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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2021

OR

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

For the transition period from                      to                     

Commission file number: 001-36571

 

T2 Biosystems, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

20-4827488

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

101 Hartwell Avenue

Lexington, Massachusetts

02421

(Address of principal executive offices)

(Zip Code)

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

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.001

 

TTOO

 

The Nasdaq Global Market

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

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

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

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

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

As of May 11, 2021, the registrant had 150,108,017 shares of common stock outstanding.

 

 

 

 


 

 

T2 BIOSYSTEMS, INC.

TABLE OF CONTENTS

 

 

 

Page  

 

 

 

 

PART I FINANCIAL INFORMATION

 

 

 

 

Item 1.    

Financial Statements (unaudited)

1

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020

1

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for three months ended March 31, 2021 and 2020

2

 

 

 

 

Condensed Consolidated Statements of Stockholders’ (Deficit) Equity for the three months ended March 31, 2021 and 2020

3

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020

4

 

 

 

 

Notes to Condensed Consolidated Financial Statements

5

 

 

 

Item 2.

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

23

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

35

 

 

 

Item 4.

Controls and Procedures

35

 

 

 

 

PART II OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

37

 

 

 

Item 1A.

Risk Factors

37

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

 

 

 

Item 3.

Defaults Upon Senior Securities

37

 

 

 

Item 4.

Mine Safety Disclosures

37

 

 

 

Item 5.

Other Information

37

 

 

 

Item 6.

Exhibits, Financial Statement Schedules

38

 

 

SIGNATURES

39

 

 

i


 

 

PART I.

FINANCIAL INFORMATION

Item 1. Financial Statements

T2 BIOSYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 

 

 

March 31,

2021

 

 

December 31,

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,691

 

 

$

16,793

 

Marketable securities

 

 

22,617

 

 

 

25,396

 

Accounts receivable

 

 

4,034

 

 

 

5,099

 

Inventories

 

 

4,525

 

 

 

3,636

 

Prepaid expenses and other current assets

 

 

2,720

 

 

 

2,660

 

Total current assets

 

 

44,587

 

 

 

53,584

 

Property and equipment, net

 

 

4,202

 

 

 

3,771

 

Operating lease right-of-use assets

 

 

10,606

 

 

 

11,034

 

Restricted cash

 

 

551

 

 

 

551

 

Marketable securities

 

 

10,002

 

 

 

10,002

 

Other assets

 

 

104

 

 

 

136

 

Total assets

 

$

70,052

 

 

$

79,078

 

Liabilities and stockholders’ (deficit) equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,907

 

 

$

2,058

 

Accrued expenses and other current liabilities

 

 

6,094

 

 

 

7,512

 

Deferred revenue

 

 

400

 

 

 

230

 

Total current liabilities

 

 

10,401

 

 

 

9,800

 

Notes payable

 

 

45,855

 

 

 

45,235

 

Operating lease liabilities, net of current portion

 

 

10,255

 

 

 

10,533

 

Deferred revenue, net of current portion

 

 

281

 

 

 

424

 

Derivative liability

 

 

181

 

 

 

1,010

 

Other liabilities

 

 

3,645

 

 

 

3,350

 

Commitments and contingencies (see Note 13)

 

 

 

 

 

 

 

 

Stockholders’ (deficit) equity:

 

 

 

 

 

 

 

 

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

   outstanding at March 31, 2021 and December 31, 2020

 

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized; 148,491,673 and

  148,078,974 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

 

 

148

 

 

 

148

 

Additional paid-in capital

 

 

432,905

 

 

 

431,544

 

Accumulated other comprehensive income

 

 

16

 

 

 

9

 

Accumulated deficit

 

 

(433,635

)

 

 

(422,975

)

Total stockholders’ (deficit) equity

 

 

(566

)

 

 

8,726

 

Total liabilities and stockholders’ (deficit) equity

 

$

70,052

 

 

$

79,078

 

 

See accompanying notes to condensed consolidated financial statements.

1


 

T2 BIOSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

 

 

2020

 

Revenue:

 

 

 

 

 

 

 

 

 

 

Product revenue

 

$

4,650

 

 

 

 

$

1,045

 

Contribution revenue

 

 

2,306

 

 

 

 

 

1,500

 

Total revenue

 

 

6,956

 

 

 

 

 

2,545

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

Cost of product revenue

 

 

5,790

 

 

 

 

 

4,671

 

Research and development

 

 

4,665

 

 

 

 

 

4,780

 

Selling, general and administrative

 

 

6,203

 

 

 

 

 

6,655

 

Total costs and expenses

 

 

16,658

 

 

 

 

 

16,106

 

Loss from operations

 

 

(9,702

)

 

 

 

 

(13,561

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

6

 

 

 

 

 

 

Interest expense

 

 

(1,013

)

 

 

 

 

(1,417

)

Other income, net

 

 

49

 

 

 

 

 

29

 

Total other expense

 

 

(958

)

 

 

 

 

(1,388

)

Net loss

 

$

(10,660

)

 

 

 

$

(14,949

)

Net loss per share — basic and diluted

 

$

(0.07

)

 

 

 

$

(0.22

)

Weighted-average number of common shares used in computing

   net loss per share — basic and diluted

 

 

148,231,412

 

 

 

 

 

68,637,322

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(10,660

)

 

 

 

$

(14,949

)

Change in net unrealized gain on marketable securities, net of taxes:

 

 

 

 

 

 

 

 

 

 

Net unrealized gain on marketable securities arising during the period

 

 

9

 

 

 

 

 

 

Less: net realized gain on marketable securities included in net loss

 

 

(2

)

 

 

 

 

 

Net unrealized gain on marketable securities

 

 

7

 

 

 

 

 

 

Comprehensive loss

 

$

(10,653

)

 

 

 

$

(14,949

)

 

See accompanying notes to condensed consolidated financial statements.

 

 

2


 

 

T2 BIOSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

(In thousands, except share data)

(Unaudited)

 

 

 

Common

 

 

Additional

 

 

 

 

 

 

Accumulated Other

 

 

Total

 

 

 

Stock

 

 

Paid-In

 

 

Accumulated

 

 

Comprehensive

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

(Deficit) Equity

 

Balance at December 31, 2019

 

 

50,651,535

 

 

$

51

 

 

$

342,121

 

 

$

(376,177

)

 

$

 

 

$

(34,005

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,160

 

 

 

 

 

 

 

 

 

1,160

 

Issuance of common stock from vesting of restricted stock

 

 

370,417

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock from secondary public offerings, net

 

 

68,150,678

 

 

 

68

 

 

 

40,029

 

 

 

 

 

 

 

 

 

40,097

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(14,949

)

 

 

 

 

 

(14,949

)

Balance at March 31, 2020

 

 

119,172,630

 

 

$

119

 

 

$

383,310

 

 

$

(391,126

)

 

$

 

 

$

(7,697

)

 

 

 

 

Common

 

 

Additional

 

 

 

 

 

 

Accumulated Other

 

 

Total

 

 

 

Stock

 

 

Paid-In

 

 

Accumulated

 

 

Comprehensive

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

(Deficit) Equity

 

Balance at December 31, 2020

 

 

148,078,974

 

 

$

148

 

 

$

431,544

 

 

$

(422,975

)

 

$

9

 

 

$

8,726

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,308

 

 

 

 

 

 

 

 

 

1,308

 

Issuance of common stock from vesting of restricted stock and exercise of stock options

 

 

412,699

 

 

 

 

 

 

53

 

 

 

 

 

 

 

 

 

53

 

Unrealized gain (loss) on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

7

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(10,660

)

 

 

 

 

 

(10,660

)

Balance at March 31, 2021

 

 

148,491,673

 

 

$

148

 

 

$

432,905

 

 

$

(433,635

)

 

$

16

 

 

$

(566

)

 

See accompanying notes to condensed consolidated financial statements.

 

3


 

 

T2 BIOSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(10,660

)

 

$

(14,949

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

383

 

 

 

503

 

Amortization of bond premium

 

 

38

 

 

 

 

Amortization of operating lease right-of-use assets

 

 

428

 

 

 

394

 

Stock-based compensation expense

 

 

1,308

 

 

 

1,160

 

Change in fair value of derivative instrument

 

 

(829

)

 

 

(111

)

Gain on sales of marketable securities

 

 

(2

)

 

 

 

Impairment of property and equipment

 

 

 

 

 

629

 

Non-cash interest expense

 

 

915

 

 

 

621

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

1,065

 

 

 

371

 

Prepaid expenses and other assets

 

 

(28

)

 

 

(278

)

Inventories

 

 

(1,426

)

 

 

845

 

Accounts payable

 

 

1,798

 

 

 

(2,021

)

Accrued expenses and other liabilities

 

 

(978

)

 

 

(1,265

)

Deferred revenue

 

 

27

 

 

 

(61

)

Operating lease liabilities

 

 

(747

)

 

 

(578

)

Net cash used in operating activities

 

 

(8,708

)

 

 

(14,740

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Proceeds from maturities of marketable securities

 

 

2,750

 

 

 

 

Purchases and manufacture of property and equipment

 

 

(197

)

 

 

(67

)

Net cash provided by (used in) investing activities

 

 

2,553

 

 

 

(67

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of shares from stock option exercises

 

 

53

 

 

 

 

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

 

 

 

 

 

40,097

 

Net cash provided by financing activities

 

 

53

 

 

 

40,097

 

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

 

 

(6,102

)

 

 

25,290

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

17,344

 

 

 

11,213

 

Cash, cash equivalents and restricted cash at end of period

 

$

11,242

 

 

$

36,503

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

928

 

 

$

906

 

Supplemental disclosures of noncash activities

 

 

 

 

 

 

 

 

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

 

$

(537

)

 

$

521

 

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

 

$

100

 

 

$

50

 

 

 

 

March 31,

2021

 

 

December 31,

2020

 

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

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,691

 

 

$

16,793

 

Restricted cash

 

 

551

 

 

 

551

 

Total cash, cash equivalents and restricted cash

 

$

11,242

 

 

$

17,344

 

 

See accompanying notes to condensed consolidated financial statements.

 

4


 

 

T2 BIOSYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of Business

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

Liquidity and Going Concern

At March 31, 2021, the Company had cash, cash equivalents, marketable securities and restricted cash of $43.9 million, an accumulated deficit of $433.6 million, stockholders’ deficit of $0.6 million, and has experienced cash outflows from operating activities over the past years. The future success of the Company is dependent on its ability to successfully commercialize its products, obtain regulatory clearance for and successfully launch its future product candidates, obtain additional capital and ultimately attain profitable operations. Historically, the Company has funded its operations primarily through its August 2014 initial public offering, its December 2015 public offering, its September 2016 private investment in public equity (“PIPE”) financing, its September 2017 public offering, its June 2018 public offering, its July 2019 establishment of an Equity Distribution Agreement and Equity Purchase Agreement (Note 7), private placements of redeemable convertible preferred stock and through debt financing arrangements. 

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

5


 

The COVID-19 pandemic has impacted and may continue to impact operations. The Company has established protocols for continued manufacturing, distribution and servicing of its products with safe social distancing and personal protective equipment measures and for remote work for certain employees not essential to on-site operations. To date these measures have been mostly successful but may not continue to function should the pandemic escalate and impact personnel. The Company’s hospital customers have restricted the sales team’s access to their facilities and as a result, the Company had significantly reduced its sales and general and administrative staffing levels at the beginning of the COVID-19 pandemic to reduce expenses. Although the Company did not see any material impact to accounts receivable during the period ended March 31, 2021, the Company’s exposure may increase if its customers are adversely affected by the COVID-19 pandemic. Customers may reduce their purchases of products, depending on their needs and cash flow, which could negatively impact revenue. The Company has a significant development contract with BARDA and should BARDA reduce, cancel or not grant additional milestone projects, the Company’s ability to continue its future product development may be impacted. The ability of the Company’s shipping carriers to deliver products to customers may be disrupted. The Company has reviewed its suppliers and quantities of key materials and believes that it has sufficient stocks and alternate sources of critical materials including personal protective equipment should the supply chains become disrupted, although raw materials for the manufacturing of reagents is in high demand, and interruptions in supply are difficult to predict. As further described in Note 5, at the onset of the pandemic, the Company believed the pandemic’s impact on its sales would affect the recoverability of the value of T2-owned instruments and components. In early 2020, the COVID-19 pandemic also caused the Company to reassess its build plan and evaluate its inventories accordingly, which resulted in an additional charge to cost of product revenue for excess inventories.

Since FDA authorization was obtained to market the T2Dx Instrument, T2Candida Panel, and T2Bacteria Panel, and EUA was issued for the T2SARS-CoV-2 Panel, the Company has incurred significant commercialization expenses related to product sales, marketing, manufacturing and distribution. The Company may seek to fund its operations through public equity, private equity or debt financings, as well as other sources. However, the Company may be unable to raise additional funds or enter into such other arrangements when needed, on favorable terms, or at all. The Company’s failure to raise capital or enter into such other arrangements if and when needed would have a negative impact on the Company’s business, results of operations, financial condition and the Company’s ability to develop and commercialize T2Dx, T2Candida, T2Bacteria, T2SARS-CoV-2, and other product candidates.

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

While the Company believes that its cash, cash equivalents, marketable securities and restricted cash of $43.9 million at March 31, 2021 will be sufficient to fund its current operating plan at least one year from issuance of these financial statements, certain elements of our operating plan cannot be considered probable. Under ASC 205-40, the future receipt of potential funding from Co-Development partners and other resources cannot be considered probable at this time because none of the plans are entirely within the Company’s control. During the year ended December 31, 2020, management implemented a cost improvement strategy which is focused on reducing operating expenses and improving cost of goods sold.

The Term Loan Agreement with CRG Servicing LLC (“CRG”) (Note 6) has certain covenants which require the Company to achieve certain annual revenue targets, whereby the Company is required to pay double the amount of any shortfall as an acceleration of principal payments, and maintain a minimum cash balance of $5.0 million. Although it is probable that the Company will achieve the revenue target for the twenty-four month period ended December 31, 2021, there are no assurances that it will achieve that target. Should the Company fail to meet the revenue target, it would seek a waiver of this provision. There can be no assurances that the Company would be successful in obtaining a waiver. If the Company is unsuccessful in obtaining a waiver, it would pay the cure amount set forth under the Term Loan Agreement. While management believes the Company can continue as a going concern for at least one year from issuance of these financial statements, there can be no assurances that it will continue to be in compliance with the cash covenant in future periods without additional funding.

6


 

These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year after the date that the financial statements are issued. Management's plans to alleviate the conditions that raise substantial doubt include raising additional funding, earning payments pursuant to the Company’s Co-Development agreements, delaying certain research projects and capital expenditures and eliminating certain future operating expenses in order to fund operations at reduced levels for the Company to continue as a going concern for a period of 12 months from the date the financial statements are issued. Management has concluded the likelihood that its plan to successfully obtain sufficient funding from one or more of these sources or adequately reduce expenditures, while reasonably possible, is less than probable. Accordingly, the Company has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for a period of at least 12 months from the date of issuance of these consolidated 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.

2. Summary of Significant Accounting Policies

Basis of Presentation

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

 

Reclassification

Customer service personnel provide customer product support as well as field installation, training and T2Dx system maintenance. Time spent in the field servicing customers with service maintenance contracts and for installation and training is considered services and included in cost of goods sold. Time spent providing customer support is now considered a commercial support activity and is included in selling, general and administrative expenses. Previously, customer support was considered a development phase activity and was included in research and development expense. Prior periods have been reclassified to conform to the current period presentation. The reclassification increased selling, general and administrative expenses by $0.2 million and decreased research and development expenses by $0.2 million for the three months ended March 31, 2020. The reclassification had no impact on total costs and expenses, loss from operations, net loss or net loss per share.  

Unaudited Interim Financial Information

Certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

The accompanying interim condensed consolidated balance sheet as of March 31, 2021, the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2021 and 2020, the condensed consolidated statements of stockholders’ (deficit) equity for the three months ended March 31, 2021 and 2020, the condensed consolidated statements of cash flows for the three months ended March 31, 2021 and 2020 and the related financial data and other information disclosed in these notes are unaudited. The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements, and, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of March 31, 2021, and the results of its operations for the three months ended March 31, 2021 and 2020 and its cash flows for the three months ended March 31, 2021 and 2020. The results for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021, any other interim periods, or any future year or period.

7


 

Segment Information

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

Geographic Information

The Company sells its products domestically and internationally. Total international sales were approximately $0.5 million or 7% of total revenue and $0.4 million or 17% of total revenue for the three months ended March 31, 2021 and 2020, respectively.

For the three months ended March 31, 2021 and 2020, no international customer represented greater than 10% of total revenue.

The Company derived approximately 33% of its total revenue from one customer for the three months ended March 31, 2021 and 59% of its total revenue from the same customer for the three months ended March 31, 2020. For the three months ended March 31, 2021, the Company derived approximately 19% of its total revenue from a second customer. For the three months ended March 31, 2020, no other customers represented greater than 10% of the Company’s total revenue.

As of March 31, 2021 and December 31, 2020, the Company had outstanding receivables of $0.5 million from customers located outside of the U.S.

Net Loss Per Share

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

8


 

Marketable Securities

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

Available-for-sale securities are reviewed for possible impairment at least quarterly, or more frequently if circumstances arise that may indicate impairment. When the fair value of the securities declines below the amortized cost basis, impairment is indicated and it must be determined whether it is other than temporary. Impairment is considered to be other than temporary if the Company: (i) intends to sell the security, (ii) will more likely than not be forced to sell the security before recovering its cost, or (iii) does not expect to recover the security’s amortized cost basis. If the decline in fair value is considered other than temporary, the cost basis of the security is adjusted to its fair market value and the realized loss is reported in earnings. Subsequent increases or decreases in fair value are reported as a component of stockholders’ (deficit) equity in accumulated other comprehensive income. There were no other-than-temporary unrealized losses as of March 31, 2021.

The following table summarizes the Company’s marketable securities at March 31, 2021 and December 31, 2020 (in thousands):

 

 

 

March 31, 2021

 

 

 

Amortized Cost

 

 

Gross Unrealized Gains

 

 

Gross Unrealized Losses

 

 

Fair Value

 

Certificates of deposit

 

$

1,000

 

 

$

 

 

$

 

 

$

1,000

 

U.S. treasury securities

 

 

31,603

 

 

 

16

 

 

 

 

 

 

31,619

 

Total

 

$

32,603

 

 

$

16

 

 

$

 

 

$

32,619

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

 

Amortized Cost

 

 

Gross Unrealized Gains

 

 

Gross Unrealized Losses

 

 

Fair Value

 

Certificates of deposit

 

$

1,250

 

 

$

1

 

 

$

 

 

$

1,251

 

U.S. treasury securities

 

 

34,139

 

 

 

8

 

 

 

 

 

 

34,147

 

Total

 

$

35,389

 

 

$

9

 

 

$

 

 

$

35,398

 

The following table summarizes the maturities of the Company’s marketable securities at March 31, 2021 and December 31, 2020 (in thousands):

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

Amortized Cost

 

 

Fair Value

 

 

Amortized Cost

 

 

Fair Value

 

Due in less than 1 year

 

$

22,602

 

 

$

22,617

 

 

$

25,387

 

 

$

25,396

 

Due in 1-2 years

 

 

10,001

 

 

 

10,002

 

 

 

10,002

 

 

 

10,002

 

Total

 

$

32,603

 

 

$

32,619

 

 

$

35,389

 

 

$

35,398

 

Guarantees

As permitted under Delaware law, the Company indemnifies its officers and directors for certain events or occurrences while each such officer or director is, or was, serving at the Company’s request in such capacity. The term of the indemnification is the officer’s or director’s lifetime. The maximum potential amount of future payments the Company could be required to make is unlimited; however, the Company has directors’ and officers’ liability insurance coverage that limits its exposure and enables the Company to recover a portion of any future amounts paid.

The Company leases office, laboratory and manufacturing space under noncancelable operating leases. The Company has standard indemnification arrangements under the leases that require it to indemnify the landlords against all costs, expenses, fines, suits, claims, demands, liabilities, and actions directly resulting from any breach, violation or nonperformance of any covenant or condition of the Company’s leases.

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In the ordinary course of business, the Company enters into indemnification agreements with certain suppliers and business partners where the Company has certain indemnification obligations limited to the costs, expenses, fines, suits, claims, demands, liabilities and actions directly resulting from the Company’s gross negligence or willful misconduct, and in certain instances, breaches, violations or nonperformance of covenants or conditions under the agreements.

As of March 31, 2021 and December 31, 2020, the Company had not experienced any material losses related to these indemnification obligations, and no material claims with respect thereto were outstanding. The Company does not expect significant claims related to these indemnification obligations and, consequently, concluded that the fair value of these obligations is negligible, and no related reserves were established.

Leases

Pursuant to Topic 842, Leases (“ASC 842”), at the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and long-term lease liabilities. The Company has elected not to recognize on the balance sheet leases with terms of one year or less. The exercise of lease renewal options is at our discretion and the renewal to extend the lease terms are not included in the Company’s right-of-use assets and lease liabilities as they are not reasonably certain of exercise. The Company will evaluate the renewal options and when they are reasonably certain of exercise, the Company will include the renewal period in its lease term. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. However, certain adjustments to the right-of-use asset may be required for items such as prepaid or accrued lease payments. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

 

In accordance with the guidance in ASC 842, components of a lease should be split into three categories: lease components (e.g. land, building, etc.), non-lease components (e.g. common area maintenance, consumables, etc.), and non-components (e.g. property taxes, insurance, etc.). Then the fixed and in-substance fixed contract consideration (including any related to non-components) must be allocated based on the respective relative fair values to the lease components and non-lease components.

 

The Company made the policy election to not separate lease and non-lease components. Each lease component and the related non-lease components are accounted for together as a single component.

Revenue Recognition

The Company generates revenue from the sale of instruments, consumable diagnostic tests, related services, reagent rental agreements and government contributions. Pursuant to ASC 606, Revenue from Contracts with Customers (“ASC 606”), the Company determines revenue recognition through the following steps:

 

Identification of a contract with a customer

 

Identification of the performance obligations in the contract

 

Determination of the transaction price

 

Allocation of the transaction price to the performance obligations

 

Recognition of revenue as a performance obligation is satisfied

The amount of revenue recognized reflects the consideration the Company expects to be entitled to receive in exchange for these goods and services.

 

Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company's performance obligations are transferred to customers at a point in time, typically upon shipment, or over time, as services are performed.

 

Most of the Company’s contracts with distributors in geographic regions outside the United States contain only a single performance obligation, whereas most of the Company’s contracts with direct sales customers in the United States contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Excluded from the transaction price are sales tax and other similar taxes which are presented on a net basis.

 

 

 

 

 

10


 

 

Product revenue is generated by the sale of instruments and consumable diagnostic tests predominantly through the Company’s direct sales force in the United States and distributors in geographic regions outside the United States. The Company does not offer product return or exchange rights (other than those relating to defective goods under warranty) or price protection allowances to its customers, including its distributors. Payment terms granted to distributors are the same as those granted to end-user customers and payments are not dependent upon the distributors’ receipt of payment from their end-user customers.

 

The Company either sells instruments to customers and international distributors, or retains title and places the instrument at the customer site pursuant to a reagent rental agreement. When an instrument is purchased by a customer or international distributor, the Company recognizes revenue when the related performance obligation is satisfied (i.e. when the control of an instrument has passed to the customer; typically, at shipping point).

 

When the instrument is placed under a reagent rental agreement, the Company’s customers generally agree to fixed term agreements, which can be extended, and incremental charges on each consumable diagnostic test purchased. Revenue from the sale of consumable diagnostic tests (under a reagent rental agreement) is generally recognized upon shipment. The transaction price from consumables purchases is allocated between the lease of the instrument (under a contingent rent methodology as provided for in ASC 842, Leases), and the consumables when related performance obligations are satisfied, as a component of lease and product revenue, and is included as Instrument Rentals in the below table. Revenue associated with reagent rental consumables purchases is currently classified as variable consideration and constrained until a purchase order is received and related performance obligations have been satisfied.  

 

Revenue from the sale of consumable diagnostic tests (under instrument purchase agreements) is generally recognized upon shipment.

 

Shipping and handling costs billed to customers in connection with a product sale are recorded as a component of the transaction price and allocated to product revenue in the condensed consolidated statements of operations and comprehensive loss as they are incurred by the Company in fulfilling its performance obligations.

 

Direct sales of instruments include warranty, maintenance and technical support services typically for 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. The Company recognizes revenue allocated to the extended Maintenance Services performance obligation on a straight-line basis over the service delivery period.  

Fees paid to member-owned group purchasing organizations (“GPOs”) are deducted from related product revenues.

 

The Company warrants that consumable diagnostic tests will be free from defects, when handled according to product specifications, for the stated life of the product. To fulfill valid warranty claims, the Company provides replacement product free of charge. Accordingly, the Company accrues warranty expense associated with the estimated defect rates of the consumable diagnostic tests.

 

Pursuant to ASU No. 2018-08, Not-For-Profit Entities – Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made (“ASU 2018-08”), 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. Contribution revenue is recognized when all donor-imposed conditions have been met.

 

The Company has a significant development contract with BARDA and should BARDA reduce, cancel or not grant additional milestone projects, the Company’s ability to continue our future product development may be impacted. Refer to Note 11 for further details regarding the development contract with BARDA.

 

Disaggregation of Revenue

 

The Company disaggregates

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revenue from contracts with customers by type of products and services, as it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The following table disaggregates our revenue by major source (in thousands):

 

 

Three Months Ended,

March 31,

 

 

 

2021

 

 

2020

 

Product Revenue

 

 

 

 

 

 

 

 

Instruments

 

$

425

 

 

$

247

 

Consumables

 

 

4,206

 

 

 

745

 

Instrument rentals

 

 

19

 

 

 

53

 

Total Product Revenue

 

 

4,650

 

 

 

1,045

 

Contribution Revenue

 

 

2,306

 

 

 

1,500

 

Total Revenue

 

$

6,956

 

 

$

2,545

 

 

Remaining Performance Obligations

 

Under ASC 606, the Company is required to disclose the aggregate amount of the transaction price that is allocated to unsatisfied or partially satisfied performance obligations as of March 31, 2021. However, the guidance provides certain practical expedients that limit this requirement, and therefore, the Company has elected to not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. The nature of the excluded unsatisfied performance obligations pursuant to the practical expedient include consumable shipments, service contracts, warranties and installation services that will be performed within one year. The amount of the transaction price that is allocated to unsatisfied or partially satisfied performance obligations, that has not yet been recognized as revenue and that does not meet the elected practical expedient is $0.6 million as of March 31, 2021. The Company expects to recognize 52% of this amount as revenue within one year and the remainder within two years.

 

Significant Judgments

 

Certain contracts with customers include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Once the performance obligations are determined, the Company determines the transaction price, which includes estimating the amount of variable consideration, based on the most likely amount, to be included in the transaction price, if any. The Company then allocates the transaction price to each performance obligation in the contract based on a relative standalone selling price method. The corresponding revenue is recognized as the related performance obligations are satisfied as discussed in the revenue categories above.

 

Judgment is required to determine the standalone selling price for each distinct performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as a range of selling prices, market conditions and the expected costs and margin related to the performance obligations.

 

Contract Assets and Liabilities

 

The Company did not record any contract assets at March 31, 2021 and December 31, 2020.  

 

The Company’s contract liabilities consist of upfront payments for research and development contracts and maintenance services on instrument sales. Contract liabilities are classified in deferred revenue as current or noncurrent based on the timing of when revenue is expected to be recognized. Contract liabilities were $0.6 million and $0.6 million at March 31, 2021 and December 31, 2020, respectively. Revenue recognized during the three months ended March 31, 2021 relating to contract liabilities at December 31, 2020 was immaterial and related to straight-line revenue recognition associated with maintenance agreements.  

Cost to Obtain and Fulfill a Contract

The Company capitalizes commission expenses paid to sales personnel that are recoverable and incremental to obtaining capital purchase agreements within the United States. These costs are classified as prepaid expenses and other current assets and other assets, based on their current or non-current nature, respectively. The Company capitalizes only those costs that are determined to be incremental and would not have occurred absent the customer contract. These capitalized costs are amortized as selling, general and administrative costs on a straight line basis over the expected period of benefit. These costs are reviewed periodically for impairment.

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At March 31, 2021, the Company capitalized costs to fulfill contracts of $0.1 million in prepaid and other current assets and $0.1 million in other non-current assets. At December 31, 2020, the Company capitalized costs to fulfill contracts of $0.1 million in prepaid and other current assets and $0.1 million in other non-current assets.

Cost of Product Revenue

Cost of product revenue includes the cost of materials, direct labor and manufacturing overhead costs used in the manufacture of consumable diagnostic tests sold to customers, related warranty and license and royalty fees. Cost of product revenue also includes depreciation on T2-owned revenue generating T2Dx instruments that have been placed with customers under reagent rental agreements; costs of materials, direct labor and manufacturing overhead costs on the T2Dx instruments sold to customers; and other costs such as customer support costs, royalties and license fees, warranty and repair and maintenance expense on the T2Dx instruments that have been placed with customers under reagent rental agreements.

Research and Development Costs

Costs incurred in the research and development of the Company’s product candidates are expensed as incurred. Research and development expenses consist of costs incurred in performing research and development activities, including activities associated with performing services under research revenue arrangements, costs associated with the enhancements of developed products and include salaries and benefits, stock compensation, research‑related facility and overhead costs, laboratory supplies, equipment and contract services.

Recent Accounting Standards

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

Accounting Standards Adopted

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The Company adopted ASU 2019-12 on January 1, 2021. The adoption did not have a material impact on the Company’s financial statements.

Accounting Standards Issued, Not Adopted

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an Entity's Own Equity (“ASU 2020-06”), which simplifies accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. The standard is effective for smaller reporting companies for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years. The Company is currently evaluating the impact that this new standard will have on its financial statements.

In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”) which clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after a modification or exchange. This standard is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply this standard prospectively to modifications or exchanges occurring on or after the effective date of this standard. The Company is currently evaluating the impact that this new standard will have on its financial statements.

3. Fair Value Measurements

The Company measures the following financial assets at fair value on a recurring basis. There were no transfers between levels of the fair value hierarchy during any of the periods presented. The following tables set forth the Company’s financial assets and

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liabilities carried at fair value categorized using the lowest level of input applicable to each financial instrument as of March 31, 2021 and December 31, 2020 (in thousands):

 

 

 

Balance at

March 31,