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 ended
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 transform diagnostic testing through innovative molecular diagnostic products that enable customers to deploy accurate, reliable, low-cost and rapid molecular testing at the point-of-care for infectious diseases and other conditions.
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 instruments and driving utilization of our Talis One assay kits to generate revenue from the purchase of such products. Subject to marketing authorization, our first commercial test will be 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. Due to the COVID-19 global pandemic, we are pursuing
marketing authorization for our COVID-19 test under an emergency use
authorization (EUA) rather than initially pursuing 510(k) clearance or other
forms of marketing authorization under the
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
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We have incurred recurring losses since our inception, including net losses of
• 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, if we obtain marketing authorization for our platform, 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
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 anticipated commercial launch, we have invested in automated cartridge manufacturing production lines for our Talis One cartridges. Those assets deemed to have an alternative future use have been capitalized as property and equipment while those assets determined to not have an alternative future use have been 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 in
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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 and 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
Enterprise Resource Planning
During the six month period ending
Components of our results of operations
Grant revenue
To date, all of our revenue has been derived from government grants, which
includes an
In
Under the CARB-X and
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These grants are not in 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 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 are recorded to research and development expense when the asset does not have an alternative future use.
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 initiate clinical trials for our platform, ramp-up our manufacturing and commercialization efforts and continue to discover and develop platforms and assays for other infectious diseases and disease states. 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.
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.
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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 and potential 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
June 30,
(in thousands) 2021 2020 Change
Grant revenue $ 117 $ 820 $ (703 )
Operating expenses: - -
Research and development 54,495 8,184 46,311Selling, general and administrative 9,983 2,660 7,323 Total operating expenses
64,478 10,844 53,634
Loss from operations (64,361 ) (10,024 ) (54,337 )
Other expense, net (111 ) (22 ) (89 )
Net loss and comprehensive loss
Grant revenue
Our revenue for the three months ended
Research and development expenses
Substantially all of our research and development expenses incurred for the
three months ended
Research and development expenses were
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 of
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receive emergency use authorization. We submitted our EUA application for the
Talis One system and COVID-19 assay cartridges in
Selling, general and administrative expenses
Selling, general and administrative expenses were
Comparison for the six months ended
The following table summarizes our results of operations:
Six Months Ended
June 30,
(in thousands) 2021 2020 Change
Grant revenue $ 7,117 $ 1,219 $ 5,898
Operating expenses:
Research and development 114,688 13,898 100,790Selling, general and administrative 17,310 4,740 12,570 Total operating expenses
131,998 18,638 113,360
Loss from operations (124,881 ) (17,419 ) (107,462 )
Other expense, net (83 ) (1 ) (82 )
Net loss and comprehensive loss
Grant revenue
Our revenue for the six months ended
Research and development expenses
Substantially all of our research and development expenses incurred for the six
months ended
Research and development expenses were
During the six months ended
Selling, general and administrative expenses
Selling, general and administrative expenses were
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Liquidity and capital resources
Sources of liquidity
On
We believe our cash balance as of
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 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 if the Talis One system is approved for marketing. The ramp up of these manufacturing efforts, which began in the middle of 2020, is expected to result in a significant increase in our research and development expenses until regulatory approval of our products is achieved.
We do not yet have any products approved for sale, and we have never generated any revenue from contracts with customers. We do not expect to generate any meaningful revenue unless and until we obtain regulatory approval of and 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 potential near-term 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 platform. In addition, if we obtain marketing approval for our platform, 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
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, an EUA for our
COVID-19 test;
• the effectiveness and availability of the three vaccines in the U.S. that
were authorized as of June 2021 ;
• 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;
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• the costs and timing of future commercialization activities, including
manufacturing, marketing, sales and distribution, for our platform if we
receive marketing approval;
• 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 patent
applications, 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:
Six Months Ended June 30,
2021 2020
(in thousands)
Cash used in operating activities $ (55,895 ) $ (17,535 )
Cash used in investing activities (1,120 ) (337 )
Cash provided by financing activities 232,757 111,540
Net increase in cash, cash equivalents and restricted cash
Operating activities
During the six months ended
During the six months ended
Investing activities
During the six months ended
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Financing activities
During the six months ended
During the six months ended
Contractual obligations and commitments
The following table summarizes our non-cancellable contractual obligations at
Payments due by period
Less than 1 to 3
(in thousands) Total 1 year years
Operating leases(1) $ 5,998 $ 1,004 $ 4,994
Purchase commitments(2) 64,127 64,127 -
Manufacturing production lines(3) 8,825 8,825 -
Total $ 78,950 $ 73,956 $ 4,994 (1) Represents minimum contractual lease payments on our real estate leases in
Menlo Park, California andChicago, Illinois . During the first quarter of 2021, we entered into a lease laboratory and office space inRedwood City, CA. Because the lease has not commenced, we have excluded the commitment from the above analysis as ofJune 30, 2021 . TheRedwood City, CA lease will extend for an initial term of 10.5 years with a minimum commitment of approximately$2.6 million annually with fixed escalations of 3.0% per annum.
(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 in
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 six 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 Item I of this Quarterly Report.
Emerging growth company status
In
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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
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