TALIS BIOMEDICAL CORPORATION The following discussion and analysis of our financial condition and results of operations should be read together with our condensed financial statements and related notes elsewhere in this Quarterly Report and our audited financial statements and the related notes and the discussion under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 filed with theSEC onMarch 30, 2021 (Annual Report). Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk Factors" section of this Quarterly Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read the "Risk Factors" section of this Quarterly Report to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled "Special Note Regarding Forward-Looking Statements." Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide material information relevant to an assessment of our financial condition and results of operations, including an evaluation of the amounts and certainty of cash flows from operations and from outside sources. This section is designed to focus on material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be necessarily indicative of future operating results or of future financial condition. This includes descriptions and amounts of matters that have had a material impact on reported operations, as well as matters that are reasonably likely based on management's assessment to have a material impact on future operations.
Overview
Our primary focus is to advance health equity and outcomes through the delivery of accurate infectious disease testing in the moment of need, at the point of care. We plan to develop and commercialize innovative products on our sample-to-answer Talis One system to enable accurate, low cost and rapid molecular testing. We are developing the Talis One system which leverages expertise across chemistry, biology, engineering and software to create a fully integrated, cloud-enabled and portable molecular diagnostic solution that customers can rapidly deploy when and where needed. The Talis One system incorporates core proprietary technologies into a compact, easy-to-use instrument, that utilizes single use test cartridges and software, including a central cloud database, which are designed to work together to provide levels of testing accuracy equivalent to a central laboratory. We intend to commercialize the Talis One system as an integrated solution comprising single use consumables, an instrument and software. Our commercial strategy will focus on building and expanding an installed base of Talis One systems to generate revenue from the purchase of such products. Our first commercial test is a rapid point-of-care molecular diagnostic to detect SARS-CoV-2 directly from a patient sample in less than 30 minutes (COVID-19 test). We are also developing assays for the detection of other respiratory infections that could be included as a panel test with our COVID-19 test as well as tests for infections related to women's health and sexually transmitted infections. Our products will require marketing authorization from the FDA prior to commercialization. OnNovember 5, 2021 , we received an Emergency Use Authorization (EUA) from theU.S. Food and Drug Administration (FDA) for the emergency use of the Talis One system for our COVID-19 test, which we refer to as the Talis One COVID-19 Test System. Due to the COVID-19 global pandemic, we obtained marketing authorization for our COVID-19 test under an EUA rather than initially pursuing 510(k) clearance or other forms of marketing authorization under theFDA's standard medical device authorities. We have invested in automated cartridge manufacturing lines capable of producing one million Talis One cartridges per month. The first of such lines was delivered in the first quarter of 2021, and we expect will scale to meet demand through 2021. These manufacturing lines are located at our contract manufacturers' sites and are operated by our contract manufacturing partners. We have also ordered 5,000 Talis One instruments from our instrument contract manufacturer. Since our inception in 2013, we have devoted substantially all our efforts to research and development activities, manufacturing capabilities, raising capital, building our intellectual property portfolio and providing general and administrative support for these operations. We have principally financed our operations through the issuance and sale of shares of our convertible preferred stock to outside investors in private equity financings as well as the issuance of convertible promissory notes and receipts from government grants. Prior to our initial public offering we received$351.5 million from investors in our preferred stock financings and the sale of convertible promissory notes that converted in such financings. Additionally, onFebruary 17, 2021 , we raised$232.5 million through an initial public offering (IPO) to finance operations going forward. 20 -------------------------------------------------------------------------------- We have incurred recurring losses since our inception, including net losses of$163.4 million for the nine months endedSeptember 30, 2021 and$46.9 million for the nine months endedSeptember 30, 2020 . As ofSeptember 30, 2021 , we had an accumulated deficit of$336.3 million . We expect to continue to generate operating losses and negative operating cash flows for the foreseeable future if and as we:
• continue the research and development of our platform and assays for
additional diseases;
• initiate clinical trials for, or additional preclinical development of,
our platform;
• further develop and refine the manufacturing processes for our platform;
• change or add manufacturers or suppliers of materials used for our platform;
• seek marketing authorizations;
• seek to identify and validate diagnostic assays for other disease states;
• obtain, maintain, protect and enforce our intellectual property portfolio;
• hire and deploy a salesforce; • seek to attract and retain new and existing skilled personnel;
• create additional infrastructure to support our operations as a public
company and incur increased legal, accounting, investor relations and
other expenses; and
• experience delays or encounter issues with any of the above.
In addition, we expect to incur significant commercialization expenses related
to product manufacturing, marketing, sales and distribution. As a result, we
will need substantial additional funding to support our operating activities.
Until such time as we can generate significant revenue from product sales, if
ever, we expect to finance our operating activities through a combination of
equity offerings, debt and grant revenue. Adequate funding may not be available
to us on acceptable terms, or at all.
If we are unable to obtain funding, we will be forced to delay, reduce or
eliminate some or all of our research and development programs, product
portfolio expansion or commercialization efforts, which could adversely affect
our business prospects, or we may be unable to continue operations. Although we
continue to pursue these plans, there is no assurance that we will be successful
in obtaining sufficient funding on terms acceptable to us to fund continuing
operations, if at all.
As of September 30, 2021 , we had unrestricted cash and cash equivalents of
$273.6 million . We expect that our cash and cash equivalents of $273.6 million
as of September 30, 2021 will be sufficient to fund our operations through at
least the next 12 months from the date our condensed financial statements are
issued. We may need substantial additional funding to support our continuing
operations and pursue our long-term business plan. We may seek additional
funding through the issuance of our common stock, other equity or debt
financings, or collaborations or partnerships with other companies. The amount
and timing of our future funding requirements will depend on many factors,
including the pace and results of our research efforts for our assays and
development and manufacturing activities. We may not be able to raise additional
capital on terms acceptable to us, or at all. Any failure to raise capital as
and when needed would compromise our ability to execute on our business plan and
may cause us to significantly delay or scale back our operations.
We outsource essentially all of our manufacturing. Design work, prototyping and
pilot manufacturing are performed in-house before outsourcing to third party
contract manufacturers. Our outsourced production strategy is intended to drive
rapid scalability and avoid the high capital outlays and fixed costs related to
constructing and operating a manufacturing facility. Certain of our suppliers of
components and materials are single source suppliers. To support our commercial
launch, we have invested in automated cartridge manufacturing production lines
for our Talis One cartridges. Up until the point we received EUA for the Talis
One COVID-19 system, those assets deemed to have an alternative future use were
capitalized as property and equipment while those assets determined to not have
an alternative future use were expensed. The automated cartridge manufacturing
lines are capable of producing one million Talis One cartridges per month, which
we expect will scale to meet demand through 2021.
COVID-19 pandemic
Since it was reported to have surfaced inDecember 2019 , a novel strain of coronavirus (COVID-19) has spread across the world and has been declared a pandemic by theWorld Health Organization . Efforts to contain the spread of COVID-19 have intensified and governments around the world, including inthe United States ,Europe andAsia , have implemented travel restrictions, social distancing requirements, stay-at-home orders and have delayed the commencement of non-COVID-19-related clinical trials, among other restrictions. As a result, the current COVID-19 pandemic has presented a substantial public health and economic challenge 21 --------------------------------------------------------------------------------
around the world and is affecting our employees, patients, communities and
business operations, as well as contributing to significant volatility and
negative pressure on the
We expect that COVID-19 precautions will directly or indirectly impact the timeline for some of our planned clinical trials for our non-COVID-19 related products in development and we are continuing to assess the potential impact of the COVID-19 pandemic on our current and future business and operations, including our expenses and clinical trials, as well as on our industry and the healthcare system. As a result of the outbreak, many companies have experienced disruptions in their operations and in markets served. We are considered an essential business, therefore the impact to our operations has been limited. To date, we have initiated some and may take additional temporary precautionary measures intended to help ensure our employees' well-being and minimize business disruption. For the safety of our employees and their families, we have temporarily reduced the presence of our employees in our facilities. Certain of our third-party service providers have also experienced shutdowns or other business disruptions. We are continuing to assess the impact of the COVID-19 pandemic on our current and future business and operations, including our expenses and planned clinical trial and other development timelines, as well as on our industry and the healthcare system.
As a result of the COVID-19 pandemic, or similar pandemics and outbreaks, we have and may in the future experience severe disruptions, including:
• interruption of or delays in receiving products and supplies from the
third parties we rely on to, among other things, manufacture components of
our instruments, due to staffing shortages, production slowdowns or
stoppages and disruptions in delivery systems, which may impair our
ability to sell our products and consumables;
• limitations on our business operations by the local, state, or federal
government that could impact our ability to sell or deliver our
instruments and consumables;
• delays in customers' purchasing decisions and negotiations with customers
and potential customers;
• business disruptions caused by workplace, laboratory and office closures
and an increased reliance on employees working from home, travel
limitations, cyber security and data accessibility limits, or
communication or mass transit disruptions; and
• limitations on employee resources that would otherwise be focused on the
conduct of our activities, including because of sickness of employees or
their families or the desire of employees to avoid contact with large
groups of people.
Three vaccines for COVID-19 have been authorized for emergency use by the FDA as
of September 2021 . There can be no assurance that demand for our COVID-19
testing will continue to exist in the future due to successful containment
efforts, the successful vaccination of a majority of Americans, or due to other
events.
Enterprise Resource Planning
During the nine month period ending September 30, 2021 , we implemented a new
enterprise resource planning (ERP) system to provide better information and to
support our commercial scale-up.
Components of our results of operations
Grant revenue
To date, all of our revenue has been derived from government grants, which includes anApril 2018 subaward grant fromBoston University as part of the CARB-X program, aMay 2018 grant from theNIH to support our advancement of a Diagnostics via Rapid Enrichment, Identification, and Phenotypic Antibiotic Susceptibility Testing of Pathogens from Blood project (NIH grant), aJuly 2020 subaward grant from theUniversity of Massachusetts Medical School for Phase 1 of theNIH's Rapid Acceleration of Diagnostics - Advanced Technology Platforms (RADx) initiative and a contract from theNIH directly for Phase 2 of the RADx initiative. InOctober 2021 , we and theNIH agreed to a further amended contract for the completion of the RADx initiative. The amendment further extended the contract toJanuary 30, 2022 and decreased the potential payment for the remaining milestone from$4.0 million to$2.0 million . The remaining$2.0 million available under the amended RADx contract is contingent upon us meeting our agreed-upon contractual milestone.
Under the
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In
These grants are not in the scope of the contracts with customers accounting guidance as the government entities and/or government-sponsored entities are not customers under the agreements. Grant funds received from third parties are recorded as revenue if we are deemed to be the principal participant in the arrangement. If we are not the principal participant, the funds from grants are recorded as a reduction to research and development expense. Reimbursable costs paid prior to being billed are recorded as unbilled grant receivables. Funds received in advance are recorded as deferred grant revenue. Our management has determined that we are the principal participant under our grant agreements, and accordingly, we record amounts earned under these arrangements as grant revenue.
Operating expenses
Research and development expenses
Research and development expenses consist primarily of internal and external costs incurred for our research activities, the development of our platform, investment in manufacturing capabilities as well as costs incurred pursuant to our government grants and include:
• salaries, benefits and other related costs, including stock-based
compensation expense, for personnel engaged in research and development
functions;
• the cost of laboratory supplies and developing and manufacturing of our
platform;
• contract services, other outside costs and costs to develop our technology
capabilities;
• facility-related expenses, which include direct depreciation costs and
allocated expenses for rent and maintenance of facilities and other
operating costs;
• cost of outside consultants, including their fees and related travel
expenses, engaged in research and development functions;
• expenses related to regulatory affairs; and
• fees related to our scientific advisory board.
We expense research and development costs as incurred. Costs for external
development activities are recognized based on an evaluation of the progress to
completion of specific tasks using information provided to us by our vendors.
Payments for these activities are based on the terms of the individual
agreements, which may differ from the pattern of costs incurred, and are
reflected in our financial statements as prepaid or accrued research and
development expenses. Nonrefundable advance payments for goods or services to be
received in the future for use in research and development activities are
recorded as prepaid expenses and expensed as the related goods are delivered or
the services are performed.
Until future commercialization is considered probable and the future economic
benefit is expected to be realized, we do not capitalize pre-launch inventory
costs prior to completion of marketing authorization unless the regulatory
review process has progressed to a point that objective and persuasive evidence
of regulatory approval is sufficiently probable, and future economic benefit can
be asserted. We record such costs to research and development costs, or if used
in marketing evaluations reported to selling, general and administrative
expense. A number of factors are taken into consideration, based on management's
judgment, including the current status in the regulatory approval process,
potential impediments to the approval process, anticipated research and
development (R&D) initiatives and risk of technical feasibility, viability of
commercialization and marketplace trends.
Prior to receiving an EUA, costs of property and equipment related to scaling up
our manufacturing capacity for commercial launch were recorded to research and
development expense when the asset does not have an alternative future use.
After receipt of marketing authorization, we anticipate that we will begin to
capitalize inventory costs, as well as property and equipment expenditures,
associated with regulatory approved products.
Research and development activities are central to our business model. We expect
that our research and development expenses will continue to increase for the
foreseeable future as we continue the research and development of our platform
and assays for other infectious diseases and disease states, initiate clinical
trials for future tests, further develop and refine the manufacturing processes
for our platform, and continue commercialization efforts. There are numerous
factors associated with the successful commercialization of any assay we may
develop in the future for other diseases or disease states, including future
trial design and various regulatory requirements, many of which cannot be
determined with accuracy at this time based on our stage of development.
23
--------------------------------------------------------------------------------Selling, general and administrative expenses
Selling, general and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, sales, product management, corporate and business development and administrative functions. Beginning in the first quarter of 2021, we started to incur selling related expenses as part of planning for a commercial launch of our products. Selling, general and administrative expenses also include professional fees for legal, patent, accounting, information technology, auditing, tax and consulting services, travel expenses and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs. We expect that our selling, general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development, commercialization and sales of our platform. We also expect to incur increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax compliance services, director and officer insurance costs, and investor and public relations costs.
Other income (expense)
Other income (expense), net consists primarily of interest income on cash deposits held at financial institutions, gains and losses on holdings invested in money market funds, and unrealized and realized foreign exchange gains and losses. Results of operations
Comparison for the three months ended
The following table summarizes our results of operations:
Three Months Ended
September 30,
(in thousands) 2021 2020 Change
Grant revenue $ 218 $ 9,486 $ (9,268 )
Operating expenses:
Research and development 25,841 36,011 (10,170 )
Selling, general and administrative 12,792 3,058 9,734
Total operating expenses 38,633 39,069 (436 )
Loss from operations (38,415 ) (29,583 ) (8,832 )
Other income/(expense), net (3 ) 69 (72 )
Net loss and comprehensive loss
Grant revenue Our revenue for the three months endedSeptember 30, 2021 and 2020 relates to the CARB-X andNIH grants and the RADx initiative. During the three months endedSeptember 30, 2021 ,$0.2 million of revenue was recognized related to ourNIH grant. During the three months endedSeptember 30, 2020 ,$0.3 million ,$0.3 million , and$8.9 million of revenue was recognized related the CARB-X andNIH grants, and RADx initiative, respectively.
Research and development expenses
Substantially all of our research and development expenses incurred for the three months endedSeptember 30, 2021 and 2020 were related to the manufacturing scale-up for, and development of our first potential commercial product utilizing the Talis One system, a rapid, point-of-care molecular diagnostic test to detect COVID-19 directly from a patient sample. Research and development expenses were$25.8 million for the three months endedSeptember 30, 2021 , compared to$36.0 million for the three months endedSeptember 30, 2020 , a decrease of$10.2 million . The decrease was primarily due to decreases of$15.7 million related to the automation of consumable manufacturing and a decrease of$7.2 million related to instrument component costs as the Company comes near the completion of the scale up project. These decreases were offset by increases of$10.5 million related to Talis One cartridge materials,$1.2 million increase in professional and personnel related expenses, including increased consulting expenses and stock compensation expenses, and an increase of$1.0 million relating to an increase in facilities and IT costs. The ramp up of our manufacturing efforts, which began in the middle of 2020, is expected to be completed by the end of 2021. As ofSeptember 30, 2021 , we have incurred approximately$109.0 million related to such manufacturing scale-up and related costs to date, of which$95.9 million has been incurred related to high capacity production equipment and$13.1 million has been incurred related to our cartridge expenses. During the three months endedSeptember 30, 2021 , the Company incurred$12.0 million of these costs. We 24 -------------------------------------------------------------------------------- expect to incur approximately$6.7 million of additional costs in the near term. We received EUA for the Talis One COVID-19 Test System inNovember 2021 . See "Liquidity and capital resources - Future funding requirements" below for additional information.
Selling, general and administrative expenses
Selling, general and administrative expenses were$12.8 million for the three months endedSeptember 30, 2021 , compared to$3.1 million for the three months endedSeptember 30, 2020 , an increase of$9.7 million . The increase was primarily due to increased personnel related expenses of$8.0 million , including salaries and benefits, stock-based compensation expenses, and an increase of$1.7 million related to increased expenses for outside services, and facilities costs.
Comparison for the nine months ended
The following table summarizes our results of operations:
Nine Months Ended
September 30,
(in thousands) 2021 2020 Change
Grant revenue $ 7,335 $ 10,705 $ (3,370 )
Operating expenses:
Research and development 140,529 49,909 90,620
Selling, general and administrative 30,102 7,798 22,304
Total operating expenses 170,631 57,707 112,924
Loss from operations (163,296 ) (47,002 ) (116,294 )
Other income/(expense), net (86 ) 68
(154 )
Net loss and comprehensive loss
Grant revenue Our revenue for the nine months endedSeptember 30, 2021 and 2020 relates to the CARB-X andNIH grants and the RADx initiative. During the nine months endedSeptember 30, 2021 ,$7.0 million of revenue was recognized related to the completion of Stage 2 and Stage 3 milestones as part of the RADx initiative and$0.3 million of revenue was recorded related to ourNIH grant. During the nine months endedSeptember 30, 2020 ,$0.6 million ,$0.9 million , and$9.3 million of revenue was recognized related to the CARB-X andNIH grants, and the RADx initiative, respectively.
Research and development expenses
Substantially all of our research and development expenses incurred for the nine months endedSeptember 30, 2021 were related to the manufacturing scale-up for, and development of our first potential commercial product utilizing the Talis One system, a rapid, point-of-care molecular diagnostic test to detect COVID-19 directly from a patient sample. Research and development expenses were$140.8 million for the nine months endedSeptember 30, 2021 , compared to$49.9 million for the nine months endedSeptember 30, 2020 , an increase of$90.6 million . The increase was primarily due to increases of$35.4 million related to the automation of consumable manufacturing, an increase of$24.5 million relating to Talis One cartridge materials for the COVID-19 assay, and an increase of$17.7 million in instrument component costs. Additionally, the increase was due to an increase of$12.1 million related to professional and personnel related expenses, including increased outside services and consulting expenses and stock compensation expenses and an increases of$0.9 million relating to an increase in facilities and IT costs.
During the nine months ended
Selling, general and administrative expenses
Selling, general and administrative expenses were$30.1 million for the nine months endedSeptember 30, 2021 , compared to$7.8 million for the nine months endedSeptember 30, 2020 , an increase of$22.3 million . The increase was primarily due to increased personnel related expenses of$17.9 million , including salaries and wages, stock-based compensation expenses and personnel related expenses as we have increased headcount, consulting and recruiting expenses in these departments, and an increase of$4.4 million related to increased expenses for outside services and facilities costs. 25 --------------------------------------------------------------------------------
Liquidity and capital resources
Sources of liquidity
OnFebruary 12, 2021 , we completed our IPO, pursuant to which we issued and sold 13,800,000 shares of our common stock and an additional 2,070,000 shares pursuant to the exercise in full by the underwriters of their option to purchase additional shares of our common stock, at a public offering price of$16.00 per share. The net proceeds from the IPO were$232.5 million after deducting underwriting discounts and commissions and other offering expenses. We believe our cash balance as ofSeptember 30, 2021 is sufficient for our operations for at least the next 12 months from the date our condensed financial statements are issued based on our existing business plan and our ability to control the timing of significant expense commitments.
Future funding requirements
We do not have any commercial-scale manufacturing facilities and expect to rely on third parties to manufacture the Talis One system and related cartridges. We have entered into, and expect to enter into additional, agreements with contract manufacturers to support our manufacturing scale-up. We will also need to engage third-party logistics providers to manage the movement of materials between suppliers and contract manufacturers and for finished goods warehousing. We also intend to invest in additional manufacturing capacity to meet market demand for the Talis One system. The ramp up of these manufacturing efforts, which began in the middle of 2020, increased our research and development expenses as we sought regulatory approval of the Talis One system. InNovember 2021 , we received regulatory approval for our first product, however, we have never generated any revenue from contracts with customers. We do not expect to generate any meaningful revenue until we commercialize our Talis One system. Until we can generate a sufficient amount of revenue from the commercialization of Talis One system, if ever, we expect to finance our future cash needs through public or private equity offerings or debt financings. To date, our primary uses of cash have been to fund operating expenses, primarily research and development expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. We currently have no other ongoing material financing commitments, such as other lines of credit or guarantees. We have recently increased our spending on automated cartridge manufacturing scale-up and instrument manufacturing, and expect expenses related to manufacturing to increase significantly as we prepare for a commercial launch. We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, continue or initiate clinical trials of, and seek marketing approval for, our Talis One system. In addition, we expect to incur significant commercialization expenses related to program sales, marketing, manufacturing and distribution to the extent that such sales, marketing and distribution are not the responsibility of any future collaborators. We expect to incur additional costs associated with operating as a public company. Accordingly, we may choose to obtain additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts. Since our inception, we have incurred significant losses and negative cash flows from operations. We have an accumulated deficit of$336.3 million throughSeptember 30, 2021 . We expect to incur substantial additional losses in the future as we conduct and expand our research and development, manufacturing and commercialization activities. Based on our planned operations, we expect that our unrestricted cash of$273.6 million as ofSeptember 30, 2021 , will be sufficient to fund our operations for at least 12 months after these financial statements are issued. However, we may need to raise additional capital through equity or debt financing, or potential additional collaboration proceeds prior to achieving commercialization of our products. Our ability to continue as a going concern is dependent upon our ability to successfully secure sources of financing and ultimately achieve profitable operations. We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of the Talis One system, we are unable to estimate the exact amount of our operating capital requirements. Our future capital requirements will depend on many factors, including:
• our ability to receive, and the timing of receipt of, regulatory approvals
for futures tests;
• the effectiveness and availability of the three vaccines in the
were authorized as of
• the amount of capital, and related timing of payments, required to build
sufficient inventory of our Talis One system and test cartridges in
advance of and during commercial launch;
• the costs and timing of future commercialization activities, including
manufacturing, marketing, sales and distribution, for our platform if we
receive marketing approval;
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• limitations of, or interruptions in, the quality or quantity of materials
from our third party suppliers;
• our ability to implement an effective manufacturing, marketing and
commercialization operation;
• the scope, progress, results and costs of our ongoing and planned operations;
• the costs associated with expanding our operations;
• the number and development requirements of assays for other diseases or
disease states that we may pursue;
• intervention, interruptions or recalls by government or regulatory agencies;
• enhancements and disruptive advances in the diagnostic testing industry;
• our estimates and forecasts of the market size addressable by our Talis
One system;
• security breaches, data losses or other disruptions affecting our
information systems;
• the regulatory and political landscape upon the launch of our
commercialization of the Talis One system;
• the revenue, if any, received from commercial sales of our products if
approved, including additional working capital requirements if we pursue a
reagent rental model for our Talis One instrument;
• our ability to establish strategic collaborations; and
• the costs and timing of preparing, filing and prosecuting patentapplications, maintaining and enforcing our intellectual property rights
and defending any intellectual property-related claims.
Cash flows
The following table summarizes our cash flows for each of the periods presented:
Nine Months Ended September 30,
2021 2020
(in thousands)
Cash used in operating activities $ (130,643 ) $ (50,333 )
Cash used in investing activities (1,879 ) (5,795 )
Cash provided by financing activities 233,759 124,580
Net increase in cash, cash equivalents and restricted cash $ 101,237
Operating activities During the nine months endedSeptember 30, 2021 , cash used in operating activities was$130.6 million , resulting primarily from our net loss of$163.4 million and increase in other long-term assets of$1.0 million partially offset by an increase in our accrued expenses and accounts payable of$14.8 million , a decrease in our prepaid expenses of$11.4 million , and non-cash items of$7.6 million , made up of stock-based compensation of$6.0 million , amortization of our right-of-use assets on operating leases of$1.0 million , and depreciation expense of$0.6 million . The increase in our accrued expenses and accounts payable of$14.8 million was primarily associated with our manufacturing scale-up project. We have continued spending on cartridge manufacturing scale-up and instrument manufacturing as we prepare for commercial launch. During the nine months endedSeptember 30, 2020 , cash used in operating activities was$50.3 million , resulting primarily from our net loss of$46.9 million , an increase of$14.1 million in prepaid expenses and prepaid research and development, and a decrease of$0.6 million in lease liabilities, partially offset by an increase of$6.7 million in accounts payable and accrued expenses and other current liabilities, and non-cash items of$3.1 million , made up of stock-based compensation of$2.1 million , depreciation expense of$0.6 million , amortization of our right-of-use assets on operating liabilities of$0.4 million , and a decrease in unbilled receivables of$1.5 million .
Investing activities
During the nine months ended
27
--------------------------------------------------------------------------------Financing activities
During the nine months endedSeptember 30, 2021 , net cash provided by financing activities was$233.8 million , primarily consisting of$232.6 million of proceeds from the issuance of common stock in our initial public offering,$0.8 million in proceeds from stock option exercises, and$0.4 million in proceeds from common stock issued pursuant to the Company's employee stock purchase plan. During the nine months endedSeptember 30, 2020 , net cash provided by financing activities was$124.6 million , primarily consisting of$24.9 million of net proceeds from the second tranche payment of the 2019 issuance of Series C-1 convertible preferred stock, Series D-1 convertible preferred stock, and Series D-2 convertible preferred stock and$99.7 million of net proceeds from the issuance of Series E-1 convertible preferred stock and Series E-2 convertible preferred stock.
Contractual obligations and commitments
The following table summarizes our non-cancellable contractual obligations atSeptember 30, 2021 , and the effects that such obligations are expected to have on our liquidity and cash flows in future periods: Payments due by period Less than 1 to 3 (in thousands) Total 1 year years Operating leases(1)$ 6,171 $ 1,148 $ 5,023 Purchase commitments(2) 60,180 60,180 - Manufacturing production lines(3) 6,710 6,710 - Total$ 73,061 $ 68,038 $ 5,023
(1) Represents minimum contractual lease payments on our real estate leases in
2021, we entered into a lease laboratory and office space in
CA. Because the lease has not commenced, we have excluded the commitment from
the above analysis as of
extend for an initial term of 10.5 years with a minimum commitment of
approximately
(2) Represents firm purchase commitments in the normal course of business of
million and
respectively.
(3) Represents firm commitments relating to the scale-up of manufacturing
capacity for Talis One cartridges, primarily attributed to investments in
production lines.
Apart from the contracts with payment commitments that we have reflected in the table, we have entered into other contracts in the normal course of business with certain contract manufacturing organizations and other third parties for manufacturing services. Payments due upon cancellation consist only of payments for services provided and expenses incurred, including non-cancelable obligations of our service providers, up to the date of cancellation.
Critical accounting policies and significant judgments and estimates
This discussion and analysis of financial condition and results of operation is based on our unaudited condensed financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States . The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the reporting period. On an ongoing basis, management evaluates its estimates and assumptions.
Our critical accounting policies and estimates are discussed in our Annual
Report. There have been no material changes to our critical accounting policies
and estimates during the nine months ended
Recently issued accounting pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our unaudited condensed financial statements included within Part I, Item 1 of this Quarterly Report.
Emerging growth company status
InApril 2012 , the JOBS Act was enacted. Section 107 of the JOBS Act provides that an emerging growth company may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised 28
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accounting standards. Therefore, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected to avail ourselves of this extended transition period and, as a result, we may adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-public companies instead of the dates required for other public companies. We may take advantage of these exemptions for up to the last day of the fiscal year ending after the fifth anniversary of our initial public offering or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that is the earliest of (1) the last day of the fiscal year in which we have total annual gross revenues of$1.07 billion or more; (2) the last day of our fiscal year following the fifth anniversary of the date of our initial public offering; (3) the date on which we have issued more than$1.0 billion in nonconvertible debt during the previous three years; or (4) the date on which we are deemed to be a large accelerated filer under the rules of theSEC .
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