Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our consolidated financial condition and results of operations together with our consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, 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 “Item 1A.—Risk Factors” section of this Annual Report on Form 10-K, 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.
Business Overview
We are an in vitro diagnostics company and leader in the rapid detection of sepsis-causing pathogens and antibiotic resistance genes. We are dedicated to improving patient care and reducing the cost of care by helping clinicians effectively treat patients faster than ever before. We have developed innovative products that offer a rapid, sensitive and simple alternative to existing diagnostic methodologies. We are developing a broad set of applications aimed at improving patient outcomes, reducing the cost of healthcare, and lowering mortality rates by helping medical professionals make earlier targeted treatment decisions. Our technology enables rapid detection of pathogens, biomarkers and other abnormalities in a variety of unpurified patient sample types, including whole blood, plasma, serum, saliva, sputum and urine, and can detect cellular targets at limits of detection as low as one colony forming unit per milliliter, or CFU/mL. We are currently targeting a range of critically underserved healthcare conditions, focusing initially on those for which a rapid diagnosis will serve an important dual role – saving lives and reducing costs. Our current development efforts primarily target sepsis, bioterrorism, and Lyme disease, which are areas of significant unmet medical need in which existing therapies could be more effective with improved diagnostics.
Our primary commercial products include the T2Dx ® Instrument, the T2Candida ® Panel, the T2Bacteria ® Panel, the T2Resistance ® Panel, and the T2Biothreat Panel.
We have never been profitable and have incurred net losses in each year since inception. Our accumulated deficit on December 31, 2023 was $584.3 million and we have experienced cash outflows from operating activities since inception. Substantially all of our net losses resulted from costs incurred in connection with our research and development programs, from selling, general and administrative costs associated with our operations, and costs of product revenue. We have incurred significant commercialization expenses related to product sales, marketing, manufacturing and distribution of our FDA-cleared products, the T2Dx Instrument, T2Candida Panel, T2Bacteria Panel, and T2Biothreat Panel. In addition, we will continue to incur significant costs and expenses as we continue to develop other product candidates, improve existing products and maintain, expand and protect our intellectual property portfolio. We may seek to fund our operations through public equity or private equity or debt financings, as well as other sources. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements if and when needed would have a negative impact on our business, results of operations and financial condition and our ability to develop, commercialize and drive adoption of the T2Dx Instrument and the T2Candida, T2Bacteria, T2Resistance and T2Biothreat Panels and future products.
We are subject to a number of risks similar to other early commercial stage life science companies, including, but not limited to commercially launching our products, development and market acceptance of our product candidates, development by our competitors of new technological innovations, protection of proprietary technology, and raising additional capital.
We believe that our cash, cash equivalents, and restricted cash of $16.2 million on December 31, 2023 will not be sufficient to fund our current operating plan at least a year from issuance of our financial statements for the year ended December 31, 2023 unless additional funds are raised in the first half of 2024. Certain elements of our operating plan cannot be considered probable. During the year ended December 31, 2023, we reduced our overall cost structure, including reductions in headcount and operating expenses, with a focus on lowering overall operating expenses and improving cost of goods sold.
The Company's Term Loan Agreement (the “Term Loan Agreement”) with certain CRG entities (collectively, “CRG”) (See Note 6 of the notes to our consolidated financial statements) has a minimum liquidity covenant, which initially required the Company to maintain a minimum cash balance of $5.0 million. In May 2023, CRG reduced the minimum liquidity covenant under the Term Loan Agreement from $5.0 million to $500,000 until December 31, 2023. In July 2023, the Company also converted $10.0 million of the outstanding debt with CRG to equity. In October 2023, the Term Loan Agreement was amended to extend both the interest-only period and the maturity date by one year from December 30, 2024 to December 31, 2025, and permanently reduce the minimum liquidity covenant from $5.0 million to $500,000. There can be no assurances that the Company will continue to be in compliance with the cash covenant in future periods without additional funding.
On March 30, 2023, the Company received notice from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, for the last thirty consecutive business days, the bid price for the Company’s common stock had closed below the minimum $1.00 per share requirement for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 555(a)(2) (the “Minimum Bid Price Rule”). On May 23, 2023, Nasdaq notified the Company that its securities were subject to delisting due to non-compliance with the Minimum Bid Price Rule and to maintain a minimum value of listed securities (the “MVLS Rule”) of at least $35 million. The Company requested a hearing with Nasdaq and, on July 6, 2023, appealed to the Nasdaq Hearings Panel for an extension to the time period in which to regain compliance with the MVLS Rule and the Minimum Bid Price Rule. On July 26, 2023, we filed a definitive proxy statement to effect a reverse stock split of our common stock in connection with our annual meeting that occurred in September 2023 as required by the Nasdaq Hearings Panel. On August 9, 2023, the Company received written notice from Nasdaq informing the Company that it had regained compliance with the MVLS Rule. On September 15, 2023, at the Company’s annual meeting of stockholders, the Company’s stockholders approved an amendment to the Company’s restated certificate of incorporation to effect a reverse stock split of the Company’s common stock. On October 12, 2023, the Company announced that its board of directors had approved the reverse stock split at the ratio of 1 post-split share for every 100 pre-split shares, which was effective as of October 12, 2023.
On October 31, 2023, the Company received written notice from Nasdaq informing the Company that it has regained compliance with the Minimum Bid Price Rule. The Company will be subject to a Mandatory Panel Monitor for a period of one year. If, within that one-year monitoring period, the Company fails to comply with the Minimum Bid Price Rule, the Company will not be permitted additional time to regain compliance with the Minimum Bid Price Rule. However, the Company will have an opportunity to request a new hearing with the Nasdaq Hearings Panel prior to the Company’s securities being delisted from Nasdaq.
On November 20, 2023, the Company received written notice from Nasdaq informing the Company that it no longer satisfied the MVLS Rule. In accordance with the terms of the Mandatory Panel Monitor, the Company was not granted a grace period but rather issued a delist determination, which will be stayed if the Company exercises its right to appeal by requesting a hearing and paying a non-refundable $20,000 fee. The Company has paid the $20,000 applicable fee and requested a new hearing, which will stay any further action by Nasdaq at least pending the issuance of its decision and the expiration of any extension that may be granted to the Company as a result of the hearing. The Company’s common stock will remain listed and eligible to trade on Nasdaq pending the outcome of the hearing. On February 15, 2024, the Company appealed to the Nasdaq Hearings Panel for an extension to the time period in which to regain compliance with the MVLS Rule. On March 11, 2024, the Company received notice from the Nasdaq Hearings Panel that it had granted the Company’s request for continued listing on Nasdaq, subject to the Company demonstrating compliance with Nasdaq’s MVLS Rule on or before May 20, 2024.
These conditions raise substantial doubt regarding our ability to continue as a going concern for a period of one year after the date that the financial statements are issued. Management's plans to alleviate the conditions that raise substantial doubt include raising additional funding, delaying certain research projects and capital expenditures, and eliminating certain future operating expenses in order to fund operations at reduced levels in order to continue as a going concern for a period of 12 months from the date these audited consolidated financial statements are issued. Management has concluded the likelihood that its plan to successfully obtain sufficient funding from one or more of these sources or maintain reduced expenditures, while reasonably possible, is less than probable. Accordingly, we have concluded that substantial doubt exists about our ability to continue as a going concern for a period of at least 12 months from the date of issuance of these financial statements.
Financial Overview
Revenue
We generate revenue from the sale of our products, related services, reagent rental agreements and government contributions.
Grants received, including cost reimbursement agreements, are assessed to determine if the agreement should be accounted for as an exchange transaction or a contribution. An agreement is accounted for as a contribution if the resource provider does not receive commensurate value in return for the assets transferred.
Product revenue is generated by the sale of instruments and consumable diagnostic tests predominantly through our direct sales force in the United States and distributors in geographic regions outside the United States. We generally do not offer product returns or exchange rights (other than those relating to defective goods under warranty) or price protection allowances to our customers, including our distributors. Payment terms granted to distributors are the same as those granted to end-user customers and payments are not dependent upon the distributors’ receipt of payment from their end-user customers. We either sell instruments to customers and international distributors, or retain title and place the instrument at the customer site pursuant to a reagent rental agreement. When the instrument is placed under a reagent rental agreement, our customers generally agree to fixed term agreements, which can be extended, and incremental charges on each consumable diagnostic test purchased. Shipping and handling costs are billed to customers in connection with a product sale.
Fees paid to member-owned group purchasing organizations (“GPOs”) are deducted from related product revenues.
Direct sales of instruments include warranty, maintenance and technical support services typically for one year following the installation of the purchased instrument (“Maintenance Services”). Maintenance Services are separate performance obligations as they are service based warranties and are recognized on a straight-line basis over the service delivery period. After the completion of the initial Maintenance Services period, customers have the option to renew or extend the Maintenance Services typically for additional one-year periods in exchange for additional consideration. The extended Maintenance Services are also service based warranties that represent separate purchasing decisions.
We warrant that consumable diagnostic tests will be free from defects, when handled according to product specifications, for the stated life of the product. To fulfill valid warranty claims, we provide replacement product free of charge.
Our current sales strategy is to drive adoption of our test platform installed base in hospitals and to increase test use by our existing hospital customers. Accordingly, we expect the following to occur:
recurring revenue from our consumable diagnostic tests will increase; and
become a more predictable and significant component of total revenue; and
we will gain manufacturing economies of scale through the growth in our sales, resulting in improving gross margins and operating margins.
In September 2023, the Company’s milestone-based product development contract with the Biomedical Advanced Research and Development Authority (“BARDA”) (See Note 16 of the notes to our consolidated financial statements) expired.
Cost of product revenue
Cost of product revenue includes the cost of materials, direct labor and manufacturing overhead costs used in the manufacture of our consumable diagnostic tests sold to customers and related license and royalty fees. Cost of product revenue also includes depreciation on the revenue-generating T2Dx instruments that have been placed with our customers under reagent rental agreements; costs of materials, direct labor and manufacturing overhead costs on the T2Dx instruments sold to customers; and other costs such as customer support costs, warranty and repair and maintenance expense on the T2Dx instruments that have been placed with our customers under reagent rental agreements. We manufacture the T2Dx instruments and part of our consumable diagnostic tests in our facilities. We outsource the manufacturing of components of our consumable diagnostic tests to contract manufacturers. We expect cost of product revenue to decrease as a percentage of revenue as a result of the cost of product revenue improvement initiatives.
Research and development expenses
Our research and development expenses consist primarily of costs incurred for the development of our technology and product candidates, technology improvements and enhancements, clinical trials to evaluate the clinical utility of our product candidates, and laboratory development and expansion, and include salaries and benefits, including stock-based compensation, research related facility and overhead costs, laboratory supplies, equipment, depreciation on T2Dx instruments used in research and development activities and contract services. Research and development expenses also include costs of delivering products or services associated with contribution revenue. We expense all research and development costs as incurred.
We anticipate our overall research and development expenses to remain consistent. We expect to continue developing additional product candidates, improving existing products, and conducting ongoing and new clinical trials.
Selling, general and administrative expenses
Selling, general and administrative expenses consist primarily of costs for our sales, marketing, service, medical affairs, finance, legal, human resources, information technology, and general management functions, as well as professional services, such as legal, consulting and accounting services. Other selling, general and administrative expenses include commercial support activity, facility-related costs, fees and expenses associated with obtaining and maintaining patents, clinical and economic studies and publications, marketing expenses, and travel expenses. We expense the majority of selling, general and administrative expenses as incurred. We expect selling, general and administrative expenses to decrease as a percentage of revenue in future periods.
Impairment of property and equipment
Impairment of property and equipment relates to loss recorded when the carrying value of property and equipment is written down to its estimated fair value when indicators of impairment exist.
Interest expense to related party
Interest expense to related party consists primarily of interest expense on our notes payable, the amortization of deferred financing costs and debt discount.
Change in fair value of derivative related to Term Loan with related party
The change in fair value of the derivative consists of the change in fair value of the derivative associated with the CRG Term Loan Agreement.
Change in fair value of warrant liabilities
The change in fair value of the derivative warrant liability consists of the change in fair value of the derivative warrant liability associated with the Securities Purchase Agreement.
Other, net
Other, net consists of dividend income, other investment income, interest income earned on our cash and cash equivalents, non-recurring expenses including issuance costs allocated to the derivative warrant liability, and non-recurring gains and losses including the initial loss on issuance of Series A redeemable convertible preferred stock and derivative warrant liability.
Results of Operations for the Years Ended December 31, 2023 and 2022
Year Ended
December 31,
Change
(in thousands)
Revenue:
Product revenue
Contribution revenue
Total revenue
Costs and expenses:
Cost of product revenue
Research and development
Selling, general and administrative
Impairment of property and equipment
Total costs and expenses
Loss from operations
Other income (expense):
Interest expense to related party
Change in fair value of derivative related to Term Loan with related party
Change in fair value of warrant liabilities
Other, net
Total other expense
Net loss
Product revenue
During the year ended December 31, 2023, product revenue was $6.8 million, compared to $11.3 million for the year ended December 31, 2022, a decrease of $4.5 million, which was driven by lower consumables sales of $3.3 million primarily due to a decrease in sales of T2SARS-CoV-2 tests, product backorder due to manufacturing, supply chain, and raw material matters, lower T2Dx Instrument and related sales of $1.0 million, and lower revenue under our service agreements of $0.2 million.
Contribution revenue
Contribution revenue, all from the BARDA contract, was $0.4 million for the year ended December 31, 2023, compared to $11.0 million for the year ended December 31, 2022, a decrease of $10.6 million, which was driven by decreased contract activity and the timing and option amounts available in 2023 compared to 2022.
Cost of product revenue
During the year ended December 31, 2023, cost of product revenue was $15.4 million, compared to $21.0 million for the year ended December 31, 2022, a decrease of $5.6 million. The decrease was driven by $2.0 million of decreased costs related to lower consumable sales, $1.5 million of lower shipping and other costs, $1.5 million of lower service and repair costs, $0.9 million of costs related to lower instrument sales, and $0.1 million of lower royalty costs, partially offset by $0.4 million of increased costs due to the effect of a change in build plan and manufacturing inefficiencies.
Research and development expenses
Research and development expenses were $14.2 million for the year ended December 31, 2023, compared to $25.7 million for the year ended December 31, 2022, a decrease of $11.6 million. Lab and facility expenses decreased by $3.5 million primarily due to the timing of expenses associated with BARDA Option 3 compared to Option 2A, lower employee headcount, and lower material purchases; payroll related and stock-based compensation expenses decreased by $2.7 million due to lower employee headcount; clinical-related expenses decreased by $1.9 million due to the conclusion of several clinical trials; consulting expenses decreased by $1.8 million due to the completion of the T2Biothreat clinical trial; research and development project related expenses decreased by $1.6 million; and other costs decreased by $0.1 million.
Selling, general and administrative expenses
Selling, general and administrative expenses were $24.8 million for the year ended December 31, 2023, compared to $30.6 million for the year ended December 31, 2022, a decrease of $5.8 million. The decrease was driven by lower payroll related and stock-based compensation expenses of $4.6 million primarily due to lower employee headcount; lower other expenses of $1.2 million primarily due to the $1.0 million estimated liability recorded for our Billerica, Massachusetts lease for the year ended December 31, 2022; lower marketing expenses of $0.6 million; a decrease in travel expenses of $0.3 million; and a $0.2 million decrease in other expenses primarily due to less IT support services and less facilities costs, partially offset by an increase in consulting expenses of $0.6 million and an increase in legal expenses of $0.5 million.
Impairment of property and equipment
Impairment of property and equipment was $2.5 million for the year ended December 31, 2023, which was comprised of $2.3 million of impairment charges related to reagent manufacturing assets and $0.2 million of impairment charges related to T2-owned non-lease instruments. Impairment of property and equipment was $0.2 million for the year ended December 31, 2022.
Interest expense to related party
Interest expense to related party was $5.3 million for the year ended December 31, 2023, compared to $6.1 million for the year ended December 31, 2022. Interest expense to related party decreased by $0.8 million primarily due to the cancellation of $10.0 million of the CRG Term Loan’s principal in exchange for common stock and Series B Convertible Preferred Stock in July 2023.
Change in fair value of derivative related to Term Loan with related party
The change in fair value of the derivative instrument associated with the CRG Term Loan Agreement (See Note 6 of the notes to our consolidated financial statements) was $0.5 million of expense for the year ended December 31, 2023 and $1.1 million of expense for the year ended December 31, 2022.
Change in fair value of warrant liabilities
The change in fair value of warrant liabilities consisted of $5.9 million of income primarily associated with the Common Stock Warrants and Pre-Funded Warrants (see Note 8 of the notes to our consolidated financial statements) for the year ended December 31, 2023. The change in fair value of warrant liabilities consisted of $0.3 million of income for the year ended December 31, 2022.
Other, net
Other, net was an expense of $0.5 million for the year ended December 31, 2023, primarily consisting of issuance costs allocated to the Common Stock Warrants of $0.7 million, partially offset by dividend income of $0.2 million and other income of $0.1 million. Other, net was immaterial for the year ended December 31, 2022.
Liquidity and Capital Resources
We have incurred losses and cumulative negative cash flows from operations since our inception, and as of December 31, 2023 and 2022, we had an accumulated deficit of $584.3 million and $534.2 million, respectively. We have incurred significant commercialization expenses related to product sales, marketing, manufacturing and distribution. We may seek to continue to fund our operations through public equity or private equity or debt financings, as well as other sources. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements if and when needed would have a negative impact on our business, results of operations and financial condition.
Historically, the Company has primarily funded its operations through public equity and private debt financings. The Company believes its cash position is insufficient to fund future operations without financings by the first half of 2024. Financings may include public or private equity or debt financings. These financings may not be successful, however, or on terms favorable to the Company or its stockholders which would have a negative impact on the Company’s business, results of operations, financial condition and the Company’s ability to develop and commercialize its products and ultimately operate as a going-concern.
Equity Distribution Agreement
On March 31, 2021, the Company entered into an Equity Distribution Agreement (“Equity Distribution Agreement”) with Canaccord Genuity LLC, as agent (“Canaccord”), pursuant to which the Company may offer and sell shares of common stock, for aggregate gross sale proceeds of up to $75.0 million from time to time from the effective date of the respective registration statement through Canaccord. In July 2023, the Company filed an amendment to the prospectus supplement relating to the offer and sale of shares under the Equity Distribution Agreement to increase the maximum amount of shares that the Company may sell pursuant to its Equity Distribution Agreement with Canaccord by $65 million. At the time of the amendment, the Company had sold shares of its common stock for gross proceeds of $71.3 million. Under the Equity Distribution Agreement, the Company sold 3,303,122 shares of common stock during the year ended December 31, 2023 for net proceeds of $41.8 million. Under the Equity Distribution Agreement, the Company sold 43,068 shares of common stock during the year ended December 31, 2022 for net proceeds of $29.2 million. Subsequent to December 31, 2023, the Company sold 628,470 shares of common stock for proceeds of $2.2 million under the Equity Distribution Agreement.
We pay Canaccord for its services of acting as agent 3% of the gross proceeds from the sale of the shares pursuant to the Equity Distribution Agreement. Legal and accounting fees are reclassified to share capital upon issuance of shares under the Equity Distribution Agreement.
Plan of operations and future funding requirements
As of December 31, 2023 and 2022 we had unrestricted cash and cash equivalents of approximately $15.7 million and $10.3 million, respectively. Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, costs related to our products, clinical trials, laboratory and related supplies, supplies and materials used in manufacturing, legal and other regulatory expenses and general overhead costs.
Until such time as we can generate substantial product revenue, we expect to finance our cash needs, beyond what is currently available or on hand, through a combination of equity offerings, debt financings and revenue from existing and potential research and development and other collaboration agreements. If we raise additional funds in the future, we may need to relinquish valuable rights to our technologies, future revenue streams or grant licenses on terms that may not be favorable to us.
Going Concern
We believe that our cash, cash equivalents, and restricted cash of $16.2 million on December 31, 2023 will not be sufficient to fund our current operating plan at least a year from issuance of these financial statements unless additional funds are raised in the first half of 2024. Certain elements of our operating plan cannot be considered probable.
The Company's Term Loan Agreement (See Note 6 of the notes to our consolidated financial statements) has a minimum liquidity covenant, which initially required the Company to maintain a minimum cash balance of $5.0 million. In May 2023, CRG reduced the minimum liquidity covenant under the Term Loan Agreement from $5.0 million to $500,000 until December 31, 2023. In July 2023, the Company also converted $10.0 million of the outstanding debt with CRG to equity. In October 2023, the Term Loan Agreement was amended to extend both the interest-only period and the maturity date by one year from December 30, 2024 to December 31, 2025, and permanently reduce the minimum liquidity covenant from $5.0 million to $500,000. There can be no assurances that the Company will continue to be in compliance with the cash covenant in future periods without additional funding.
On March 30, 2023, the Company received notice from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, for the last thirty consecutive business days, the bid price for the Company’s common stock had closed below the minimum $1.00 per share requirement for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 555(a)(2) (the “Minimum Bid Price Rule”). On May 23, 2023, Nasdaq notified the Company that its securities were subject to delisting due to non-compliance with the Minimum Bid Price Rule and to maintain a minimum value of listed securities (the “MVLS Rule”) of at least $35 million. The Company requested a hearing with Nasdaq and, on July 6, 2023, appealed to the Nasdaq Hearings Panel for an extension to the time period in which to regain compliance with the MVLS Rule and the Minimum Bid Price Rule. On July 26, 2023, we filed a definitive proxy statement to effect a reverse stock split of our common stock in connection with our annual meeting that occurred in September 2023 as required by the Nasdaq Hearings Panel. On August 9, 2023, the Company received written notice from Nasdaq informing the Company that it had regained compliance with the MVLS Rule. On September 15, 2023, at the Company’s annual meeting of stockholders, the Company’s stockholders approved an amendment to the Company’s restated certificate of incorporation to effect a reverse stock split of the Company’s common stock. On October 12, 2023, the Company announced that its board of directors had approved the reverse stock split at the ratio of 1 post-split share for every 100 pre-split shares, which was effective as of October 12, 2023.
On October 31, 2023, the Company received written notice from Nasdaq informing the Company that it has regained compliance with the Minimum Bid Price Rule. The Company will be subject to a Mandatory Panel Monitor for a period of one year. If, within that one-year monitoring period, the Company fails to comply with the Minimum Bid Price Rule, the Company will not be permitted additional time to regain compliance with the Minimum Bid Price Rule. However, the Company will have an opportunity to request a new hearing with the Nasdaq Hearings Panel prior to the Company’s securities being delisted from Nasdaq.
On November 20, 2023, the Company received written notice from Nasdaq informing the Company that it no longer satisfied the MVLS Rule. In accordance with the terms of the Mandatory Panel Monitor, the Company was not granted a grace period but rather issued a delist determination, which will be stayed if the Company exercises its right to appeal by requesting a hearing and paying a non-refundable $20,000 fee. The Company has paid the $20,000 applicable fee and requested a new hearing, which will stay any further action by Nasdaq at least pending the issuance of its decision and the expiration of any extension that may be granted to the Company as a result of the hearing. On February 15, 2024, the Company appealed to the Nasdaq Hearings Panel for an extension to the time period in which to regain compliance with the MVLS Rule. On March 11, 2024, the Company received notice from the Nasdaq Hearings Panel that it had granted the Company’s request for continued listing on Nasdaq, subject to the Company demonstrating compliance with Nasdaq’s MVLS Rule on or before May 20, 2024.
These conditions raise substantial doubt regarding our ability to continue as a going concern for a period of one year after the date that the financial statements are issued. Management's plans to alleviate the conditions that raise substantial doubt include raising additional funding and maintaining reduced operating expenses in order to continue as a going concern for a period of 12 months from the date these audited consolidated financial statements are issued. Management has concluded the likelihood that its plan to successfully obtain sufficient funding from one or more of these sources or maintain reduced expenditures, while reasonably possible, is less than probable. Accordingly, we have concluded that substantial doubt exists about our ability to continue as a going concern for a period of at least 12 months from the date of issuance of these financial statements.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.
Cash flows
The following is a summary of cash flows for each of the periods set forth below:
Year Ended
December 31,
(in thousands)
Net cash (used in) provided by:
Operating activities
Investing activities
Financing activities
Net change in cash, cash equivalents and restricted cash
Net cash used in operating activities
Net cash used in operating activities was $48.1 million for the year ended December 31, 2023, and consisted primarily of a net loss of $50.1 million adjusted for non-cash items including a change in fair value of warrant liabilities of $5.9 million, stock-based compensation expense of $4.4 million, an impairment of property and equipment of $2.5 million, non-cash interest expense to related party of $1.7 million, non-cash lease expense of $1.3 million, depreciation and amortization expense of $0.9 million, issuance costs related to Common Stock Warrants of $0.7 million, a change in fair value of the derivative related to Term Loan with related party of $0.5 million, and a net change in operating assets and liabilities of $4.1 million. The net change in operating assets and liabilities was primarily driven by a decrease in accrued expenses of $2.5 million primarily due to a $1.0 million reduction to accrued legal fees due to expensing of the $1.0 million rent deposit for the Billerica lease and a reduction of $0.8 million accrued clinical trial and development expenses, a decrease in operating lease liabilities of $1.4 million, an increase in inventory of $0.7 million due to timing of purchases and shipments, and an increase in prepaid expenses and other assets of $0.5 million due to timing of deposits for goods and services, partially offset by a decrease in accounts receivable of $0.7 million due to payment from BARDA and the timing and volume of instrument and consumable sales, an increase in accounts payable of $0.2 million due to timing of invoices and payments, and an increase in deferred revenue of $0.1 million.
Net cash used in operating activities was $50.6 million for the year ended December 31, 2022, and consisted primarily of a net loss of $62.0 million, an adjustment for non-cash items including stock-based compensation expense of $6.4 million, non-cash interest expense to related party of $2.1 million, non-cash lease expense of $1.2 million, a change in fair value of the derivative related to Term Loan with related party of $1.0 million, depreciation and amortization expense of $1.0 million, impairment of property and equipment of $0.1 million, loss on issuance of Series A redeemable convertible preferred stock and derivative warrant liability of $0.1 million, a change in fair value of derivative warrant liability which is a reduction of expense of $0.3 million and a net change in operating assets and liabilities of $0.5 million. The net change in operating assets and liabilities was primarily driven by a decrease in accounts receivable of $2.9 million due to BARDA payments and the timing and volume of instrument and consumable sales, a decrease in prepaid expenses and other assets of $0.5 million due to timing of deposits for goods and services and an increase in accrued expenses of $0.3 million due to the $1.0 million estimated liability recorded for the Billerica, Massachusetts lease and the additional clinical activity for our T2Resistance 510(k) Study, partially offset by decreased bonus. These changes were partially offset by a decrease in operating lease liabilities of $1.4 million, a decrease in accounts payable of $1.6 million primarily due to timing of invoices and payments, a decrease in inventory of $0.9 million due to securing raw materials and bulk materials purchases for favorable pricing and a decrease in deferred revenue of $0.3 million due to timing of our ratably recognized service agreements.
Net cash used in investing activities
Net cash used in investing activities was $0.2 million for the year ended December 31, 2023, and consisted of $0.2 million of costs to acquire property and equipment.
Net cash provided by investing activities was $9.7 million for the year ended December 31, 2022, and consisted of $10.0 million of proceeds from the sale of marketable securities, offset by $0.3 million of costs to acquire property and equipment.
Net cash provided by financing activities
Net cash provided by financing activities was $52.7 million for the year ended December 31, 2023, and consisted primarily of proceeds from sales of our common stock under the Equity Distribution Agreement, net of issuance costs, of $41.8 million and proceeds from our February public offering, net of issuance costs, of $10.9 million, offset by payment of debt issuance costs of $0.1 million.
Net cash provided by financing activities was $29.1 million for the year ended December 31, 2022, and consisted primarily of net proceeds from issuance of common stock in public offerings of $29.1 million, proceeds of $0.3 million from the issuance of Series A redeemable convertible preferred stock and derivative warrant liability, net proceeds of $0.1 million from issuance of common stock and stock option exercises, redemption of Series A redeemable convertible preferred stock of $0.3 million and payment of employee restricted stock tax withholdings of $0.2 million.
Borrowing Arrangements
Term Loan Agreement
In December 2016, we entered into the Term Loan Agreement with CRG. We initially borrowed $40.0 million under the Term Loan Agreement and had the ability to borrow an additional $10.0 million upon receiving specified clearance for the marketing of T2Bacteria by April 30, 2018 (the “Approval Milestone”). We agreed to pay (1) a financing fee based on the amount of principal drawn and (2) a final payment fee based on the principal outstanding upon repayment. The debt discount related to the financing fee and the fees paid to CRG are being amortized over the loan term as interest expense. The final payment fee is accrued as interest expense and is classified consistent with the classification of the Term Loan.
The Term Loan’s principal is prepayable at any time partially or in full without a prepayment penalty. Borrowings are collateralized by a lien on substantially all of our assets, including intellectual property. The Term Loan Agreement provides for affirmative and negative covenants, including a requirement to maintain a minimum cash balance of $5.0 million. The Term Loan Agreement includes a subjective acceleration clause whereby an event of default, including a material adverse change in the business, operations, or conditions (financial or otherwise), could result, at CRG’s discretion, in the acceleration of the obligations under the Term Loan Agreement. Under certain circumstances, a default interest rate of an additional 4.0% per annum may apply, at CRG’s discretion, on all outstanding obligations during the occurrence and continuance of an event of default.
The Term Loan originally had a six-year term, with three years of interest-only payments accruing at a fixed rate of 12.5%, of which 4.0% could be paid in-kind by increasing the principal balance. After achievement of the Approval Milestone, such rates would be reduced and a fourth year of interest-only payments would be granted, after which quarterly payments of principal and interest would be owed through the December 30, 2022 maturity date. Upon achievement of certain performance metrics, the loan would be converted to interest-only until its maturity, at which time all unpaid principal and interest would be due and payable.
In connection with the Term Loan Agreement, we issued warrants to CRG to purchase a total of 105 shares of our common stock, exercisable any time prior to December 30, 2026.
Amendments
The Term Loan Agreement has been amended nine times. As a result of those amendments, certain terms of the Term Loan have been revised as follows:
In 2018, upon our achievement of the Approval Milestone, interest on borrowings began accruing at 11.50% per year, 8% of which is payable in cash quarterly and 3.5% of which is deferred and added to principal until maturity.
The final payment fee was increased from 8% to 10% of the principal outstanding upon repayment.
We issued additional warrants to CRG to purchase 113 shares of our common stock, exercisable any time prior to September 9, 2029 at an exercise price of $7,750.00 per share, with provisions for termination upon a change of control or a sale of all or substantially all of our assets (these warrants, along with the warrants to purchase 105 shares of common stock previously issued to CRG, are collectively referred to as the “CRG Warrants”).
We reduced the exercise price for the warrants previously issued to CRG to $7,750.00.
In 2022, the principal maturity date was extended to December 30, 2024, and the Term Loan’s interest-only payment period was extended until that maturity date.
We entered into a waiver and consent with CRG that reduced the minimum liquidity covenant to $500,000 until December 31, 2023.
CRG waived certain specified events of default associated with our issuance of shares of Series A Redeemable Convertible Preferred Stock in August 2022 and the subsequent redemption (See Note 7 of the notes to our consolidated financial statements).
In July 2023, CRG canceled $10.0 million of the Term Loan’s principal in exchange for 483,457 shares of common stock and 93,297 shares of Series B Convertible Preferred Stock.
In October 2023, the interest-only period and maturity of the Term Loan were extended to December 31, 2025 and the $500,000 liquidity covenant was made permanent.
The warrants to purchase 218 shares of our common stock remain outstanding on December 31, 2023. There were no covenant violations during the year ended December 31, 2023.
Amendments made in February 2022, November 2022, October 2023, and the partial principal cancellation in July 2023 were accounted for as troubled debt restructurings. For all restructurings, at the time of the restructuring the future undiscounted cash outflows required under the amended agreement exceeded the carrying value of the debt and no gain was recognized as a result of the restructurings. The effects of each restructuring were accounted for prospectively.
Classification
The Term Loan Agreement with CRG was classified as a non-current liability on December 31, 2022. In May 2023, we received a modification and waiver reducing the Term Loan’s minimum cash covenant from $5.0 million to $500,000 until December 31, 2023. In addition, in October 2023, the interest-only period and maturity of the Term Loan were extended to December 31, 2025, and the $500,000 liquidity covenant was made permanent. Because management believes it is probable that we will not be able to comply with the covenant through December 31, 2024 unless additional funds are raised, we concluded that the Term Loan and related liabilities should be classified as current on December 31, 2023.
We have a single compound derivative instrument related to our Term Loan Agreement that requires us to pay additional interest of 4% per annum upon an event of default or if any obligation other than the unpaid principal amount of the Term Loan is not paid when due. Fair value is determined quarterly. The fair value of the derivative on December 31, 2023 is $1.6 million and is classified as a current liability on the balance sheet on December 31, 2023 to match the classification of the related Term Loan Agreement. The fair value of the derivative on December 31, 2022 is $1.1 million and is classified as a non-current liability on the balance sheet on December 31, 2022 to match the classification of the related Term Loan Agreement.
Contingent Liabilities and Commitments, Including Tax Matters
We have net deferred tax assets of $87.2 million as of December 31, 2023, which have been fully offset by a valuation allowance due to uncertainties surrounding our ability to realize these tax benefits. The deferred tax assets are primarily composed of federal and state net operating loss (“NOL”) tax carryforwards and research and development tax credit carryforwards. As of December 31, 2023, we had federal NOL carryforwards of $273.7 million available to reduce future taxable income, if any. Out of the total NOL carryforwards of $273.7 million, $10.4 million begin to expire in 2026 and $263.3 million carryforward indefinitely. As of December 31, 2023, we had state NOL carryforwards of $245.4 million, of which $168.7 million expire at various dates through 2043 and $76.7 million is carried forward indefinitely. As of December 31, 2023, we had federal tax credit carryforwards of $28.0 thousand and state tax credit carryforwards of $0.4 million which expire at various dates through 2043 and 2038, respectively.
In 2023, we completed a study which identified an additional ownership change in 2023. If we experience a Section 382 ownership change in connection with or as a result of future changes in our stock ownership, some of which changes are outside of our control, the tax benefits related to the NOL and tax credit carryforwards may be limited or lost.
We entered into a 10-year lease agreement (the “Lease”) on September 8, 2021, with Farley White Concord Road, LLC (the “Landlord”), to lease 70,125 square feet of office, laboratory and manufacturing space at 290 Concord Road, Billerica, Massachusetts. On January 17, 2023, the Landlord terminated the Lease and alleged that we failed to perform its obligations under the Lease in a timely manner and breached covenants of good faith and fair dealing. The Landlord filed a complaint in the Massachusetts Superior Court and unilaterally deducted the $1,000,000 security deposit for alleged damages. In addition, the Landlord is seeking damages for unpaid rent, brokerage fees, transaction costs, attorney’s fees and court costs. We recorded an estimated liability of $1.0 million related to this lease on December 31, 2022. The Company filed a response to the landlord’s complaint and a counterclaim alleging that the landlord breached its obligations under the contract and unlawfully drew on the security deposit, in addition to breaching its covenants of good faith and fair dealing, making fraudulent misrepresentations, and engaging in deceptive and unfair trade practices. The Company intends to vigorously defend itself and pursue all legal remedies available under applicable laws. The Company believes it will continue to meet its current manufacturing needs with its operations at its Lexington and Wilmington, Massachusetts facilities.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.
Critical Accounting Policies and Significant Judgments
This management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue and expenses during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions.
The accounting policies we believe are critical in the preparation of our consolidated financial statements relate to revenue recognition, inventory valuation, and impairments of long-lived assets.
Revenue recognition
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.
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.
Inventory valuation
Inventories are stated at the lower of cost or net realizable value. The Company determines the approximate cost of its inventories, which includes amounts related to materials, direct labor, and manufacturing overhead, on a first-in, first-out basis. The Company performs an assessment of the recoverability of capitalized inventory during each reporting period and records a charge to expense for cost basis in excess of net realizable value in the period in which the impairment is first identified, and writes down any excess and obsolete inventories as appropriate. These reserves require judgment. The net realizable value reserve is primarily based on expected future selling price while the excess and obsolete reserve is primarily based on future expected sales.
Impairment of long-lived assets
The Company reviews long‑lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is evaluated by comparing the carrying value of the long-lived assets with the estimated future net undiscounted cash flows expected to result from the use of the assets, including cash flows from disposition. Should the sum of the expected future net cash flows be less than the carrying value, the Company would recognize an impairment loss at that date. An impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair value, or the estimated discounted future cash flows, of the long-lived assets.
Item 7A. QUANTITATIVE AND QUALITAT IVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide this information.
Item 8. FINANCIAL STATEME NTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
T2 Biosystems, Inc.
Lexington, Massachusetts
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of T2 Biosystems, Inc. (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, Series A redeemable convertible preferred stock and stockholders’ deficit, and cash flows for each of the years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Uncertainty
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations, has an accumulated deficit, and has experienced cash outflows from operating activities over the past year, will require additional capital to fund its current operating plan and, accordingly, has stated that substantial doubt exists about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Recoverability of Certain Capitalized Inventory
The Company's consolidated inventories balance was $4.8 million at December 31, 2023. As described in Note 2 to the consolidated financial statements, the Company performs an assessment of the recoverability of capitalized inventory during each reporting period and records a charge to expense for cost basis in excess of net realizable value in the period in which the impairment is first identified, and writes down any excess and obsolete inventories as appropriate. These reserves require judgment. The net realizable value is primarily based on expected future selling price while the excess and obsolete reserve is primarily based on future expected sales.
We identified the recoverability of certain capitalized inventory as a critical audit matter. Assessing the recoverability of capitalized inventory requires significant judgment due to the subjectivity of assumptions related to future selling prices to determine net realizable value and future estimated sales utilized to determine excess and obsolete inventories. Auditing these elements required especially challenging and subjective auditor judgment due to the nature and extent of audit effort required to address these matters.
The primary procedures we performed to address this critical audit matter included:
Evaluating the reasonableness of the assumption related to future selling prices through comparison of the assumption to historical selling prices, and actual selling prices subsequent to year end.
Evaluating the reasonableness of the assumption related to future estimated sales through comparison of excess and obsolete inventories determined by the Company to our independent expectation of the estimate based on historical sales and sales subsequent to year end.
Accounting for Warrants
As described in Notes 2 and 8 to the consolidated financial statements, in February 2023 the Company sold shares of common stock, Pre-Funded Warrants to purchase common stock and Common Stock Warrants to an underwriter pursuant to an underwriting agreement (the “February 2023 Offering”). The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives requiring bifurcation in accordance with ASC Topic 815, Derivatives and Hedging. The Company determined that the Common Stock Warrants issued in February 2023 are precluded from equity classification and are derivative instruments. The Company concluded that the Pre-Funded Warrants issued in February 2023 met the requirements for equity classification. The total proceeds of $12.0 million from the February 2023 offering were allocated between the common stock, Pre-Funded Warrants and Common Stock Warrants.
We identified the accounting for the issuance of the Pre-Funded Warrants and Common Stock Warrants as a critical audit matter. Evaluating whether the Pre-Funded Warrants and Common Stock Warrants are derivatives or contain features that qualify as embedded derivatives requires significant judgment due to the application of complex technical accounting guidance. Auditing these elements involved especially challenging and complex auditor judgment due to the nature and extent the effort required to address these matters, including the extent of specialized skills and knowledge needed.
The primary procedures we performed to address this critical audit matter included:
Inspecting the agreements related to the Pre-Funded and Common Stock Warrants to identify relevant terms and conditions that affect whether they are derivatives or contain features that qualify as embedded derivatives.
Evaluating whether the Pre-Funded and Common Stock Warrants are derivatives or contain features that qualify as embedded derivatives.
Utilizing personnel with specialized knowledge and skill in the relevant technical accounting guidance to evaluate the appropriateness of the Company’s application of the relevant technical accounting guidance in determining whether the Pre-Funded and Common Stock Warrants are derivatives or contain features that qualify as embedded derivatives.
/s/ BDO USA, P.C.
We have served as the Company's auditor since 2018.
Boston, Massachusetts
April 1, 2024
T2 Biosystems, Inc.
Consolidated B alance Sheets
(In thousands, except share and per share data)
December 31,
December 31,
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Restricted cash
Other assets
Total assets
Liabilities and stockholders’ deficit
Current liabilities:
Notes payable to related party
Accounts payable
Accrued expenses and other current liabilities
Accrued final payment fee on Term Loan with related party
Operating lease liability
Derivative liability related to Term Loan with related party
Warrant liabilities
Deferred revenue
Total current liabilities
Notes payable to related party
Operating lease liabilities, net of current portion
Deferred revenue, net of current portion
Derivative liability related to Term Loan with related party
Accrued final payment fee on Term Loan with related party
Total liabilities
Commitments and contingencies (see Note 14)
Stockholders’ deficit
Preferred stock, $ 0.001 par value; 10,000,000 shares authorized: Series B
Convertible Preferred Stock, 93,297 shares designated on December 31, 2023,
93,297 and 0 shares issued and outstanding to related party on December 31, 2023 and
December 31, 2022, respectively
Common stock, $ 0.001 par value; 400,000,000 shares authorized; 4,058,381 and
77,165 shares issued and outstanding on December 31, 2023 and
December 31, 2022, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders’ deficit
Total liabilities and stockholders’ deficit
See accompanying notes to consolidated financial statements.
T2 Biosystems, Inc.
Consolidated Statements of Ope rations and Comprehensive Loss
(In thousands, except share and per share data)
Year Ended
December 31,
Revenue:
Product revenue
Contribution revenue
Total revenue
Costs and expenses:
Cost of product revenue
Research and development
Selling, general and administrative
Impairment of property and equipment
Total costs and expenses
Loss from operations
Other income (expense):
Interest expense to related party
Change in fair value of derivative related to Term Loan with related party
Change in fair value of warrant liabilities
Other, net
Total other income (expense)
Net loss
Deemed dividend on Series A Redeemable Convertible
Preferred Stock
Net loss attributable to common stockholders
Net loss per share — basic and diluted
Weighted-average number of common shares used in computing
net loss per share — basic and diluted
Other comprehensive loss:
Net loss
Net unrealized gain on marketable securities arising
during the period
Net realized gain on marketable securities included
in net loss
Total other comprehensive income, net of taxes
Comprehensive loss
See accompanying notes to consolidated financial statements.
T2 Biosystems, Inc.
Consolidated Statements of Series A Redeemable Convertible Preferred Stock and Stockholders’ Deficit
(In thousands, except share data)
Temporary Equity
Permanent Equity
Series A Redeemable Convertible
Series B Convertible
Common
Additional
Accumulated Other
Total
Preferred Stock
Preferred Stock
Stock
Paid-In
Accumulated
Comprehensive
Stockholders’
Shares
Amount
Shares
Amount
Shares
Amount
Capital
Deficit
Loss
Deficit
Balance on December 31, 2021
Stock-based compensation expense
Issuance of common stock from vesting of restricted stock, exercise of stock options and employee stock purchase plan
Shares surrendered for income taxes
Issuance of common stock from secondary offering, net
Issuance of Series A Redeemable Convertible Preferred Stock
Deemed dividend for Series A Redeemable Convertible Preferred Stock
Redemption of Series A Redeemable Convertible Preferred Stock
Unrealized gain on marketable securities
Net loss
Balance on December 31, 2022
Stock-based compensation expense
Issuance of common stock from vesting of restricted stock, exercise of stock options and employee stock purchase plan
Issuance of common stock from secondary offering, net
Issuance of common stock and Pre-Funded Warrant from public offering, net
Issuance of common stock upon Common Stock Warrant cashless exercises
Issuance of common stock upon Pre-Funded Warrant exercises
Issuance of common stock to CRG
Issuance of Series B Convertible Preferred Stock to CRG
Issuance of Series A Redeemable Preferred Stock to CRG
Redemption of Series A Redeemable Preferred Stock issued to CRG
Common stock retired in connection with cash paid for fractional shares for reverse stock split
Reverse stock split rounding adjustment
Net loss
Balance on December 31, 2023
See accompanying notes to consolidated financial statements.
T2 Biosystems, Inc.
Consolidated Statem ents of Cash Flows
(In thousands)
Year Ended
December 31,
Cash flows from operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Non-cash lease expense
Stock-based compensation expense
Change in fair value of derivative related to Term Loan with related party
Loss on sales of marketable securities
Change in fair value of warrant liabilities
Issuance costs related to Common Stock Warrants
Loss on issuance of Series A Redeemable Convertible Preferred Stock and
derivative warrant liability
Loss on disposal of property and equipment
Non-cash interest expense to related party
Impairment of property and equipment
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other assets
Inventories
Accounts payable
Accrued expenses and other liabilities
Deferred revenue
Operating lease liabilities
Net cash used in operating activities
Cash flows from investing activities
Proceeds from sales of marketable securities
Purchases and manufacture of property and equipment
Net cash (used in) provided by investing activities
Cash flows from financing activities
Payment of employee restricted stock tax withholdings
Proceeds from issuance of shares from employee stock purchase plan and
stock option exercises
Proceeds from public offering, net of issuance costs
Proceeds from secondary offering, net of issuance costs
Proceeds from issuance of Series A Redeemable Convertible Preferred Stock and
derivative warrant liability
Redemption of Series A redeemable convertible preferred stock
Payment of debt issuance costs to related party
Net cash provided by financing activities
Net change in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
See accompanying notes to consolidated financial statements.
T2 Biosystems, Inc.
Consolidated Statements of Cash Flows (Continued)
(In thousands)
Year Ended
December 31,
Reconciliation of cash, cash equivalents and restricted cash at end of period
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash
Year Ended
December 31,
Supplemental disclosures of cash flow information
Cash paid for interest to related party
Supplemental disclosures of noncash activities
Transfer of T2 owned instruments and components from inventory
Cashless exercise of Common Stock Warrants
Cancellation of Term Loan in exchange for common stock and Series B Convertible Preferred Stock to related party
Deemed dividend on Series A Redeemable Convertible Preferred Stock
Right-of-use assets obtained in exchange for new operating lease liabilities
Purchases of property and equipment included in accounts payable and accrued expenses
See accompanying notes to consolidated financial statements.
T2 Biosystems, Inc.
Notes to Consolidated Financial Statements
1. Nature of Business
T2 Biosystems, Inc. and its subsidiary (the “Company,” “we,” or “T2”) have operations based in Lexington, Massachusetts. T2 Biosystems, Inc. was incorporated on April 27, 2006 as a Delaware corporation. The Company is an in vitro diagnostics company that has developed an innovative and proprietary technology platform that offers a rapid, sensitive and simple alternative to existing diagnostic methodologies. The Company has developed a broad set of applications aimed at lowering mortality rates, improving patient outcomes and reducing the cost of healthcare by helping medical professionals make targeted treatment decisions earlier. The Company's technology enables rapid detection of pathogens, biomarkers and other abnormalities in a variety of unpurified patient sample types, including whole blood, plasma, serum, saliva, sputum, cerebral spinal fluid and urine, and can detect cellular targets at limits of detection as low as one colony forming unit per milliliter (“CFU/mL”). We are currently targeting a range of critically underserved healthcare conditions, focusing initially on those for which a rapid diagnosis will serve an important dual role – saving lives and reducing costs. The Company's current development efforts primarily target sepsis, bioterrorism and Lyme disease, which are areas of significant unmet medical need in which existing therapies could be more effective with improved diagnostics.
Liquidity and Going Concern
On December 31, 2023 , the Company had cash, cash equivalents, and restricted cash of $ 16.2 million, an accumulated deficit of $ 584.3 million, stockholders’ deficit of $ 28.0 million, and has experienced cash outflows from operating activities since its inception. 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, its March 2021 establishment of an Equity Distribution Agreement (Note 9), its February 2023 public offering (Note 8), private placements of redeemable c onvertible preferred stock and through debt financing arrangements.
Historically, the Company has primarily funded its operations through public equity and private debt financings. The Company believes its cash position is insufficient to fund future operations without financings by the first half of 2024, which may include public or private equity or debt financings. These financings may not be successful, however, or on terms favorable to the Company or its stockholders which would have a negative impact on the Company’s business, results of operations, financial condition and the Company’s ability to develop and commercialize its products and ultimately operate as a going-concern.
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.
In September 2023, the Company’s milestone-based product development contract with the Biomedical Advanced Research and Development Authority (“BARDA”) (Note 16) expired, which may impact the Company’s ability to continue to fund the development of its next-generation products.
The Company’s T2Dx Instrument and T2Candida, T2Bacteria, and the T2Biothreat Panels are authorized for use in the United States by the FDA.
Pursuant to the requirements of Accounting Standards Codification 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern ("ASC 205-40"), management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.
The Company believes that its cash, cash equivalents, and restricted cash of $ 16.2 million on December 31, 2023 will not be sufficient to fund its current operating plan for at least one year from issuance of these financial statements, as certain elements of its operating plan cannot be considered probable. Absent any reductions in current operating expenses, the Company believes it will require additional financing during the first half of 2024, which may include public or private equity or debt financings. 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.
The Company's Term Loan Agreement (the “Term Loan Agreement”) with certain CRG entities (collectively, “CRG”) (Note 6) has a minimum liquidity covenant, which initially required the Company to maintain a minimum cash balance of $ 5.0 million. In May 2023, CRG reduced the minimum liquidity covenant under the Term Loan Agreement from $ 5.0 million to $ 500,000 until December 31, 2023. In July 2023, the Company also converted $ 10.0 million of the outstanding debt with CRG to equity. In October 2023, the Term Loan Agreement was amended to extend both the interest-only period and the maturity date by one year from December 30, 2024 to December 31, 2025 , and permanently reduce the minimum liquidity covenant from $ 5.0 million to $ 500,000 . There can be no assurances that the Company will continue to be in compliance with the cash covenant in future periods without additional funding.
On March 30, 2023, the Company received notice from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, for the last thirty consecutive business days, the bid price for the Company’s common stock had closed below the minimum $ 1.00 per share requirement for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 555(a)(2) (the “Minimum Bid Price Rule”). On May 23, 2023, Nasdaq notified the Company that its securities were subject to delisting due to non-compliance with the Minimum Bid Price Rule and to maintain a minimum value of listed securities (the “MVLS Rule”) of at least $ 35 million. The Company requested a hearing with Nasdaq and, on July 6, 2023, appealed to the Nasdaq Hearings Panel for an extension to the time period in which to regain compliance with the MVLS Rule and the Minimum Bid Price Rule. On July 26, 2023, we filed a definitive proxy statement to effect a reverse stock split of our common stock in connection with our annual meeting that occurred in September 2023 as required by the Nasdaq Hearings Panel. On August 9, 2023, the Company received written notice from Nasdaq informing the Company that it had regained compliance with the MVLS Rule. On September 15, 2023, at the Company’s annual meeting of stockholders, the Company’s stockholders approved an amendment to the Company’s restated certificate of incorporation to effect a reverse stock split of the Company’s common stock. On October 12, 2023, the Company announced that its board of directors had approved the reverse stock split at the ratio of 1 post-split share for every 100 pre-split shares, which was effective as of October 12, 2023.
On October 31, 2023, the Company received written notice from Nasdaq informing the Company that it has regained compliance with the Minimum Bid Price Rule. The Company will be subject to a Mandatory Panel Monitor for a period of one year. If, within that one-year monitoring period, the Company fails to comply with the Minimum Bid Price Rule, the Company will not be permitted additional time to regain compliance with the Minimum Bid Price Rule. However, the Company will have an opportunity to request a new hearing with the Nasdaq Listing Qualifications Hearing Panel prior to the Company’s securities being delisted from Nasdaq.
On November 20, 2023, the Company received written notice from Nasdaq informing the Company that it no longer satisfied the MVLS Rule. In accordance with the terms of the Mandatory Panel Monitor, the Company was not granted a grace period but rather issued a delist determination, which will be stayed if the Company exercises its right to appeal by requesting a hearing and paying a non-refundable $ 20,000 fee. The Company has paid the $ 20,000 applicable fee and requested a new hearing, which will stay any further action by Nasdaq at least pending the issuance of its decision and the expiration of any extension that may be granted to the Company as a result of the hearing. The Company’s common stock will remain listed and eligible to trade on Nasdaq pending the outcome of the hearing. On February 15, 2024, the Company appealed to the Nasdaq Hearings Panel for an extension to the time period in which to regain compliance with the MVLS Rule. On March 11, 2024, the Company received notice from the Nasdaq Hearings Panel that it had granted the Company’s request for continued listing on Nasdaq, subject to the Company demonstrating compliance with Nasdaq’s MVLS Rule on or before May 20, 2024.
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, delaying certain research projects and capital expenditures, and eliminating certain future operating expenses in order to fund operations at reduced levels for the Company to continue as a going concern for a period of 12 months from the date these audited consolidated financial statements are issued. Management has concluded the likelihood that its plan to successfully obtain sufficient funding from one or more of these sources or maintain reduced expenditures, while reasonably possible, is less than probable. Accordingly, the Company has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for a period of at least 12 months from the date of issuance of these financial statements.
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 and Consolidation
The Company’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification ("ASC") and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). The Company’s consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, T2 Biosystems Securities Corporation. All intercompany balances and transactions have been eliminated.
On October 12, 2023, the Company effected a 1-for-100 reverse stock split. One share of common stock was issued for every 100 shares of issued and outstanding common stock , and fractional shares were settled in cash. All references to share and per share amounts (excluding authorized shares) in the consolidated financial statements and accompanying notes have been retroactively restated to account for the reverse split.
Prior to this, on October 12, 2022, the Company effected a 1-for-50 reverse stock split. One share of common stock was issued for every 50 shares of issued and outstanding common stock , and fractional shares were settled in cash.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation, including the reclassification of expenses related to the impairment of property and equipment and the consolidation of other income and expense items on the Consolidated Statement of Operations and Comprehensive Loss. Such reclassifications had no impact on the Company's reported total revenues, expenses, net loss, current assets, total assets, current liabilities, total liabilities, stockholders' equity (deficit) or cash flows. No reclassifications of prior period balances were material to the consolidated financial statements.
Prior Year Impairment of Property and Equipment Reclassification
For the purposes of comparability to the current period, in order to conform with current period presentation, the Company has reclassified expenses related to the impairment of property and equipment for the year ended December 31, 2022 out of cost of product revenue and research and development expense and into impairment of property and equipment on the Consolidated Statements of Operations and Comprehensive Loss, as summarized in the following table:
Year Ended
December 31, 2022
As Reported
As Reclassified
Costs and expenses:
Cost of product revenue
Research and development
Selling, general and administrative
Impairment of property and equipment
Total costs and expenses
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company utilizes certain estimates in the determination of the accounts receivable allowance, the excess and obsolete inventory, the net realizable value of inventory, the fair value of its stock options, as well as restricted stock units that have market conditions, deferred tax valuation allowances, revenue recognition, expenses relating to research and development contracts, accrued expenses, the fair value of a derivative instrument liability, the fair value of a warrant liability, the fair value of warrants and classification of the value of instrument raw material and work-in-process inventory between inventory and property and equipment. The Company bases its estimates on historical experience and other market‑specific or other relevant assumptions that it believes to be reasonable under the circumstances. Actual results could differ from such estimates.
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, launching commercially 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 worldwide and attributes revenue from external customers to individual countries on the basis of the location of the customer. Total international sales were approximately $ 2.7 million, or 38 % of total revenue in 2023 , and $ 3.9 million, or 18 % of total revenue, in 2022 . International sales to Italy were approximately $ 1.3 million, or 19 % of total revenue, and $ 1.3 million, or 6 % of total revenue, for the years ended December 31, 2023 and 2022, respectively.
As of December 31, 2023 and 2022 , the Company had outstanding receivables of $ 0.3 million and $ 0.4 million, respectively, from customers located outside of the U.S.
Off‑Balance Sheet Risk and Concentrations of Risk
The Company has no significant off-balance sheet risks, such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. Cash and cash equivalents are financial instruments that potentially subject the Company to concentrations of credit risk. On December 31, 2023 and 2022 , substantially all of the Company’s cash and cash equivalents were deposited in accounts at two financial institutions. The Company maintains its cash deposits, which at times may exceed the federally insured limits, with a large financial institution and, accordin gly, the Company believes such funds are subject to min imal credit risk. Cash deposits aggregating $ 550 thousand and collateralizing office leases were held at Silicon Valley Bank, which was taken over by the Federal Deposit Insurance Corporation ("FDIC") in March 2023. The Company’s full exposure was ultimately covered by the FDIC and no loss was incurred.
The following table shows entities and customers that represent greater than 10% of revenue for the period presented:
Year Ended
December 31,
Entity A
Customer A
Customer B
The following table shows entities and customers that represent greater than 10% of the accounts receivable balance for the period presented:
December 31,
December 31,
Entity A
Customer B
Customer C
Entity A is a U.S. government entity (BARDA). Customer A is an international distributor. Customer B is a U.S. healthcare system comprised of multiple hospitals. Customer C is a clinical laboratory company.
The Company relies on single-source suppliers for some components and materials used in its products and product candidates. The Company has entered into supply agreements with most of its suppliers to help ensure component availability and flexible purchasing terms with respect to the purchase of such components. While the Company believes replacement suppliers exist for all components and materials obtained from single sources, establishing additional or replacement suppliers for any of these components or materials, if required, may not be accomplished quickly. Even if the Company is able to find a replacement supplier, the replacement supplier would need to be qualified and may require additional regulatory authority approval, which could result in further delay. If third-party suppliers fail to deliver the required commercial quantities of materials on a timely basis and at commercially reasonable prices, and the Company is unable to find one or more replacement suppliers capable of production at a substantially equivalent cost in substantially equivalent volumes and quality on a timely basis, the continued commercialization of products, the supply of products to customers and the development of any future products would be delayed, limited or prevented, which could have an adverse impact on the business.
Cash Equivalents
Cash equivalents include all highly liquid investments with original maturities of 90 days or less. Cash equivalents consist of money market funds and money market accounts as of December 31, 2023 and money market accounts as of December 31, 2022 .
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 in accumulated other comprehensive income. Realized gains and losses, if any, are determined based on a specific identification basis and are included in other, net in the 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 in accumulated other comprehensive income. There were no other-than-temporary unrealized losses as of December 31, 2023 and 2022.
The Company had no marketable securities on December 31, 2023 and 2022 .
Accounts Receivable
The Company’s accounts receivable consists of amounts due from product sales to commercial customers. At each reporting period, management reviews historical loss information, characteristics of the Company's customers, its credit practices and the economic conditions, along with all outstanding balances to determine if the facts and circumstances indicate the need for a credit loss allowance. Receivables are written off against these allowances in the period they are determined to be uncollectible. The Company does not require collateral. The Company's allowance for doubtful accounts was $ 0.1 million for one customer on both December 31, 2023 and December 31, 2022, respectively. Bad debt expense is classified as a selling, general and administrative expense.
The opening and closing balances of the Company's accounts receivable, net were $ 2.2 million and $ 1.4 million for the year ended December 31, 2023, respectively, and $ 5.1 million and $ 2.2 million for the year ended December 31, 2022, respectively.
Inventories
Inventories are stated at the lower of cost or net realizable value. The Company determines the approximate cost of its inventories, which includes amounts related to materials, direct labor, and manufacturing overhead, on a first-in, first-out basis. The Company performs an assessment of the recoverability of capitalized inventory during each reporting period and records a charge to expense for cost basis in excess of net realizable value in the period in which the impairment is first identified, and writes down any excess and obsolete inventories as appropriate. These reserves require judgment. The net realizable value reserve is primarily based on expected future selling price while the excess and obsolete reserve is primarily based on future expected sales. Shipping and handling costs incurred for inventory purchases are capitalized and recorded upon sale in cost of product revenues in the consolidated statements of operations and comprehensive loss or are included in the value of T2-owned instruments and components, a component of property and equipment, net, and depreciated.
The Company capitalizes inventories in preparation for sales of products when the related product candidates are considered to have a high likelihood of regulatory clearance and the related costs are expected to be recoverable through sales of the inventories. In addition, the Company capitalizes inventories related to the manufacture of instruments that have a high likelihood of regulatory clearance and will be retained as the Company’s assets, upon determination that the instrument has alternative future uses. In determining whether or not to capitalize such inventories, the Company evaluates, among other factors, information regarding the product candidate’s status of regulatory submissions and communications with regulatory authorities, the outlook for commercial sales and alternative future uses of the product candidate. Costs associated with development products prior to satisfying the inventory capitalization criteria are charged to research and development expense as incurred.
The components of inventory consist of the following (in thousands):
December 31,
December 31,
Raw materials
Work-in-process
Finished goods
Total inventories
Fair Value Measurements
The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), establishes a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available.
Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The hierarchy defines three levels of valuation inputs:
Level 1 — Quoted unadjusted prices for identical instruments in active markets.
Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model‑derived valuations in which all observable inputs and significant value drivers are observable in active markets.
Level 3 — Model derived valuations in which one or more significant inputs or significant value drivers are unobservable, including assumptions developed by the Company.
The fair value hierarchy prioritizes valuation inputs based on the observable nature of those inputs. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability (Note 3).
For certain financial instruments, including accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and debt, the carrying amounts approximate their fair values as of December 31, 2023 and 2022 because of their short-term nature. The carrying value of the Term Loan Agreement approximates the fair value, which the Company measured using Level 3 inputs. On December 31, 2023 , the fair value of the derivative liability was determined using Level 3 inputs using a valuation model that includes assumptions from the Company (Note 3).
Property and Equipment, Net
Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight‑line method. Depreciation of T2-owned instruments commences when they are placed in service as a reagent rental with a customer. Equipment that has not been placed in service is considered construction in progress and is not depreciated until placed in service. Repairs and maintenance costs are expensed as incurred, whereas major improvements are capitalized as additions to property and equipment.
Derivative Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives requiring bifurcation in accordance with ASC Topic 815, Derivatives and Hedging . Derivative instruments are measured at fair value at issuance and at each reporting date in accordance with ASC 820 with changes in fair value recognized in the period of change in the consolidated statements of operations and comprehensive loss.
The Company determined that both the warrant issued in conjunction with the Series A Redeemable Convertible Preferred Stock in August of 2022 and the Common Stock Warrants issued in February 2023 are derivative instruments. The warrant liabilities are classified on the consolidated balance sheets as current because settlement of the warrant liability could be required by the holder within 12 months of the balance sheet date. Changes in fair value are recognized in change in fair value of warrant liabilities in the period of change in the consolidated statements of operations and comprehensive loss. See Notes 3 and 8.
The Company has identified a derivative liability related to its Term Loan Agreement with CRG that is classified as a current liability on the balance sheet on December 31, 2023 and a non-current liability on December 31, 2022, to match the classification of the related Term Loan Agreement. Changes in fair value are recognized in change in fair value of derivative related to Term Loan in the period of change in the consolidated statements of operations and comprehensive loss. See Note 6.
The Company does not designate its derivative instruments as hedging instruments.
Classification of Series A Redeemable Convertible Preferred Stock
The Company applied the guidance in ASC 480-10-S99-3A, SEC Staff Announcement: Classification and Measurement of Redeemable Securities and classified the Series A Redeemable Convertible Preferred Stock as temporary equity in the mezzanine section of the balance sheet on December 31, 2022. The Series A Redeemable Convertible Preferred Stock was recorded outside of stockholders’ deficit because under the terms thereof, in the event of stockholder approval of the reverse stock split or a delisting event, which were events considered not solely within the Company’s control, the Series A Redeemable Convertible Preferred Stock would become redeemable at the option of the holders.
Leases
Lessee
Pursuant to ASC Topic 842, Leases (“ASC 842”), at the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and long-term lease liabilities. The Company has elected not to recognize on the balance sheet leases with terms of one year or less. The exercise of lease renewal options is at the Company's discretion and the 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.
Lessor
The Company derives revenue from leasing its T2-owned instruments through reagent rental agreements (see the Revenue Recognition section below). Customers typically have the right to cancel every twelve months, resulting in a lease term of generally one year. These lease agreements impose no requirement on the customer to purchase the instrument, and the instrument is not transferred to the customer at the end of the lease term. The short-term nature of the lease agreements does not result in lease payments accumulating to an amount that equals the value of the instrument nor is the lease term reflective of the economic life of the instrument. Instrument leases are generally classified as operating leases as they do not meet any of the sales-type lease criteria per ASC 842 and are recognized ratably over the duration of the lease. In accordance with these contracts, customers only make payments when consumables are ordered and delivered thus making these payments variable by nature. The Company estimates the expected volume of consumables to be purchased by each customer over the lease term to measure and recognize rental and consumables revenue.
Generally, lease arrangements include both lease and non-lease components. The lease component relates to the customer’s right-to-use the T2-owned instrument over the lease term. The non-lease components relate to (1) consumables and (2) maintenance services. Because the timing and pattern of transfer for the operating lease component, the T2-owned instrument, and maintenance components of a reagent rental agreement are recognized over the same time period and in the same pattern, the Company elected the practical expedient to aggregate non-lease components with the associated lease component and account for the combined component as an operating lease for all instrument leases. In the evaluation of whether the lease component (T2-owned instrument) or the non-lease component associated with the lease component (maintenance) is the predominant component, the Company determined that the lease component is predominant as we believe the customer would ascribe more value to the use of the T2-owned instrument than that of the maintenance services. The T2-owned instrument lease and maintenance service performance obligations are classified as a single category of instrument rental revenue within product revenue in the consolidated statements of operations and comprehensive loss (see disaggregated revenue table below in Revenue Recognition section). The consumables non-lease component does not meet the requirements to elect the practical expedient because of its point-in-time pattern of transfer (versus over time for the combined lease component) and therefore must apply ASC 606, Revenue from Contracts with Customers, as described below in the Revenue Recognition section.
The Company considers the economic life of its T2-owned instruments to be five years. The Company believes five years is representative of the period during which the instrument is expected to be economically usable by one or more users, with normal service, for the purpose for which it is intended. The residual value is estimated to be the value at the end of the lease term based on the anticipated fair market value of the units. The Company mitigates residual value risk of its leased instrument by performing regular management and maintenance, as necessary.
Revenue Recognition
The Company generates revenue from the sale of instruments, consumable diagnostic tests, related services, reagent rental agreements and government contributions. For arrangements in the scope of ASC 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 either at a point in time, typically upon shipment, or over time, as services are performed. Contracts typically have net 30 payment terms in the U.S. and net 60 payment terms internationally.
Most of the Company’s contracts with distributors in geographic regions outside the United States contain only a single performance obligation, whereas most of the Company’s contracts with direct sales customers in the United States contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Excluded from the transaction price are sales tax and other similar taxes which are presented on a net basis.
Product revenue is generated by the sale of instruments and consumable diagnostic tests predominantly through the Company’s direct sales force in the United States and distributors in geographic regions outside the United States. The Company generally does not offer product returns or exchange rights (other than those relating to defective goods under warranty) or price protection allowances to its customers, including its distributors. Payment terms granted to distributors are the same as those granted to end-user customers and payments are not dependent upon the distributors’ receipt of payment from their end-user customers.
The Company either sells instruments to customers and international distributors, or retains title and places the instrument at the customer site pursuant to a reagent rental agreement. When an instrument is purchased by a customer or international distributor, the Company recognizes revenue when the related performance obligation is satisfied (i.e., when the control of an instrument has passed to the customer; typically, at shipping point).
When the instrument is placed under a reagent rental agreement, the Company’s customers generally agree to fixed term agreements, which can be extended, and incremental charges on each consumable diagnostic test purchased. Revenue from the sale of consumable diagnostic tests (under a reagent rental agreement) is generally recognized upon shipment. The transaction price from consumables purchases is allocated between the lease and non-lease components when related performance obligations are satisfied, as a component of lease and product revenue, and is included as Instrument Rentals in the below table. Revenue associated with reagent rental consumables purchases is currently classified as variable consideration and constrained until a purchase order is received and related performance obligations have been satisfied.
Revenue from the sale of consumable diagnostic tests (under instrument purchase agreements) is recognized when control has passed to the customer, typically at shipping point.
Shipping and handling costs billed to customers in connection with a product sale are recorded as a component of the transaction price and allocated to product revenue in the 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. Warranty expense is recognized based on the estimated defect rates of the consumable diagnostic tests.
Contribution Revenue
The government contract with BARDA was considered a government grant and not considered a contract with a customer and thus not subject to ASC 606. Revenue under the government BARDA contract was earned under a cost-sharing arrangement in which the Company was reimbursed for direct costs incurred plus allowable indirect costs. The government contract revenue was recognized as the related reimbursable expenses were incurred. The cost reimbursement that was reported as revenue was presented gross of the related reimbursable expenses in the Company’s consolidated statements of operations and comprehensive loss; the related reimbursable expenses were expensed as incurred as research and development expense. The Company accounted for these contracts as a government grant by analogy to International Accounting Standards 20 (“IAS 20”), Accounting for Government Grants and Disclosure of Government Assistance.
The BARDA contract expired in September 2023.
Disaggregation of Revenue
The Company disaggregates revenue from contracts with customers by type of products and services, as it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The following table disaggregates total revenue by major source (in thousands):
Year Ended
December 31,
Product revenue
Instruments
Consumables
Instrument rentals
Service
Total product revenue
Contribution revenue
Total revenue
Remaining Performance Obligations
Under ASC 606, the Company is required to disclose the aggregate amount of the transaction price that is allocated to unsatisfied or partially satisfied performance obligations as of December 31, 2023 . However, the guidance provides certain practical expedients that limit this requirement, and therefore, the Company has elected to not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. The nature of the excluded unsatisfied performance obligations pursuant to the practical expedient include consumable shipments, service contracts, warranties and installation services that will be performed within 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 $ 0.2 million as of December 31, 2023 . The Company expects to recognize 46 % of this amount as revenue within one year and the remainder within three years .
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's contract assets represent revenue recognized for performance obligations in advance of invoicing at the contract level based on the transaction price allocated to the respective performance obligations. The opening and closing balances of the Company's contract assets were $ 0.1 million and $ 0.1 million for the year ended December 31, 2023, respectively, and $ 0.0 million and $ 0.1 million for the year ended December 31, 2022, respectively.
The Company’s contract liabilities consist of upfront payments for maintenance services on instrument sales. Contract liabilities are classified in deferred revenue as current or non-current based on the timing of when revenue is expected to be recognized. The opening and closing balances of the Company's contract liabilities were $ 0.2 million and $ 0.3 million for the year ended December 31, 2023, respectively, and $ 0.5 million and $ 0.2 million for the year ended December 31, 2022, respectively. Revenue recognized during the year ended December 31, 2023 relating to contract liabilities on December 31, 2022 was $ 0.2 million and related to straight-line revenue recognition associated with maintenance agreements.
Costs 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.
A practical expedient exists whereby costs may continue to be expensed as incurred if the performance period of the contract is equal to or less than one year. Generally, this guidance is applied on a contract-by-contract basis. However, the guidance permits an entity to apply its provisions on a portfolio basis as a practical expedient if the results using the portfolio approach would not differ materially from applying ASC 606 on a contract-by-contract basis. The Company elected to use the portfolio approach and considered consumables to be a separate portfolio. The related commission is expensed as incurred.
On December 31, 2023 , capitalized costs to obtain contracts of less than $ 0.1 million were included in prepaid and other current assets. On December 31, 2022 , capitalized costs to obtain contracts of less than $ 0.1 million were included in prepaid and other current assets. The Company amortized costs of less than $ 0.1 million during the year ended December 31, 2023 and less than $ 0.1 million during the year ended December 31, 2022 .
Cost of Product Revenue
Cost of product revenue includes the cost of materials, direct labor and manufacturing overhead costs used in the manufacture of consumable diagnostic tests sold to customers, related warranty and license and royalty fees. Cost of product revenue also includes depreciation on T2-owned revenue generating T2Dx instruments that have been placed with customers under reagent rental agreements; costs of materials, direct labor and manufacturing overhead costs on the T2Dx instruments sold to customers; and other costs such as customer support costs, royalties and license fees, warranty and repair and maintenance expense on the T2Dx instruments that have been placed with customers under reagent rental agreements.
Research and Development Costs
Costs incurred in the research and development of the Company’s product candidates are expensed as incurred. Research and development expenses consist of costs incurred in performing research and development activities, including activities associated with delivering products or services associated with contribution revenue, clinical trials to evaluate the clinical utility of product candidates, and costs associated with the enhancements of developed products. These costs include salaries and benefits, stock compensation, research related facility and overhead costs, laboratory supplies, equipment, depreciation on T2Dx instruments used for research and development activities and contract services.
Impairment of Long-lived Assets
The Company reviews long‑lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is evaluated by comparing the carrying value of the long-lived assets with the estimated future net undiscounted cash flows expected to result from the use of the assets, including cash flows from disposition. Should the sum of the expected future net cash flows be less than the carrying value, the Company would recognize an impairment loss at that date. An impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair value, or the estimated discounted future cash flows, of the long-lived assets.
The Company recorded impairment expense of $ 2.5 million and $ 0.2 million during the years ended December 31, 2023 and 2022 , respectively.
Advertising Costs
Advertising costs are expensed as incurred and are reported within selling, general and administrative expenses on the Company's consolidated statements of operations and comprehensive loss. Advertising expense for the years ended December 31, 2023 and 2022 was less than $ 0.1 million and $ 0.1 million, respectively.
Contingencies
An estimated loss from a contingency is recorded if it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. Gain contingencies are not recorded until realization is assured beyond a reasonable doubt. Legal costs related to loss contingencies are expensed as incurred.
Comprehensive Loss
Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non‑owner sources. Comprehensive loss consists of net loss and other comprehensive loss, which includes certain changes in equity that are excluded from net loss.
Stock-Based Compensation
The Company issues stock-based awards to employees, generally in the form of stock options, restricted stock units and restricted stock awards. The Company accounts for stock-based awards in accordance with ASC Topic 718, Compensation-Stock Compensation ("ASC 718"). ASC 718 requires all stock-based payments to employees, including grants of employee stock options, restricted stock units, and modifications to existing stock options, to be recognized in the consolidated statements of operations and comprehensive loss based on their grant date fair values. The Company’s policy is to use authorized and unissued shares in connection with the issuance of shares for exercises under option agreements. The Company recognized the compensation cost of stock-based awards to employees on a straight-line basis over the vesting period.
The Company estimates the fair value of the stock-based awards to employees using the Black-Scholes-Merton option pricing model, which requires the input of highly subjective assumptions, including (a) the expected volatility of the stock, (b) the expected term of the award, (c) the risk-free interest rate and (d) expected dividends. The Company estimates expected volatility based on the historical volatility of the stock using the daily closing prices during the equivalent period of the calculated expected term of its stock‑based awards. The Company has estimated the expected life of the employee stock options using the “simplified” method, whereby the expected life equals the average of the vesting term, and the original contractual term of the option. The Company uses the simplified method due to the plain-vanilla nature of its share-based awards and because sufficient historical exercise data was not available to provide a reasonable basis for the expected term. The risk-free interest rates for periods within the expected life of the option are based on the U.S. Treasury yield curve in effect during the period in which the options were granted. The Company has not paid, and does not anticipate paying, cash dividends on shares of common stock; therefore, the expected dividend yield is assumed to be zero .
The Company elected an accounting policy to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from the estimates. Historical data is used to estimate pre-vesting option forfeitures and stock-based compensation expense is only recorded for those awards that are expected to vest. To the extent that actual forfeitures differ from the estimates, the difference is recorded as a cumulative adjustment in the period the estimates were revised. Stock-based compensation expense recognized in the financial statements is based on awards that are ultimately expected to vest. If the actual forfeiture rate is materially different from the estimate, stock-based compensation expense could be different from what we have recorded in the current period.
These assumptions used to determine stock compensation expense represent the Company’s best estimates, but the estimates involve inherent uncertainties and the application of judgment. As a result, if factors change and the Company uses significantly different assumptions or estimates, stock-based compensation expense could be materially different. Refer to Note 10 for further details on the Company’s stock-based compensation plan.
Income Taxes
The Company provides for income taxes using the liability method. The Company provides deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the Company’s financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates expected to be in effect in the years in which the differences are expected to reverse. A valuation allowance is provided to reduce the deferred tax assets to the amount that will more likely than not be realized.
The Company applies ASC 740 Income Taxes (“ASC 740”) in accounting for uncertainty in income taxes. The Company does not have any material uncertain tax positions for which reserves would be required. The Company will recognize interest and penalties related to uncertain tax positions, if any, in income tax expense.
Net Loss Per Share
As discussed in Note 7, the Company issued 93,297 shares of Series B Convertible Preferred Stock on July 3, 2023. The Company has reviewed the terms of the Series B Convertible Preferred Stock and noted that such stock has no preferential rights and that the liquidation preference for the Series B Convertible Preferred Stock would be on parity with that of the Company’s common shares. Because the Series B Convertible Preferred Stock has the same level of subordination and, in substance, the same characteristics as the Company’s common shares, the Company included the Series B Convertible Preferred Stock, on an if-converted basis of 932,970 shares, in the basic and diluted net loss per share attributable to common stockholders calculation.
The Company has also issued certain securities that are participating securities. Therefore, the Company must apply the two-class method to determine basic and diluted earnings per share. The two-class method is an earnings allocation method under which net loss per share is calculated for each class of common stock and participating security considering both dividends declared, if any, and participation rights in undistributed earnings as if all such earnings had been distributed for the period. Because the Company incurred a net loss for the years ended December 31, 2023 and 2022, and the holders of the participating securities do not have the contractual obligation to share in the losses of the Company on a basis that is objectively determinable, none of the net loss attributable to common stockholders was allocated to the participating securities when computing earnings per share for 2023 or 2022. As the Company’s participating securities do not have an obligation to share in the losses of the Company, to the extent that the Company remains in a net loss position, the entire net loss will be allocated to common stockholders.
Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, in-substance common stock, and potential common shares exercisable for little to no consideration, and does not consider other common stock equivalents.
Diluted net loss per share is calculated by adjusting the weighted-average number of shares outstanding, in-substance common stock, and potential common shares exercisable for little to no consideration used to compute basic earnings per share for the dilutive effect of other common stock equivalents that were outstanding during the period, determined using either the if-converted method or the treasury-stock method.
Foreign Currency Transactions
The Company’s reporting currency is the U.S. dollar. The Company sells products outside of the United States and transacts foreign currencies. If transactions are recorded in a currency other than the Company’s functional currency, remeasurement into the functional currency is required and may result in transaction gains or losses. Transaction losses were less than $ 0.1 million for both of the years ended December 31, 2023 and 2022 . Amounts are recorded in other, net on the Company’s consolidated statements of operations.
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 its adoption of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations at the respective effective dates.
Accounting Standards Adopted
On September 29, 2022, the FASB issued ASU 2022-04, Liabilities-Supplier Finance Programs (Subtopic 405-50) Disclosure of Supplier Finance Program Obligations (“ASU 2022-04”). This ASU requires that a buyer in a supplier finance program disclose additional information about the program to allow financial statement users to better understand the effect of the programs on an entity’s working capital, liquidity, and cash flows. This update is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on roll forward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company adopted this standard as of January 1, 2023 . The adoption did no t have a material impact on the Company’s financial statements.
Accounting Standards Issued, To Be Adopted
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). This ASU was issued to improve the disclosures about a public entity’s reportable segments and address requests from investors for more detailed information about a reportable segment’s expenses. This update will be effective for the Company for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently assessing the impact of this update on its disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). This ASU was issued to enhance the transparency and decision usefulness of income tax disclosures. This update will be effective for the Company for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently assessing the impact of this update on its disclosures.
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 liabilities carried at fair value categorized using the lowest level of input applicable to each financial instrument as of December 31, 2023 and 2022 (in thousands):
Balance at
December 31,
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets:
Money market funds
Liabilities:
Warrant liabilities
Derivative liability related to Term Loan with related party
Balance at
December 31,
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Liabilities:
Warrant liabilities
Derivative liability related to Term Loan with related party
The Company’s cash equivalents are comprised of money market funds and money market accounts as of December 31, 2023 and money market accounts as of December 31, 2022 . The Company also maintains money market accounts classified as restricted cash, which are Level 1 assets, for $ 0.6 million and $ 1.6 million on December 31, 2023 and 2022, respectively (Note 4).
The Company estimated the fair value of the warrant issued in conjunction with the Series A Redeemable Convertible Preferred Stock in August of 2022 (the “Series A Warrant”) (Note 8) using the Black-Scholes Model, which uses multiple inputs including the Company’s stock price, the exercise price of the warrant, volatility of the Company’s stock price, the risk-free interest rate and the expected term of the warrant.
The estimated fair value of the Series A Warrant on December 31, 2023 was determined using the following assumptions:
Risk-free interest rate
Expected dividend yield
Expected volatility
Expected term
The Company estimated the fair value of the Common Stock Warrant issued in February of 2023 (the “Common Stock Warrant”) (Note 8) using both the Black-Scholes Model and Monte Carlo simulation methods to model different potential settlement outcomes. These models use multiple inputs including the Company’s stock price, the exercise price of the warrant, volatility of the Company’s stock price, the risk-free interest rate and the expected term of the warrant. Such inputs may vary depending on the model applied and the underlying scenario assumptions. Key inputs included the warrant exercise price of $ 108.00 per share, a risk-free interest rate of 3.91 %, expected volatility ranging from 147 % to 235 %, an expected dividend yield of 0.00 %, a stock price of $ 7.59 (adjusted to reflect volume weighting) and an expected term ranging from zero years to 4.13 years, depending on the simulation.
The following table provides a roll-forward of the fair value of the Common Stock Warrants (in thousands):
Balance on December 31, 2022
Issuance of Common Stock Warrant
Settlement due to cashless exercise
Change in fair value
Balance on December 31, 2023
The Company has a single compound derivative instrument related to its Term Loan Agreement (Note 6) that requires the Company to pay additional interest of 4 % per annum upon an event of default or if any obligation other than the unpaid principal amount of the Term Loan is not paid when due. Fair value is determined quarterly. The fair value of the derivative on December 31, 2023 is $ 1.6 million and is classified as a current liability on the balance sheet on December 31, 2023 consistent with the classification of the related Term Loan Agreement. The fair value of the derivative on December 31, 2022 was $ 1.1 million and was classified as a non-current liability on the balance sheet on December 31, 2022 consistent with the classification of the related Term Loan Agreement.
The estimated fair value of the derivative on December 31, 2023 was determined using a probability-weighted discounted cash flow model that includes contingent interest payments under the following scenarios:
Probability
4 % contingent interest beginning in Q2 2024
Changes in assumptions regarding the probability of the 4 % contingent interest feature being triggered and the timing of such a triggering event could significantly affect the estimated fair value of this derivative liability.
The following table provides a roll-forward of the fair value of the derivative liability (in thousands):
Balance on December 31, 2021
Change in fair value of derivative related to Term Loan with related party
Balance on December 31, 2022
Change in fair value of derivative related to Term Loan with related party
Balance on December 31, 2023
The Company is required to disclose the fair value and the level within the fair value hierarchy for financial instruments that are not measured at fair value on a recurring basis. For certain financial instruments, including accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses, the carrying amounts approximate their fair values as of December 31, 2023 and 2022 because of their short-term nature. Cash and cash equivalents were classified as Level 1 and all other financial instruments were classified as Level 2 within the fair value hierarchy. The Company used Level 3 inputs to measure the fair value of its Term Loan Agreement. Based on these measurements, the Company concluded that the carrying value of the Term Loan Agreement approximates its fair value on December 31, 2023 .
4. Restricted Cash
The Company is required to maintain security deposits for its office lease agreements. On December 31, 2023 and 2022 , the Company had lease security deposits, invested in money market accounts, aggregating $ 0.6 million and $ 1.6 million, respectivel y. In January 2023 one of these deposits of $ 1.0 million was claimed by a landlord as compensation for a lease dispute (Note 14). The remaining collateral deposits aggregating $ 550 thousand were held at Silicon Valley Bank, which was taken over by the FDIC in March 2023. The Company’s full exposure was ultimately covered by the FDIC and no loss was incurred.
5. Supplemental Balance Sheet Information
Property and Equipment
Property and equipment consists of the following (dollar amounts in thousands)
Estimated Useful Life (Years)
December 31,
December 31,
Office and computer equipment
Software
Laboratory equipment
Furniture
Manufacturing equipment
Manufacturing tooling and molds
T2-owned instruments and components
Leased T2-owned instruments
Leasehold improvements
Lesser of useful life or remaining lease term
Construction in progress
Less accumulated depreciation and amortization
Property and equipment, net
Construction in progress is primarily comprised of equipment that has not been placed in service. T2-owned instruments and components is primarily comprised of instruments that will be used for internal research and development, clinical studies and reagent rental agreement with customers. Depreciation expense, a component of cost of product revenue, from instruments under the T2-owned reagent rental pool was $ 0.2 million and $ 0.1 million for the years ended December 31, 2023 and 2022, respectively.
Total depreciation expense for T2-owned instruments used for internal research and development and clinical studies is recorded as a component of research and development expense. Depreciation and amortization expense of $ 0.9 million and $ 1.0 million was charged to operations for the years ended December 31, 2023 and 2022, respectively.
In the third quarter of 2023, we determined a triggering event occurred that required us to evaluate our long-lived assets for impairment. The triggering event was the reassessment of the Company’s sales demand forecast. We evaluated our long-lived assets by our two asset groups, which are T2-owned assets that are placed at customer sites as rental instruments and all other assets which support the Company’s product research and manufacturing. As a result of the evaluation, the Company recorded impairment charges for T2-owned non-lease instruments and reagent manufacturing assets. T2-owned non-lease instruments were evaluated based on average historical sale prices for refurbished instruments. Reagent manufacturing assets were evaluated based on estimated cash flows from projected reagent test sales using historical margins and commission rates. The Company recorded a total loss on impairment of property and equipment of $ 2.5 million for the year ended December 31, 2023.
Accrued Expenses
Accrued expenses consist of the following (in thousands):
December 31,
December 31,
Accrued payroll and compensation
Accrued clinical trial and development expenses
Accrued professional services
Accrued interest
Other accrued expenses
Total accrued expenses and other current liabilities
Accrued professional services on December 31, 2022 includes a $ 1.0 million estimated liability related to the Billerica, Massachusetts lease (Note 14).
6. Notes Payable
Term Loan Agreement
In December 2016, the Company entered into the Term Loan Agreement with CRG. The Company initially borrowed $ 40.0 million under the Term Loan Agreement and had the ability to borrow an additional $ 10.0 million upon receiving specified clearance for the marketing of T2Bacteria by April 30, 2018 (the “Approval Milestone”). The Company agreed to pay (1) a financing fee based on the amount of principal drawn and (2) a final payment fee based on the principal outstanding upon repayment. The debt discount related to the financing fee and the fees paid to CRG are being amortized over the loan term as interest expense. Interest expense for the debt discount was $ 0.1 million for both of the years ended December 31, 2023 and 2022. The final payment fee is accrued as interest expense and is classified consistent with the classification of the Term Loan. The effective interest rate of the Term Loan was 10.2 % as of December 31, 2023.
The Term Loan’s principal is prepayable at any time partially or in full without a prepayment penalty. Borrowings are collateralized by a lien on substantially all Company assets, including intellectual property. The Term Loan Agreement provides for affirmative and negative covenants, including a requirement to maintain a minimum cash balance of $ 5.0 million. The Term Loan Agreement includes a subjective acceleration clause whereby an event of default, including a material adverse change in the business, operations, or conditions (financial or otherwise), could result, at CRG’s discretion, in the acceleration of the obligations under the Term Loan Agreement. Under certain circumstances, a default interest rate of an additional 4.0 % per annum may apply, at CRG’s discretion, on all outstanding obligations during the occurrence and continuance of an event of default.
The Term Loan originally had a six-year term, with three years of interest-only payments accruing at a fixed rate of 12.5 %, of which 4.0 % could be paid in-kind by increasing the principal balance. After achievement of the Approval Milestone, such rates would be reduced and a fourth year of interest-only payments would be granted, after which quarterly payments of principal and interest would be owed through the December 30, 2022 maturity date. Upon achievement of certain performance metrics, the loan would be converted to interest-only until its maturity, at which time all unpaid principal and interest would be due and payable.
In connection with the Term Loan Agreement, the Company issued warrants to CRG to purchase a total of 105 shares of the Company’s common stock, exercisable any time prior to December 30, 2026.
Amendments
The Term Loan Agreement has been amended nine times. As a result of those amendments, certain terms of the Term Loan have been revised as follows:
In 2018, upon the Company’s achievement of the Approval Milestone, interest on borrowings began accruing at 11.50 % per year, 8 % of which is payable in cash quarterly and 3.5 % of which is deferred and added to principal until maturity.
The final payment fee was increased from 8 % to 10 % of the principal outstanding upon repayment.
The Company issued additional warrants to CRG to purchase 113 shares of its common stock, exercisable any time prior to September 9, 2029 at an exercise price of $ 7,750.00 per share, with provisions for termination upon a change of control or a sale of all or substantially all of the assets of the Company (these warrants, along with the warrants to purchase 105 shares of common stock previously issued to CRG, are collectively referred to as the “CRG Warrants”).
The Company reduced the exercise price for the warrants previously issued to CRG to $ 7,750.00 .
In 2022, the principal maturity date was extended to December 30, 2024, and the Term Loan’s interest-only payment period was extended until that maturity date.
The Company and CRG entered into a waiver and consent that reduced the minimum liquidity covenant to $ 500,000 until December 31, 2023 .
CRG waived certain specified events of default associated with the Company’s issuance of shares of Series A Redeemable Convertible Preferred Stock in August 2022 and the subsequent redemption (Note 7).
In July 2023, CRG canceled $ 10.0 million of the Term Loan’s principal in exchange for 483,457 shares of common stock and 93,297 shares of Series B Convertible Preferred Stock.
In October 2023, the interest-only period and maturity of the Term Loan were extended to December 31, 2025 and the $ 500,000 liquidity covenant was made permanent.
The warrants to purchase 218 shares of the Company’s common stock remain outstanding on December 31, 2023. There were no covenant violations during the year ended December 31, 2023.
Amendments made in February 2022, November 2022, October 2023, and the partial principal cancellation in July 2023 were accounted for as troubled debt restructurings. For all restructurings, at the time of the restructuring the future undiscounted cash outflows required under the amended agreement exceeded the carrying value of the debt and no gain was recognized as a result of the restructurings. The effects of each restructuring were accounted for prospectively.
Related Party
Upon the close of the July 2023 transaction in which CRG canceled $ 10.0 million of the Term Loan’s principal in exchange for 483,457 shares of common stock and 93,297 shares of Series B Convertible Preferred Stock, CRG became a holder of more than ten percent of our common stock outstanding, and therefore determined to be a principal owner and related party. As of December 31, 2023, CRG held no shares of common stock and 93,297 shares of Series B Convertible Preferred Stock, which was convertible into more than ten percent of our common stock outstanding as of December 31, 2023. Subsequent to December 31, 2023, in February 2024, CRG converted 82,422 shares of its Series B Preferred Stock into 824,220 shares of common stock, which represented more than ten percent of our common stock outstanding.
Classification
The Term Loan Agreement with CRG was classified as a non-current liability on December 31, 2022. In May 2023, the Company received a modifi cation and waiver reducing the Term Loan’s minimum cash covenant from $ 5.0 million to $ 500,000 until December 31, 2023. In addition, in October 2023, the interest-only period and maturity of the Term Loan were extended to December 31, 2025 , and the $ 500,000 liquidity covenant was made permanent. Because management believes it is probable that the Company will not be able to comply with the covenant unless additional funds are raised, the Company concluded that the Term Loan and related liabilities should be classified as current on December 31, 2023.
Future Payments
Future principal payments on the notes payable are as follows (in thousands):
Year ended December 31,
Total including PIK interest, before unamortized discount and issuance costs
Less: unaccrued paid-in-kind interest
Less: unamortized discount and deferred issuance costs
Total notes payable to related party
7. Preferred Stock
Series A Redeemable Preferred Stock
On July 5, 2023, the Company issued Series A Redeemable Preferred Stock (the “Series A Preferred Stock”) to help effect a Reverse Stock Split Proposal. Subject to the terms and conditions of a Securities Purchase Agreement, the Company agreed to issue and sell to CRG 1,000 shares of newly designated Series A Preferred Stock, par value $ 0.001 per share, for a total purchase price of $ 100.00 . A “Reverse Stock Split Proposal” means any proposal approved by the Company’s Board of Directors and submitted to the Company’s stockholders to adopt an amendment(s) to the Company’s Amended and Restated Certificate of Incorporation to combine the outstanding shares of common stock into a smaller number of shares of common stock at a ratio to be specified.
Voting Rights
Shares of the Series A Preferred Stock had the right to vote only on any Reverse Stock Split Proposal and as may have been required by law. The Series A Preferred Stock represented an aggregate of 400,000,000 votes, and CRG agreed to vote in the same proportion as shares of common stock of the Company were voted on any Reverse Stock Split Proposal.
Redemption
The Series A Preferred Stock were redeemable (i) at any time if such redemption was ordered by the Board of Directors in its sole discretion, automatically and effective on such time and date specified by the Board of Directors in its sole discretion, or (ii) automatically immediately following the approval by the stockholders of the Company of a Reverse Stock Split Proposal at a redemption price of $ 100.00 . On September 15, 2023, the Company’s stockholders voted to approve an amendment to the Company’s Amended and Restated Certificate of Incorporation to effect a reverse stock split of the Company’s common stock, par value $ 0.001 per share, at a reverse split ratio ranging from any whole number between and including 1-for-50 and 1-for-150, with the exact ratio to be determined at the discretion of the Board of Directors of the Company . As a result of that stockholder vote, the Series A Preferred Stock was redeemed on September 15, 2023, for $ 100 . Upon its redemption, the Company’s Series A Preferred Stock ceased to be outstanding.
Series B Convertible Preferred Stock
On July 3, 2023, in conjunction with an agreement it reached with CRG to cancel $ 10.0 million of its Term Loan principal, the Company issued to CRG (i) an aggregate of 483,457 shares of common stock at a purchase price of $ 7.06 per share for a total purchase price of $ 3.4 million, and (ii) an aggregate of 93,297 shares of newly designated Series B Convertible Preferred Stock (the “Series B Preferred Stock”), par value $ 0.001 per share, at a purchase price of $ 70.60 per share (the “Stated Value”) for a total purchase price of $ 6.6 million.
Dividends
Holders of Series B Preferred Stock are entitled to receive dividends on such shares (other than common stock dividends) equal (on an as-if-converted-to-common-stock basis) to and in the same form as dividends actually paid on shares of the common stock when, as and if such dividends are paid on shares of the common stock. No other dividends shall be paid on shares of Series B Preferred Stock. All declared but unpaid dividends on shares of Series B Preferred Stock will increase the Stated Value of such shares, but when such dividends are actually paid any such increase in the Stated Value will be rescinded.
Voting Rights
Except as may be required by law, the Series B Preferred Stock has no voting rights. However, as long as any shares of Series B Preferred Stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series B Preferred Stock, (i) alter or change adversely the powers, preferences or rights given to the Series B Preferred Stock, (ii) increase or decrease (other than by conversion) the number of authorized shares of Series B Preferred Stock, or (iii) enter into any agreement with respect to any of the foregoing.
Liquidation Preference
The Series B Preferred Stock ranks (i) senior to any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms junior to any Series B Preferred Stock (collectively, the “Junior Securities”); (ii) on parity with the common stock; (iii) on parity with any class or series of capital stock of the Company hereafter created specifically ranking by its terms on parity with the Series B Preferred Stock (together with the common stock, the “Parity Securities”); and (iv) junior to any class or series of capital stock of the Company hereafter created specifically ranking by its terms senior to any Series B Preferred Stock (“Senior Securities”), in each case, as to distributions of assets upon liquidation, dissolution or winding up of the Company, whether voluntarily or involuntarily (a “Liquidation”). No Junior Securities, Parity Securities or Senior Securities existed on December 31, 2023.
In a Liquidation, the Series B Preferred Stockholder will, subject to the prior and superior rights of the holders of any Senior Securities, be entitled to receive, in preference to any distributions of any of the assets or surplus funds of the Company to the holders of the Junior Securities and pari passu with any distribution to the holders of Parity Securities, an equivalent amount of any distributions as would be paid on the common stock underlying the Series B Preferred Stock, determined on an as-converted basis (without regard to any limitations on conversion), plus an additional amount equal to any dividends declared but unpaid on such shares, before any payments shall be made or any assets distributed to holders of any class of Junior Securities.
Conversion Rights
Each share of Series B Preferred Stock is convertible, at any time and from time to time from and after the Reverse Split Amendment has been filed with the Secretary of State of the State of Delaware, at the option of the holder thereof, into a number of shares of common stock equal to the product of the Conversion Ratio (which is the $ 70.60 Stated Value of such shares divided by the $ 7.06 Conversion Price, subject to adjustment) and the number of shares of Series B Preferred Stock to be converted. The Reverse Split Amendment was filed on October 12, 2023. The conversion feature is subject to certain beneficial ownership limitations. The Conversion Price also is subject to adjustment for stock dividends and stock splits.
8. Warrants
Series A Warrant
On August 15, 2022, the Company issued an aggregate of 3,000 shares of Series A Redeemable Convertible Preferred Stock with a par value of $ 0.001 per share and the Series A Warrant to purchase up to an aggregate of 428 shares of common stock of the Company at an exercise price of $ 750.00 per share (such number of shares and exercise price are adjusted for the reverse stock split described in Note 2) for an aggregate subscription amount equal to $ 0.3 million, before deducting estimated offering expenses payable by the Company. In the fourth quarter of 2022, the Series A Redeemable Convertible Preferred Stock was redeemed. The Series A Warrant became exercisable on February 15, 2023 and expires on February 15, 2028 . The Series A Warrant contains certain anti-dilution provisions to protect the holder.
On February 17, 2023, the Company issued and sold shares of common stock, pre-funded warrants to purchase common stock and warrants to purchase common stock to an underwriter pursuant to an underwriting agreement (see discussion below). The terms of that offering triggered an adjustment to the exercise price of the Series A Warrant to $ 54.00 effective as of February 17, 2023.
The Company is required to measure the Series A Warrant at fair value at inception and in subsequent reporting periods with changes in fair value recognized in change in fair value of warrant liabilities in the period of change in the consolidated statements of operations and comprehensive loss. The fair value of the liability related to the Series A Warrant at inception was $ 0.4 million. The Series A Warrant was not exercised as of December 31, 2023 and remains outstanding. The change in fair value during the year ended December 31, 2023 was immaterial.
Pre-Funded Warrants and Common Stock Warrants
On February 17, 2023, the Company sold 90,185 shares of $ 0.001 par value common stock, 20,925 Pre-Funded Warrants and 222,222 Common Stock Warrants through an offering underwritten by Craig-Hallum Capital Group LLC. Each of the shares and Pre-Funded Warrants were sold in combination with an accompanying Common Stock Warrant to purchase two shares of the Company’s common stock. The combined purchase price for each share and accompanying Common Stock Warrant is $ 108.00 , and for each Pre-Funded Warrant and accompanying Common Stock Warrant is $ 107.90 , which was equal to the combined purchase price for each share and accompanying Common Stock Warrant sold in the offering, minus the Pre-Funded Warrant’s exercise price per share of $ 0.10 .
The total proceeds of $ 12.0 million from the February 17, 2023 offering were allocated between the common stock, Pre-Funded Warrants and Common Stock Warrants. Because the Common Stock Warrants are liability-classified, an amount of proceeds equal to the fair value of the liability were first allocated to the Common Stock Warrants. The remaining proceeds were allocated on a relative fair value basis to the common stock and the Pre-Funded Warrants and recognized in additional paid-in capital. Total issuance costs related to the offering of $ 1.1 million were allocated in a similar manner as the total proceeds. As a result, approximately $ 0.7 million of issuance costs were expensed at the issuance date and recognized as other, net in the consolidated statements of operations and comprehensive loss. The remaining issuance costs were recognized within additional paid-in-capital as a reduction to the proceeds received for the common stock and Pre-Funded Warrants.
The Pre-Funded Warrants had (i) an exercise price per share of common stock equal to $ 0.10 or (ii) a cashless exercise option, with the number of shares received determined according to the formula set forth in the Pre-Funded Warrant. The Pre-Funded Warrants were exercisable upon issuance and did not expire. The exercise price and the number of shares of common stock issuable upon exercise of the Pre-Funded Warrants was subject to adjustment in the event of certain stock dividends and distributions, splits, combinations, reclassifications or similar events affecting the common stock. Holders of Pre-Funded Warrants participated in any distributions to common stockholders as if the holders had exercised the Pre-Funded Warrants.
The Company determined that the Pre-Funded Warrants were indexed to the Company’s own stock and met the requirements for equity classification. Proceeds allocated to such warrants totaled $ 0.8 million. No Pre-Funded Warrants remain outstanding on December 31, 2023.
The Common Stock Warrants have (i) an exercise price per share of common stock equal to $ 108.00 per share, (ii) a cashless exercise option if, at the time of exercise, there is no effective registration statement registering or the prospectus is not available for the issuance of the warrant shares to the holder, with the number of shares received determined according to the formula set forth in the Common Stock Warrant or (iii) an alternate cashless exercise option, which became exercisable on March 15, 2023 , equal to the product of (x) the aggregate number of shares of common stock that would be issuable upon a cash exercise and (y) 0.5. The Common Stock Warrants are exercisable upon issuance and expire on February 17, 2028 . The exercise price and the number of shares of common stock issuable upon exercise of the Common Stock Warrants is subject to adjustment in the event of certain stock dividends and distributions, splits, combinations, reclassifications or similar events affecting the common stock. Holders of the Common Stock Warrants will participate in any distributions to common stockholders as if the holders had exercised the Common Stock Warrants. The Common Stock Warrants are redeemable upon the occurrence of a Fundamental Transaction (as defined in the Common Stock Purchase Warrant Agreement).
The Company determined that the Common Stock Warrants are not indexed to the Company’s own stock and therefore are precluded from equity classification. In addition, the Common Stock Warrant liability meets the definition of a derivative instrument. The Common Stock Warrants will be measured at fair value at inception and in subsequent reporting periods with changes in fair value recognized in income as change in fair value of warrant liabilities in the period of change in the consolidated statements of operations and comprehensive loss. The fair value of the Common Stock Warrant liability at inception was $ 7.6 million. During the year ended December 31, 2023, 155,557 Common Stock Warrants were exercised pursuant to the cashless exercise option resulting in the issuance of 77,776 shares of common stock. On December 31, 2023, 66,665 Common Stock Warrants remain outstanding. The change in fair value after issuance consisted of a reduction of expense of $ 5.9 million during the year ended December 31, 2023.
The Company has also issued certain warrants in conjunction with its Term Loan Agreement. See Note 6.
9. Stockholders’ Deficit
Preferred Stock
We have authorized the issuance of up to 10,000,000 shares of $ 0.001 par value preferred stock. The Board of Directors will determine the preferred stock’s rights, preferences, privileges, restrictions, voting rights, dividend rights, conversion rights, redemption privileges, and liquidation preferences.
Common Stock
We have authorized the issuance of 400,000,000 shares of $ 0.001 par value common stock.
Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Board of Directors, subject to the prior rights of holders of all classes of stock outstanding. As of December 31, 2023 , a total of 1,573 shares, 3,691 shares, and 67,311 shares of common stock were reserved for issuance upon (i) the exercise of outstanding stock options, (ii) the issuance of stock awards, and (iii) the exercise of warrants, respectively, under the Company's 2014 Incentive Award Plan, Inducement Award Plan and 2014 Employee Stock Purchase Plan.
Equity Distribution Agreement
On March 31, 2021, the Company entered into an Equity Distribution Agreement (“Equity Distribution Agreement”) with Canaccord Genuity LLC (“Canaccord”), through which the Company may sell up to $ 75.0 million of gross proceeds of common stock. In July 2023, the Company filed an amendment to the prospectus supplement relating to the offer and sale of shares under the Equity Distribution Agreement to increase the maximum amount of shares that the Company may sell pursuant to its Equity Distribution Agreement with Canaccord by $ 65 million. At the time of the amendment, the Company had sold shares of its common stock for gross proceeds of $ 71.3 million.
Canaccord, as agent, sells shares at the Company’s request through “at the market” offerings, subject to shelf limitations, in negotiated transactions at market prices prevailing at the time of sale or at prices related to such prevailing market prices, or by any other method permitted by law, including negotiated transactions. Canaccord receives a fee of 3 % of gross proceeds of common stock sold under the Equity Distribution Agreement for its services. Legal and accounting fees from sales under the Equity Distribution Agreement are charged to share capital. Under the Equity Distribution Agreement, the Company sold 3,303,122 shares of common stock during the year ended December 31, 2023 for net proceeds of $ 41.8 million. Under the Equity Distribution Agreement, the Company sold 43,068 shares of common stock during the year ended December 31, 2022 for net proceeds of $ 29.2 million. Subsequent to December 31, 2023 , the Company sold 628,470 shares of common stock for proceeds of $ 2.2 million under the Equity Distribution Agreement.
10. Stock-Based Compensation
Stock Incentive Plans
2006 Stock Incentive Plan
The Company’s Amended and Restated 2006 Employee, Director and Consultant Stock Plan (the “2006 Plan”) was established for granting stock incentive awards to directors, officers, employees and consultants of the Company. Upon closing of the Company’s IPO in August 2014, the Company ceased granting stock incentive awards under the 2006 Plan. The 2006 Plan provided for the grant of incentive and non-qualified stock options and restricted stock grants as determined by the Company’s Board of Directors. Under the 2006 Plan, stock options were generally granted with exercise prices equal to or greater than the fair value of the common stock as determined by the Board of Directors, expired no later than 10 years from the date of grant, and vest over various periods not exceeding 4 years.
2014 Stock Incentive Plan
The Company’s 2014 Incentive Award Plan (the “2014 Plan,” and together with the 2006 Plan, the “Stock Incentive Plans”), which was amended and restated in October 2023, provides for the issuance of shares of common stock in the form of stock options, awards of restricted stock, awards of restricted stock units, performance awards, dividend equivalent awards, stock payment awards and stock appreciation rights to directors, officers, employees and consultants of the Company. Since the establishment of the 2014 Plan, the Company has primarily granted stock options and restricted stock units. Generally, stock options are granted with exercise prices equal to or greater than the fair value of the common stock on the date of grant, expire no later than 10 years from the date of grant, and vest over various periods not exceeding 4 years.
The number of shares reserved for future issuance under the 2014 Plan is the sum of (1) 823,529 (2) any shares that were granted under the 2006 Plan which are forfeited, lapse unexercised or are settled in cash subsequent to the effective date of the 2014 Plan and (3) an annual increase on the first day of each calendar year, beginning January 1, 2015 and ending on and including January 1, 2026, equal to the lesser of (A) 4 % of the shares outstanding (on an as-converted basis) on the final day of the immediately preceding calendar year and (B) such smaller number of shares determined by the Company’s Board of Directors; provided, however, no more than 35 million shares may be issued upon the exercise of incentive stock options. As of December 31, 2023 , there were 825,533 shares available for future grant under the 2014 Plan.
Inducement Award Plan
The Company’s Inducement Award Plan (the “Inducement Plan”), which was adopted in March 2018 without stockholder approval pursuant to Rule 5635(c)(4) of The Nasdaq Stock Market LLC listing rules (“Rule 5635(c)(4)”) and most recently amended and restated in December 2021, provides for the grant of equity awards to new employees, including options, restricted stock awards, restricted stock units, performance awards, dividend equivalent awards, stock payment awards and stock appreciation rights. In accordance with Rule 5635(c)(4), awards under the Inducement Plan may only be made to a newly hired employee who has not previously been a member of the Company's Board of Directors, or an employee who is being rehired following a bona fide period of non-employment by us as a material inducement to the employee’s entering into employment with us. The aggregate number of shares of common stock which may be issued or transferred pursuant to awards under the Inducement Plan is 6,925 shares. Any awards that forfeit, expire, lapse, or are settled for cash without the delivery of shares to the holder are available for the grant of an award under the Inducement Plan. Any shares repurchased by or surrendered to the Company that are returned shall be available for the grant of an award under the Inducement Plan. The payment of dividend equivalents in cash in conjunction with any outstanding award shall not be counted against the shares available for issuance under the Inducement Plan. As of December 31, 2023 , there were 5,038 shares available for future grant under the Inducement Plan.
Stock Options
The aggregate fair value of stock options granted during the year ended December 31, 2023 was immaterial. During the year ended December 31, 2022 , the Company granted options with an aggregate fair value of $ 0.6 million, which are being amortized into compensation expense over the vesting period of the options as the services are being provided.
The following is a summary of option activity under the Stock Incentive Plans and Inducement Plan (in thousands, except term, share and per share amounts):
Number of
Shares
Weighted-Average
Exercise Price Per
Share
Weighted-Average
Remaining
Contractual Term
(In years)
Aggregate Intrinsic
Value
Outstanding on December 31, 2022
Granted
Exercised
Forfeited
Cancelled
Outstanding on December 31, 2023
Exercisable on December 31, 2023
Vested or expected to vest on December 31, 2023
There were no options exercised in the years ended December 31, 2023 and 2022 . The weighted-average fair values of options granted in the years ended December 31, 2023 and 2022 were $ 25.64 and $ 1,757.55 per share, respectively, and were calculated using the following estimated assumptions:
Year Ended
December 31,
Weighted-average risk-free interest rate
Expected dividend yield
Expected volatility
Expected terms
6.0 years
5.2 years
The total fair values of stock options that vested during the years ended December 31, 2023 and 2022 were $ 1.0 million and $ 1.7 million, respectively.
As of December 31, 2023 , there was $ 0.3 million of total unrecognized compensation cost related to non-vested stock options granted under the Stock Incentive Plans. Total unrecognized compensation cost will be adjusted for future changes in the estimated forfeiture rate. The Company expects to recognize that cost over a remaining weighted-average period of 1.4 years as of December 31, 2023.
Restricted Stock Units
During the year ended December 31, 2023 , the Company awarded restricted stock units to certain employees and directors at no cost to them. The restricted stock units, excluding any restricted stock units with market conditions, vest through the passage of time, assuming continued service. Restricted stock units are not included in issued and outstanding common stock until the underlying shares are vested and released. The fair value of the restricted stock units, at the time of the grant, is expensed on a straight line basis. The granted restricted stock units had an aggregate fair value of $ 0.3 million, which are being amortized into compensation expense over the vesting period of the restricted stock units as the services are being provided.
The following is a summary of restricted stock unit activity under the 2014 Plan:
Number of
Shares
Weighted-Average
Grant Date Fair
Value Per Share
Nonvested on December 31, 2022
Granted
Vested
Forfeited
Nonvested on December 31, 2023
As of December 31, 2023 , there was $ 2.4 million of total unrecognized compensation cost related to nonvested restricted stock units granted under the 2014 Plan. Total unrecognized compensation cost will be adjusted for future changes in the estimated forfeiture rate. The Company expects to recognize that cost over a remaining weighted‑average period of 0.7 years as of December 31, 2023.
Employee Stock Purchase Plan
Under the 2014 Employee Stock Purchase Plan (the “2014 ESPP”) participants may purchase the Company’s common stock during semi-annual offering periods at 85 % of the lower of (i) the market value per share of common stock on the first day of the offering period or (ii) the market value per share of the common stock on the purchase date. Each participant can purchase up to a maximum of $ 25,000 per calendar year in fair market value as calculated in accordance with applicable tax rules. The first offering period began on August 7, 2014. Stock-based compensation expense from the 2014 ESPP for the years ended December 31, 2023 and 2022 was approximately $ 0.1 million and $ 0.1 million, respectively. During the year ended December 31, 2023 , 4,847 shares were purchased through the 2014 ESPP.
Th e fair value of the purchase rights granted under this plan was estimated on the date of grant and uses the following weighted-average assumptions, which were derived in a manner similar to those discussed in Note 2 relative to stock options:
Year Ended
December 31,
Weighted-average risk-free interest rate
Expected dividend yield
Expected volatility
Expected terms
0.5 years
0.5 years
The 2014 ESPP, which was amended and restated effective October 2023, provides for the issuance of up to 400,000 shares of the Company’s common stock to eligible employees. On December 31, 2023 , there were 394,477 shares available for issuance under the 2014 ESPP.
Stock‑Based Compensation Expense
The following table summarizes the stock-based compensation expense resulting from awards granted under Stock Incentive Plans, the Inducement Plan, and the 2014 ESPP, that was recorded in the Company’s results of operations for the periods presented (in thousands):
Year Ended
December 31,
Cost of product revenue
Research and development
Selling, general and administrative
Total stock-based compensation expense
For the years ended December 31, 2023 and 2022 , stock-based compensation expense capitalized as part of inventory or T2-owned instruments and components was immaterial.
11. Net Loss Per Share
The Company applies the two-class method for computing earnings per share because its Series A Warrants, Pre-Funded Warrants and Common Stock Warrants are participating securities. Because the Company incurred a net loss for the years ended December 31, 2023 and 2022, and the holders of the participating securities do not have the contractual obligation to share in the losses of the Company, none of the net loss attributable to common stockholders was allocated to the participating securities when computing earnings per share. The basic and diluted net loss per share calculation includes the Series B Convertible Preferred Shares, on an if-converted basis, given that these instruments have essentially the same economic rights and privileges as the currently outstanding common stock.
The Pre-Funded Warrants allowed the holders to acquire a specified number of common shares at a nominal exercise price of $ 0.10 per share and were classified as equity. Since the shares underlying the Pre-Funded Warrants were exercisable for little or no consideration, the underlying shares were considered outstanding at the issuance of the Pre-Funded Warrants for purposes of calculating the weighted-average number of shares of common stock outstanding in basic and diluted earnings per share for common stock. On December 31, 2023, none of the Pre-Funded Warrants were outstanding.
For the year ended December 31, 2022, the net loss attributable to common stockholders was increased by $ 0.3 million to reflect the deemed dividend paid to holders of the Series A Redeemable Convertible Preferred Stock to accrete the carrying amount of that preferred stock to its redemption value.
The following shares were excluded from the calculation of diluted net loss per share applicable to common stockholders, prior to the application of the treasury stock or if-converted methods, because their effect would have been anti-dilutive for the periods presented:
Year Ended
December 31,
Options to purchase common shares
Restricted stock units
Term Loan Warrants
Series A Warrant
Common Stock Warrants
Total
The Series A Redeemable Convertible Preferred Stock was redeemed on October 26, 2022.
Note that all net loss per share computations for all periods presented reflect the changes in the number of shares resulting from the 1-for- 100 reverse stock split that was approved by shareholders on September 15, 2023 and became effective as of October 12, 2023.
12. Income Taxes
The reconciliation of the U.S. federal statutory rate to the Company’s effective tax rate is as follows:
December 31,
Tax at statutory rates
State income taxes
Stock-based compensation
Permanent differences
Research and development credits
Difference and changes in tax rates
Other
Limitations on credits and net operating losses
Change in valuation allowance
Effective tax rate
The significant components of the Company’s deferred tax asset consist of the following on December 31, 2023 and 2022 (in thousands):
December 31,
Deferred tax assets:
Net operating loss carryforwards
Tax credits
Other temporary differences
Start-up expenditures
Capitalized research and development expenses
Stock option expenses
Lease liability
Total deferred tax assets
Deferred tax asset valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Right of use asset
Prepaid expenses
Net deferred taxes
Net deferred tax asset
Net deferred tax liability
In 2023 and 2022, the Company did not record a benefit for income taxes related to its operating losses incurred. ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Based upon the level of historical U.S. losses and future projections over the period in which the net deferred tax assets are deductible, at this time, management believes it is more likely than not that the Company will not realize the benefits of these deductible differences, and as a result the Company continues to maintain a valuation allowance for the full amount of the 2023 deferred tax assets. The valuation allowance decreased by $0 .6 million and increased by $ 3.0 million for the years ended December 31, 2023 and 2022, respectively. The decrease in the 2023 valuation allowance is primarily attributable to increases in Section 382 and 383 limitations as a result of an ownership change that occurred in November of 2023, partially offset by an increase in capitalized R&D expenses and the current period taxable loss. The increase in the 2022 valuation allowance is primarily attributable to the additional net operating losses, capitalized R&D expenses, and tax credits generated in 2022 that required additional valuation allowance, partially offset by the prior year increase in Section 382 and 383 limitations on the Company's tax attributes as a result of an ownership change that occurred in August of 2022.
As of December 31, 2023 , the Company had federal and state net operating losses of $ 273.7 million and $ 245.4 million, respectively, which are available to offset future taxable income, if any, of which $ 10.4 million of federal and $ 168.7 million of state carryforwards will expire in varying amounts through 2037 and 2043 , respectively. Additionally, $ 263.3 million of federal net operating loss carryforwards and $ 76.7 million of state net operating loss carryforwards will carryforward indefinitely, subject to annual taxable income limitations in the year of utilization. The Company also had federal and state research and development tax credits of $ 28.0 thousand and $ 0.4 million, respectively. The federal credits will expire at various dates through 2043 if not utilized, and the state credits of approximately $ 9.7 thousand will expire at various dates through 2038 if not utilized.
Under the provisions of the Internal Revenue Code, the net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Utilization of the NOL and R&D credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by Sections 382 and 383 of the Internal Revenue Code of 1986, as amended ("the Code"), as well as similar state provisions. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders. The Company completed an assessment on December 31, 2023 and December 31, 2022 regarding whether there may have been a Section 382 ownership change. The study concluded that there were limitations on the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income. The Company has not included NOL carryforwards in its financial statements that will expire before they are utilized due to the limitation imposed by Section 382.
The Company has no balance of gross unrecognized tax benefits as of December 31, 2023. Interest and penalty charges, if any, related to uncertain tax positions would be classified as income tax expenses in the accompanying consolidated statements of operations. On December 31, 2023 and 2022 , the Company had no accrued interest or penalties related to uncertain tax positions.
The Company files income tax returns in the U.S. federal tax jurisdiction and various state jurisdictions. Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all tax years in which a loss carryforward is available. The Company does not have any international operations as of December 31, 2023 . The statute of limitations for assessment by federal and state tax jurisdictions in which the Company has business operations is open for tax years ending after December 31, 2020 and December 31, 2019, respectively. The tax years open to examination vary by jurisdiction.
13. Leases
Operating Leases
The Company leases certain office space, laboratory space, and equipment. At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. The Company does no t recognize right-of-use assets or lease liabilities for leases determined to have a term of 12 months or less. For new and amended leases, the Company has elected to account for the lease and non-lease components as a combined lease component.
In August 2010, the Company entered into an operating lease for office and laboratory space at its headquarters in Lexington, Massachusetts. The lease commenced in January 2011, with the Company providing a security deposit of $ 400,000 . In accordance with the operating lease agreement, the Company reduced its security deposit to $ 160,000 in January 2018, which is recorded as restricted cash in the consolidated balance sheets. In March 2017, the Company entered into an amendment to extend the term to December 2021 . In October 2020, the Company entered into an amendment to extend the term to December 31, 2028 . In accordance with the October 2020 amendment, the Company increased its security deposit to $ 420,438 , which is classified as restricted cash on December 31, 2023 and 2022.
In May 2013, the Company entered into an operating lease for additional office, laboratory and manufacturing space in Wilmington, Massachusetts. In August 2018, the Company entered into an amendment to extend the term to December 2020 . In October 2020, the Company entered into an amendment to extend the term to December 31, 2022 . In September 2022, the Company entered into an amendment to extend the term to December 31, 2024 .
In November 2014, the Company entered into a lease for additional laboratory space in Lexington, Massachusetts. The lease term commenced in April 2015 and extended for six years . The rent expense, inclusive of the escalating rent payments, is recognized on a straight-line basis over the lease term. As an incentive to enter into the lease, the landlord paid approximately $ 1.4 million of the $ 2.2 million space build-out costs. The unamortized balance of the lease incentive as of January 1, 2019 was reclassified as a reduction to the initial recognition of the right-of-use asset related to this lease. In connection with this lease agreement, the Company paid a security deposit of $ 281,000 , which was recorded as a component of both prepaid expenses and other current assets and other assets in the consolidated balance sheets on December 31, 2019. In October 2020, the Company entered int o an amendment to extend the term of the lease to October 31, 2025 . In accordance with this amendment, the Company paid a replacement security deposit of $ 130,977 , which is classified as restricted cash on December 31, 2023 and 2022 and received the initial $ 281,000 security deposit in return.
In September 2021, the Company entered into a lease for office, research, laboratory and manufacturing space in Billerica, Massachusetts. The lease has a term of 126 months from the commencement date. The Company opened a money market account for $ 1.0 million, which represents collateral as a security deposit for this lease and is classified as restricted cash on December 31, 2022. Occupancy of the building had been delayed due to disagreement between the Company and the landlord as to the parties’ obligations under the lease agreement. Included within accrued expenses and other current liabilities on the balance sheet on December 31, 2022 is a $ 1.0 million estimated liability pertaining to this lease. In January 2023, the Company was notified that the landlord terminated the lease because of the Company’s alleged failure to perform its obligations under the Lease in a timely manner and the Company’s alleged breach of the covenant of good faith and fair dealing and exercised its right to draw upon the $ 1.0 million security deposit. In addition, the landlord is seeking damages for unpaid rent, brokerage fees, transaction costs, attorney’s fees and court costs. The Company filed a response to the landlord’s complaint and a counterclaim alleging that the landlord breached its obligations under the contract and unlawfully drew on the security deposit, in addition to breaching its covenants of good faith and fair dealing, making fraudulent misrepresentations, and engaging in deceptive and unfair trade practices. The matter is in dispute (Note 14). The Company intends to pursue legal remedies available under applicable laws. The Company believes it will continue to meet its current manufacturing needs with its operations at its Lexington and Wilmington, Massachusetts facilities.
Operating leases are amortized over the lease term and included in costs and expenses in the consolidated statement of operations and comprehensive loss. Variable lease costs are recognized in costs and expenses in the consolidated statement of operations and comprehensive loss as incurred. Variable lease costs may include costs such as common area maintenance, utilities, real estate taxes or other costs. Expenses related to short-term leases were not material for periods presented.
The following table summarizes the effect of operating lease costs in the Company’s consolidated statement of operations and comprehensive loss (in thousands):
Year Ended December 31,
Lease cost
Operating lease cost
Variable lease cost
Total lease cost
The following table summarizes supplemental information for the Company’s operating leases:
Year Ended December 31,
Other information
Weighted-average remaining lease term - operating leases (in years)
Weighted-average discount rate - operating leases
The minimum lease payments for the next five years and thereafter is expected to be as follows (in thousands):
December 31, 2023
Maturity of lease liabilities
Operating Leases
Thereafter
Total lease payments
Less: effect of discounting
Present value of lease liabilities
14. Commitments and Contingencies
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.
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 December 31, 2023 and 2022, the Company had not experienced any material losses related to these indemnification obligations, and no material claims with respect thereto were outstanding. The Company does not expect significant claims related to these indemnification obligations and, consequently, concluded that the fair value of these obligations is negligible, and no related reserves were established.
Contingencies
In September 2021, the Company entered into a lease for office, research, laboratory and manufacturing space in Billerica, Massachusetts. The lease had a term of 126 months from the commencement date. The Company opened a money market account for $ 1.0 million, which represents collateral as a security deposit for this lease and is classified as restricted cash on December 31, 2022. Occupancy of the building had been delayed due to disagreement between the Company and the landlord as to the parties’ obligations under the lease agreement. Included within accrued expenses and other current liabilities on the balance sheet on December 31, 2022 is a $ 1.0 million estimated liability pertaining to this lease. In January 2023, the Company was notified that the landlord terminated the lease because of the Company’s alleged failure to perform its obligations under the Lease in a timely manner and the Company’s alleged breach of the covenant of good faith and fair dealing and exercised its right to draw upon the $ 1.0 million security deposit. In addition, the landlord is seeking damages for unpaid rent, brokerage fees, transaction costs, attorney’s fees and court costs. The Company filed a response to the landlord’s complaint and a counterclaim alleging that the landlord breached its obligations under the contract and unlawfully drew on the security deposit, in addition to breaching its covenants of good faith and fair dealing, making fraudulent misrepresentations, and engaging in deceptive and unfair trade practices. The Company intends to pursue legal remedies available under applicable laws. The Company believes it will continue to meet its current manufacturing needs with its operations at its Lexington and Wilmington, Massachusetts facilities.
Leases
Refer to Note 13, Leases, for discussion of the commitments associated with the Company’s leases.
License Agreement
In 2006, the Company entered into a license agreement with a third party, pursuant to which the third party granted the Company an exclusive, worldwide, sublicensable license under certain patent rights to make, use, import and commercialize products and processes for diagnostic, industrial and research and development purposes. The Company agreed to pay an annual license fee ranging from $ 5,000 to $ 25,000 for the royalty‑bearing license to certain patents. The Company also issued a total of 16 shares of common stock pursuant to the agreement in 2006 and 2007, which were recorded at fair value at the date of issuance. The Company is required to pay royalties on net sales of products and processes that are covered by patent rights licensed under the agreement at a percentage ranging between 0.5 % - 3.5 %, subject to reductions and offsets in certain circumstances, as well as a royalty on net sales of products that the Company sublicenses at 10 % of specified gross revenue. Royalties that became due under this agreement for the years ended December 31, 2023 and 2022 were $ 0.1 million and $ 0.1 million, respectively.
Letter Agreements
On March 30, 2023, the Company entered into agreements with Mr. Sprague, Mr. Giffin, and Mr. Gibbs that provide for the payment of retention bonuses, subject to the respective executive’s continued employment through such payment dates, of $ 80,000 each, to be paid in two installments of $40,000. The first installment, of $ 40,000 each, was paid in July 2023, and the second installment, of $ 40,000 each, was paid in November 2023.
15. 401(k) Savings Plan
In March, 2008, the Company established a retirement savings plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”). The 401(k) Plan covers substantially all employees of the Company who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pretax basis. Company contributions to the 401(k) Plan may be made at the discretion of the Board of Directors. Company contributions to the 401(k) Plan were $ 115,000 and $ 244,000 for the years ended December 31, 2023 and 2022 , respectively.
16. U.S. Government Contract
In September 2019, BARDA awarded the Company a milestone-based product development contract, with an initial value of $ 6.0 million, and a potential value of up to $ 69.0 million, which was amended with Option 3 to $ 62.0 million due to a change in scope, if BARDA exercises all contract options (the “U.S. Government Contract”). BARDA operates within the Office of the Assistant Secretary for Preparedness and Response (“ASPR”) at the U.S. Department of Health and Human Services’ (“HHS”). If BARDA exercises and the Company completes all options, the Company’s management believes it will enable a significant expansion of the Company’s current portfolio of diagnostics for sepsis-causing pathogen and antibiotic resistance genes. In September 2020, BARDA exercised the first contract option valued at $ 10.5 million. In September 2021, BARDA exercised an option valued at approximately $ 6.4 million.
In April 2021, BARDA agreed to accelerate product development by modifying the contract to advance future deliverables into the currently funded Option 1 of the BARDA contract for the T2Biothreat Panel and the T2Resistance Panel. The modification did not change the overall total potential value of the BARDA contract.
On March 31, 2022, the Company announced that BARDA had exercised Option 2B under the existing multiple-year cost-share contract between BARDA and the Company and provided an additional $ 4.4 million in funding to the Company.
The option exercise occurred simultaneously on March 31, 2022 with a modification to the BARDA contract to make immaterial changes to, among other things, the statement of work.
In September 2022, BARDA exercised Option 3 and agreed to provide an additional $ 3.7 million in funding for the multiple-year cost-share contract. The additional funding under Option 3 was used to advance the U.S. clinical trials for the T2Biothreat Panel and T2Resistance Panel, and to file submissions to the FDA for U.S. regulatory clearance.
The Company recorded contribution revenue of $ 0.4 million and $ 11.0 million for the years ended December 31, 2023 and 2022, respectively, under the BARDA contract.
The Company had no outstanding accounts receivable on December 31, 2023 and unbilled accounts receivable of $ 0.7 million on December 31, 2022, respectively, under the BARDA contract.
The BARDA contract expired in September 2023.
17. Subsequent Events
On February 15, 2024, CRG converted 82,422 shares of its Series B Preferred Stock into 824,220 shares of common stock.
On February 15, 2024, the Company entered into a Securities Purchase Agreement with CRG and affiliated entities pursuant to which the Company will issue (i) shares of the Company’s common stock and (ii) to the extent that the issuance of the shares common stock results in CRG beneficially owning greater than 49.99 % of the Company’s outstanding shares of common stock (or in the case of one of the affiliated entities, greater than 9.99 % of the Company’s outstanding shares of common stock, determined without regard to any convertible securities held by CRG or affiliated entities), shares of newly designated convertible preferred stock, par value $ 0.001 per share, at a price per share of the lower of (a) the closing price for the Company’s common stock on Nasdaq on the date immediately prior to the closing of the transaction and (b) the average closing price over the five business days prior to the closing of the transaction, in exchange for CRG surrendering for cancellation $ 15.0 million of outstanding borrowing under the Term Loan Agreement. The closing of the transaction is conditioned on the approval of the Company’s stockholders at a stockholder meeting to be held on April 11, 2024, and is expected to occur within 10 business days following the approval of the Company’s stockholders.
On March 11, 2024, the Company received notice from the Nasdaq Hearings Panel that it had granted the Company’s request for continued listing on the Nasdaq Stock Market, subject to the Company demonstrating compliance with Nasdaq’s MVLS Rule on or before May 20, 2024.
Equity Distribution Agreement
Subsequent to December 31, 2023, the Company sold 628,470 shares of common stock for net proceeds of $ 2.2 million under the Equity Distribution Agreement.
Letter Agreements
On March 31, 2024, the Company entered into letter agreements with Mr. Sprague and Mr. Gibbs that provide for the payment of a retention bonus in the total aggregate amount of $ 80,000 , to be paid in two installments of $ 40,000 . The first installment, in the amount of $ 40,000 , shall be paid within five business d ays following June 30, 2024, and the second installment, in the amount of $ 40,000 , shall be paid within five business days following November 15, 2024. Each such installment payment is subject to the applicable executive's continued employment through such payment date.
