaq will provide written notification to the us that our common stock will be delisted. At that time, we may appeal the relevant delisting determination.
On
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 unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q 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 financial statements.
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.
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Cash flows
The following is a summary of cash flows for each of the periods set forth below: Six Months Ended June 30, 2022 2021 (in thousands) Net cash provided by (used in): Operating activities$ (24,397 ) $ (19,305 ) Investing activities 9,821 14,948 Financing activities 5,123 20,272
Net change in cash, cash equivalents and restricted cash
Net cash used in operating activities
Net cash used in operating activities was approximately
Net cash used in operating activities was approximately
Net cash provided by investing activities
Net cash provided by investing activities was
Net cash provided by investing activities was approximately
Net cash provided by financing activities
Net cash provided by financing activities was approximately
Net cash provided by financing activities was approximately
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Borrowing Arrangements Term Loan Agreement
In
The Term Loan Agreement with CRG is classified as non-current at
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
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 568,291 shares of the
Company's common stock ("New Warrants") (Note 9) at an exercise price of
In
In
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.
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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.
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
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