T2 Biosystems(TTOO) - 2019 Q4 - Annual Report

PART I Item 1. Business T2 Biosystems is an in vitro diagnostics company leveraging its T2MR® technology for rapid, sensitive, and simple detection of pathogens and biomarkers directly from unpurified patient samples - T2 Biosystems is an in vitro diagnostics company utilizing T2 Magnetic Resonance (T2MR®) technology for rapid and sensitive detection of pathogens and biomarkers directly from unpurified patient samples[18] - Key products include the T2Dx® Instrument, T2Candida® Panel (FDA-cleared Sept 2014), T2Bacteria® Panel (FDA-cleared May 2018), T2Cauris™ Panel (research use only), and T2Resistance™ Panel (FDA Breakthrough Device designation Feb 2019, CE Mark Nov 2019)[19] - The company's strategy focuses on driving commercial adoption of sepsis products, establishing a recurring consumables-based business model, and broadening addressable markets in infectious disease (e.g., T2Lyme™ Panel) and beyond[25][29] - Sepsis is a leading cause of death and the most expensive hospital-treated condition in the U.S., costing over $27 billion in 2017, with a mortality rate of approximately 30%[20][34] - Traditional blood culture diagnostics for sepsis have limitations including 1-6 day time to result, susceptibility to antimicrobial therapy causing false negatives, and labor-intensive workflows[41][43] - T2MR technology offers rapid (3-5.4 hours), highly sensitive (as low as 1 CFU/mL), and accurate detection of sepsis pathogens directly from blood, even in the presence of antimicrobial therapy, potentially reducing mortality and healthcare costs[23][24][48] - The T2Lyme™ Panel is in development to rapidly identify Lyme disease-causing bacteria directly from blood, aiming to improve early diagnosis and prevent complications[108] - The company employs a direct sales force in the U.S. targeting top hospitals and partners with distributors internationally, with CE marking for T2Candida, T2Dx, T2Bacteria, T2Resistance, and T2Cauris[115][116] - Manufacturing of T2Dx instruments and reagent trays occurs in Lexington and Wilmington, MA, with consumable cartridges outsourced and particles supplied by a sole source (GE Healthcare)[117] - The company holds over 35 issued U.S. patents and licenses over 50 pending/granted applications worldwide, with patents covering T2Candida, T2Bacteria, and T2Lyme expected to expire between 2023 and 2037[121] - Key competitive advantages include T2MR's direct detection capability, rapid and highly sensitive results, ease-of-use, and potential economic benefits to hospitals[137] - The company's products are regulated as medical devices by the FDA and other international authorities, requiring 510(k) clearance, de novo classification, or PMA approval[136] - Research and development expenses were $16.3 million in 2019, $14.5 million in 2018, and $23.7 million in 2017, representing a significant portion of total costs[166] Overview T2 Biosystems is an in vitro diagnostics company leveraging its T2MR® technology for rapid, sensitive, and simple detection of pathogens and biomarkers directly from unpurified patient samples - T2 Biosystems is an in vitro diagnostics company that has developed an innovative and proprietary technology platform, T2 Magnetic Resonance (T2MR®), for rapid, sensitive, and simple detection of pathogens, biomarkers, and other abnormalities directly from various unpurified patient sample types[18] - The company's initial FDA-cleared products include the T2Dx® Instrument and T2Candida® Panel (Sept 2014), and the T2Bacteria® Panel (May 2018), which rapidly identify sepsis-causing fungal and bacterial pathogens from whole blood[19] - Additional diagnostic applications in development include the T2Resistance™ Panel (FDA Breakthrough Device designation Feb 2019, CE Mark Nov 2019) for carbapenemase-resistance markers and the T2Lyme™ Panel for Lyme disease[19] - Sepsis is a leading cause of death in the U.S., with a mortality rate of approximately 30% and an economic burden exceeding $27 billion in 2017[20] - T2Candida and T2Bacteria tests can deliver actionable results in 3-5.4 hours, significantly faster than blood culture-based diagnostics (1-6 days), potentially enabling earlier targeted treatment and reducing mortality and hospital costs[23] Our Strategy The company's strategy focuses on establishing T2MR as a standard of care, driving commercial adoption, building a consumables-based model, and expanding into broader diagnostic markets - The company's objective is to establish T2MR as a standard of care for clinical diagnostics[25] - Drive Commercial Adoption of Sepsis Products: Focus on educating physicians and demonstrating clinical/economic value to top 1,200 U.S. hospitals with high-risk sepsis patients, and internationally through distributors[25][29] - Establish a Recurring, Consumables-Based Business Model: Secure T2Dx placements and drive utilization of diagnostic panels (T2Candida, T2Bacteria, T2Resistance, T2Cauris) for sustainable revenue[25][29] - Broaden Addressable Markets in Infectious Disease: Develop additional diagnostic panels and expand through partnerships (e.g., T2Lyme clinical trial initiated in 2018)[25][29] - Broaden Addressable Markets Beyond Infectious Disease: Apply T2MR to new applications outside of sepsis and Lyme disease, including environmental, food safety, industrial, and veterinary uses[25][29] - Drive International Expansion: Continue expanding in international markets through distribution channels, leveraging CE marking for key products[25][29] Our Technology Platform The T2MR® platform is a miniaturized, magnetic resonance-based technology enabling rapid, sensitive, and direct detection of pathogens and biomarkers from unpurified patient samples - T2MR® is a miniaturized, magnetic resonance-based platform that measures water molecule reactions in magnetic fields, capable of detecting molecular targets (DNA), immunodiagnostics targets (proteins), and hemostasis measurements[26][29] - T2MR enables rapid and accurate detection directly from unpurified samples (whole blood, plasma, serum, saliva, sputum, urine) at limits of detection as low as 1 CFU/mL, eliminating the need for time-consuming purification/extraction steps required by traditional PCR[27] - The FDA-cleared T2Dx® Instrument is an easy-to-use, fully automated bench-top system that processes up to seven specimens simultaneously, delivering diagnostic results on-screen and printed[28][30][31] - Panels designed for the T2Dx include T2Candida, T2Bacteria, T2Resistance, and T2Cauris, all focused on life-threatening sepsis pathogens[32] Sepsis Sepsis is a critical health issue with high mortality and costs, where T2 Biosystems' rapid diagnostics offer significant improvements over traditional slow and less sensitive methods - Sepsis is a severe inflammatory response to infection, a leading cause of death in the U.S. with a 30% mortality rate and an economic burden exceeding $27 billion annually[33][34] U.S. Hospital Costs for Most Expensive Conditions (2016 HHS Study) | Rank | Condition | U.S. hospital costs (in billions) | Percentage of total inpatient costs | | :--- | :--- | :--- | :--- | | 1 | Sepsis | $23.6 | 6.2% | | 2 | Osteoarthritis | $16.5 | 4.3% | | 3 | Liveborn | $13.3 | 3.5% | | 4 | Complication of device, implant or graft | $12.4 | 3.3% | | 5 | Acute myocardial infarction (heart attack) | $12.0 | 3.2% | - Traditional blood culture diagnostics for sepsis are slow (1-6+ days for species identification, 5+ days for negative results) and have low sensitivity (50-65%), leading to delayed targeted treatment and overuse of broad-spectrum antibiotics[41][43] - T2Biosystems' products (T2Bacteria, T2Candida) enable clinicians to potentially treat 90% of sepsis patients with targeted therapy within 12 hours, compared to 60% with initial broad-spectrum antibiotics[24][45] - T2Candida demonstrated 91.1% overall sensitivity and 99.4% overall specificity in the DIRECT trial, with an average time to result of 4.2 hours compared to 1-6+ days for blood culture[60][62][70] T2Candida Performance Characteristics (Overall Sensitivity and Specificity) | | Overall Sensitivity | Overall Specificity | | :--- | :--- | :--- | | Number of Tests (%) | 234/257 (91.1%) | 5114/5146 (99.4%) | T2Candida Time to Results (hours) | | Blood Culture | T2Dx | | :--- | :--- | :--- | | Mean ± SD (N) | 126.5 ± 27.3 (1470) | 4.2 ± 0.9 (1470) | | Median | 121.0 | 4.1 | | (Min, Max) | (12.4, 247.2) | (3.0, 7.5) | | Time to Positive Results(1),(2) (hours) | | | | Mean ± SD (N) | 43.6 ± 11.1 (4) | 4.4 ± 1.0 (4) | | Median | 46.1 | 4.6 | | (Min, Max) | (28.1, 54.1) | (3.2, 5.4) | | Time to Negative Results(1),(2) (hours) | | | | Mean ± SD (N) | 126.7 ± 27.0 (1466) | 4.2 ± 0.9 (1466) | | Median | 121.1 | 4.1 | | (Min, Max) | (12.4, 247.2) | (3.0, 7.5) | - An economic study by IMS Health projected average annual savings of $5.8 million for hospitals using T2Candida, reducing care costs by $26,887 per patient and deaths by 60.6%[23] - T2Bacteria, FDA-cleared in May 2018, detects five major sepsis-causing bacterial pathogens directly from whole blood in an average of 5.4 hours, compared to 60 hours for blood culture, and identified 63 infected patients missed by blood culture[90] T2Bacteria Panel Overall Performance (Prospective and Seeded Arms) | Sensitivity | 95% CI | Specificity | 95% CI | | :--- | :--- | :--- | :--- | | 95.4% (209 / 219) | 91.8%-97.5% | 97.9% (8,416/8,596) | 97.6%-98.2% | - The T2Bacteria Panel received a New Technology Add-on Payment (NTAP) from CMS for FY 2020, providing hospitals with an additional $97.50 reimbursement for Medicare inpatients, recognizing its substantial clinical improvement[100] - The T2Resistance Panel detects 13 resistance genes, including carbapenem resistance markers, with an average time of 5.3 hours compared to 30-95 hours for conventional methods, and received FDA Breakthrough Device designation and CE Mark in 2019[102] - The T2Cauris™ Panel is being validated by the CDC for rapid detection of multi-drug resistant Candida auris from patient skin and environmental samples, a 'serious global health threat'[103][104][105] Lyme Disease Lyme disease affects many in the U.S., and the T2Lyme™ Panel is in clinical trials to provide rapid, accurate detection, addressing limitations of current slow and often inaccurate diagnostics - Lyme disease affects an estimated 360,000 people in the U.S. annually, with current diagnostics being labor-intensive, slow (weeks), and prone to high false-negative rates, leading to misdiagnosis and significant costs ($10,000+ per patient/year)[106][107] - The T2Lyme™ Panel, currently in clinical trials (initiated May 2018), aims to identify Lyme disease-causing bacteria directly from blood in hours, offering high sensitivity and specificity, and potentially preventing progression to later stages of the disease[108] - Preliminary data for T2Lyme demonstrated detection of three Borrelia species at limits as low as 10 cells/mL in spiked blood, and 78% positive percent agreement (PPA) and 100% negative percent agreement (NPA) compared to tissue culture, outperforming two-tier serology (56% PPA, 92% NPA)[110][111][112] Sales, Marketing and Distribution The company utilizes a direct U.S. sales force targeting high-risk sepsis hospitals and international distributors, emphasizing clinical data and economic value - The company employs a direct sales force of 26 people in the U.S., including a medical affairs team of six PharmD clinicians, targeting the top 1,200 hospitals with high-risk sepsis patients[114][115] - Sales efforts focus on clinical data, product performance, improved patient outcomes, and economic value (customized budget-impact analysis) for hospitals[114] - Internationally, products are marketed through distribution partners in the EU, Caribbean, Australia, South Africa, and the Middle East, with CE marking obtained for T2Candida, T2Dx, T2Bacteria, and T2Resistance[116] Revenue Concentration by Customer (Year Ended December 31, 2019) | Customer | Percentage of Total Revenue | | :--- | :--- | | Customer 1 | 19% | | Customer 2 | 11% | | Customer 3 | 8% | Manufacturing T2Dx instruments and reagent trays are manufactured in-house, while consumable cartridges are outsourced, with a sole-source supplier for proprietary particles, all under a quality management system - T2Dx instruments are manufactured at the Lexington, MA facility, while T2Candida, T2Bacteria, and T2Resistance reagent trays are manufactured at the Wilmington, MA facility[117] - Consumable cartridges are outsourced to a contract manufacturer, and proprietary particles are supplied by a sole source, GE Healthcare[117] - A quality management system is in place, complying with FDA regulations and ISO 13485:2012 standards for medical device manufacturing[118] Intellectual Property The company protects its T2MR® technology and product portfolio through a robust patent strategy, trademarks, and licensing agreements, with patents expiring between 2023 and 2037 - The company protects its proprietary technologies through patents, trademarks, copyrights, trade secrets, and confidentiality agreements[120] - The patent portfolio includes over 35 issued U.S. patents and 15+ pending U.S. applications, plus over 50 pending/granted international applications, primarily covering assay architecture and instrumentation for T2Candida, T2Bacteria, T2Resistance, T2Cauris, and T2Lyme[121] - Issued patents covering T2Candida and T2Bacteria are expected to expire between 2023 and 2034, with pending applications potentially extending to 2037[121] - The company has an exclusive, worldwide license agreement with Massachusetts General Hospital (MGH) for certain patent rights, requiring diligence obligations and royalty payments on net sales[125][128] - A supply agreement with SMC Ltd. covers plastic injection molded products for all T2 product lines[130] Competition The company competes with established diagnostics firms offering traditional and post-culture methods, differentiating itself with T2MR's direct, rapid, and highly sensitive detection capabilities - The company competes with established commercial diagnostics companies, including those offering traditional blood culture-based diagnostics (Becton Dickinson & Co., bioMerieux, Inc.) and post-culture species identification (BioFire Diagnostics, Bruker, Accelerate Diagnostics, Luminex, Genmark, Cepheid, Beckman Coulter)[132][133] - T2 Biosystems' competitive advantages include T2MR's ability to detect targets directly in complex samples, rapid and highly-sensitive results, ease of use, and potential economic benefits to hospitals[137] Government Regulation The company's medical devices are subject to extensive FDA and international regulations, including pre-market clearance, post-market surveillance, and healthcare fraud and abuse laws, impacting product development and commercialization - Products are regulated as medical devices by the FDA and other federal, state, and local authorities, covering design, development, manufacturing, testing, labeling, clinical trials, marketing, and post-market surveillance[134][135] - FDA pre-market requirements include 510(k) clearance, de novo down classification (used for T2Dx and T2Candida), or pre-market approval (PMA)[136][145] - The T2Resistance Panel received FDA Breakthrough Device designation in February 2019, which facilitates interaction with the FDA and prioritized review[139] - International sales require compliance with foreign government regulations, such as CE marking in the European Economic Area (EEA), which T2 Biosystems has obtained for T2Dx, T2Candida, T2Bacteria, and T2Resistance[148][149] - The company is subject to various healthcare laws, including federal and state anti-kickback statutes, fraud and abuse laws, false claims acts, HIPAA, and physician payment transparency laws (Sunshine Act)[150][151][153][154][157][158] - Adequate coverage and reimbursement from third-party payors (Medicare, Medicaid, private insurers) are crucial for product sales, with uncertainty surrounding new technology reimbursement[160][161] - Healthcare reform measures, including the Affordable Care Act, have impacted the industry by reducing payments and increasing regulatory scrutiny, potentially affecting demand and pricing[163][164][165] Research and Development The company maintains significant R&D investment to advance its T2MR® technology, develop new products, and improve existing ones, aiming to establish T2MR as a standard of care Research and Development Expenses | Year Ended December 31, | Amount (in millions) | Percentage of Total Costs and Expenses | | :--- | :--- | :--- | | 2019 | $16.3 | 27% | | 2018 | $14.5 | 26% | | 2017 | $23.7 | 41% | - The company is committed to significant R&D investment to develop new technologies, improve product performance, and expand its pipeline of product candidates, aiming for T2MR to become a standard of care[166][167] Employees As of December 31, 2019, the company had 151 full-time employees across operations, R&D, sales, marketing, and general administration - As of December 31, 2019, the company had 151 full-time employees, with 67 in operations, 41 in R&D, 26 in sales and marketing, and 17 in general and administrative roles[168] Facilities The company leases its corporate headquarters in Lexington, MA, for office, lab, and manufacturing, and an additional manufacturing facility in Wilmington, MA - Corporate headquarters in Lexington, MA, leases approximately 31,000 sq ft of office, 20,800 sq ft of lab, and 3,400 sq ft of manufacturing space, with an annual base rent of $2.1 million[169] - An additional manufacturing facility in Wilmington, MA, leases approximately 7,600 sq ft for $0.1 million annually[169] Corporate and Available Information T2 Biosystems, Inc., incorporated in Delaware in 2006, provides its annual, quarterly, and current reports free of charge on its website and through SEC filings - T2 Biosystems, Inc. was incorporated in Delaware in 2006, with principal corporate offices in Lexington, MA[170] - Annual reports (10-K), quarterly reports (10-Q), current reports (8-K), and amendments are available free of charge on the company's website (www.t2biosystems.com) and filed with the SEC[171] Item 1A. Risk Factors This section outlines significant risks that could adversely affect T2 Biosystems' business, financial condition, and operating results, including going concern issues, market acceptance, competition, supply chain, regulatory compliance, and intellectual property - The company has identified conditions that raise substantial doubt about its ability to continue as a going concern, including $11.0 million in cash and cash equivalents as of December 31, 2019, and an accumulated deficit of $376.2 million[173][175][177] - Future funding is uncertain, and the company may need to raise additional capital through equity or debt, which could dilute shareholders or impose restrictive covenants[175][193] - The company has a limited operating history and faces difficulties in expanding sales and marketing, managing growth, and achieving sufficient market acceptance for its products (T2Dx, T2Candida, T2Bacteria) and product candidates (T2Lyme)[178][181][185][188] - The diagnostics market is highly competitive, with established companies having greater resources, name recognition, and distribution networks[201][203] - Reliance on third-party, single-source suppliers for critical components (e.g., GE Healthcare for particles) poses a risk of supply disruption[117][196] - The company's future success depends on its ability to recruit, train, and retain key personnel, including senior management, R&D, manufacturing, and sales teams[199] - Undetected errors or defects in products could harm reputation, decrease market acceptance, and lead to product liability claims[204][205] - Manufacturing risks, including quality defects, inability to secure components, and scaling production, could adversely affect product availability and gross margins[209][210] - Compliance with extensive government regulations (FDA, international, healthcare fraud and abuse laws) is costly and complex; non-compliance could result in substantial penalties or delays in product approvals[231][235][239][253][256] - Inadequate coverage and reimbursement from third-party payors for diagnostic tests using T2MR technology could compromise commercial success[249][250][251] - The company relies on patent, trademark, and trade secret protection; failure to effectively protect intellectual property could harm its competitive position and lead to costly litigation[263][265][266][268][274][277] - The price of common stock has been volatile and may continue to be, influenced by financial results, regulatory announcements, competition, and general market conditions[298] - A material weakness in internal control over the quality, frequency, and periodic testing of IT data backups was identified, which could impair the ability to produce accurate and timely financial statements[311][312] Risks Related to our Business and Strategy The company faces significant business and strategic risks, including going concern uncertainty, capital needs, market acceptance challenges, supplier reliance, personnel retention, product defects, manufacturing issues, debt covenants, international operations, and cybersecurity threats - The company has identified conditions and events that raise substantial doubt about its ability to continue as a going concern, including an accumulated deficit of $376.2 million as of December 31, 2019[173][175][177] - Future capital needs are uncertain, and the company may need to raise additional funds through equity or debt, potentially leading to shareholder dilution or restrictive covenants[193] - Limited operating history and lengthy, variable sales cycles make revenue forecasting difficult and pose challenges for market acceptance of products like T2Dx, T2Candida, and T2Bacteria[178][181][188] - Failure to gain and retain support from leading hospitals and key thought leaders, or to publish clinical trial results in peer-reviewed journals, could hinder establishing T2MR as a standard of care[189][190] - The company relies on third-party, single-source suppliers for some components (e.g., GE Healthcare for particles), and loss of these suppliers could adversely impact business[117][196] - Inability to recruit, train, and retain key personnel, especially in sales and R&D, could impede achieving business goals[199] - Product performance issues, such as undetected errors or defects, could harm reputation, decrease market acceptance, and lead to product liability claims[200][204][205] - Manufacturing risks, including quality defects, component sourcing issues, and scaling production, could reduce gross margins and negatively affect operating results[209][210] - Debt instruments contain covenants that restrict business strategies, and default could lead to accelerated repayment or loss of assets[215][216] - International operations expose the company to risks such as compliance with foreign regulations, currency fluctuations, political instability, and difficulties in protecting intellectual property[224] - Misconduct by employees or partners, including non-compliance with regulatory standards or fraud, could result in significant penalties and reputational harm[226] - Dependence on information technology systems makes the company vulnerable to failures, security breaches (like the August 2019 ransomware attack), and data loss, which could disrupt operations and incur liability[227][228][229][230] Risks Related to Government Regulation and Diagnostic Product Reimbursement The company faces substantial risks from complex and evolving government regulations, including FDA clearance processes, product recalls, and the uncertainty of third-party payor reimbursement for diagnostic products - Obtaining FDA clearance or approval for diagnostic tests is costly, time-consuming, and uncertain, with potential for delays or denial, which could prevent revenue generation from product candidates[231][232][235][238] - Modifications to cleared or approved products may require new FDA clearances, potentially leading to marketing cessation or product recalls[243] - Product recalls, whether voluntary or mandated by the FDA, due to deficiencies or safety issues, could significantly impact reputation, financial results, and managerial resources[246][247] - Reliance on third parties for clinical studies introduces risks of delays, non-compliance with regulations, or compromised data quality[248] - Inadequate coverage and reimbursement from third-party payors (government and private) for diagnostic tests using T2MR technology could compromise commercial success and reduce physician utilization[249][250][251] - The company is subject to federal and state healthcare fraud and abuse laws (Anti-Kickback Statute, False Claims Act, HIPAA, Sunshine Act), and non-compliance could lead to substantial penalties, exclusion from healthcare programs, and reputational harm[253][254][255][256] - Healthcare policy changes, including the Affordable Care Act and subsequent legislative actions, could reduce Medicare payments, limit reimbursement, and adversely affect financial condition and results of operations[257][258][259][260][261][262] Risks Related to Intellectual Property The company's ability to protect its intellectual property is critical, facing risks from patent challenges, licensing dependencies, costly litigation, and the potential loss of trade secrets - Inability to effectively protect intellectual property through patents, trademarks, trade secrets, and confidentiality agreements could harm the business and competitive position[263][268] - Patent applications may not result in issued patents, or issued patents may be challenged, invalidated, or circumvented, leading to loss of protection[264][265][266] - Dependence on licensed technologies means loss of rights or non-compliance with license terms could prevent product sales[269][270][271][273] - Involvement in intellectual property lawsuits (infringement claims, validity challenges) is costly, time-consuming, and could result in substantial damages, injunctions, or adverse impact on stock price[274][277][279] - Failure to protect trade secrets could harm competitive position if proprietary know-how is lawfully obtained or independently discovered by competitors[282] - Claims of wrongful use or disclosure of third-party confidential information or ownership disputes over intellectual property could lead to litigation and loss of valuable rights or personnel[283][284] - Recent patent reform legislation (Leahy-Smith America Invents Act) could increase uncertainties and costs in patent prosecution and enforcement[286] - Non-compliance with procedural requirements for patent maintenance fees could lead to loss of patent rights[287] - Inadequate protection of trademarks and trade names could hinder brand recognition and competitive effectiveness[288] - Reliance on third-party software in products could lead to replacement difficulties, errors, or failures, harming business and reputation[290] Risks Related to Our Common Stock The company's common stock faces risks including potential delisting from Nasdaq, market volatility, significant insider ownership, high public company costs, and internal control weaknesses - Failure to maintain Nasdaq Capital Market listing requirements (e.g., minimum bid price of $1.00) could result in delisting, negatively affecting stock price, liquidity, and access to capital markets[292][293] - An active trading market for common stock may not develop or be sustained, and significant ownership by executive officers, directors, and principal stockholders may adversely affect liquidity and increase volatility[296][297] - The price of common stock has been and is likely to remain volatile due to various factors, including financial performance, regulatory announcements, competition, and market conditions[298] - Operating as a public company incurs significant costs and requires substantial management time for compliance initiatives and corporate governance practices[299][300] - Failure to maintain proper and effective internal controls, as evidenced by a material weakness in IT data backup, could impair the ability to produce accurate and timely financial statements and negatively impact investor confidence[307][309][311][312] - Provisions in the company's corporate documents and Delaware law could make an acquisition more difficult and prevent stockholders from replacing current management[303][304] - The company does not anticipate paying cash dividends in the foreseeable future, making capital appreciation the sole source of gain for stockholders[305] Item 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC - No unresolved staff comments[314] Item 2. Property The company leases its corporate headquarters in Lexington, Massachusetts, comprising office, laboratory, and manufacturing space, and an additional manufacturing facility in Wilmington, Massachusetts - Corporate headquarters in Lexington, MA, leases approximately 31,000 sq ft of office, 20,800 sq ft of laboratory, and 3,400 sq ft of manufacturing space, with an annual base rent of approximately $2.1 million[315] - An additional manufacturing facility in Wilmington, MA, leases approximately 7,600 sq ft, with a lease expiring in 2020, for $0.1 million in annual base rent[315] Item 3. Legal Proceedings The company is not currently involved in any material legal proceedings - The company is not party to any material legal proceedings[316] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the company's operations - Mine Safety Disclosures are not applicable[317] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock is listed on The Nasdaq Global Market under 'TTOO', has experienced volatility, and the company does not anticipate paying cash dividends in the foreseeable future - The company's common stock is quoted on The Nasdaq Global Market under the symbol 'TTOO' and has been trading since August 7, 2014[320] Quarterly High and Low Sales Prices of Common Stock | Year ended December 31, 2019 | High | Low | | :--- | :--- | :--- | | First Quarter | $5.38 | $2.47 | | Second Quarter | $3.28 | $1.35 | | Third Quarter | $3.21 | $0.52 | | Fourth Quarter | $3.15 | $0.91 | | Year ended December 31, 2018 | High | Low | | First Quarter | $7.25 | $3.85 | | Second Quarter | $9.98 | $5.75 | | Third Quarter | $7.92 | $5.14 | | Fourth Quarter | $7.46 | $2.94 | - The company has never declared or paid cash dividends on its common stock and does not expect to in the foreseeable future, intending to retain future earnings for business growth[305][322] - As of March 13, 2020, the closing price of common stock was $0.3950, with 14 holders of record[325] - No issuer purchases of equity securities by the issuer and affiliated purchasers were made[326] Item 6. Selected Consolidated Financial Data This section presents a summary of the company's selected consolidated financial data for the past five fiscal years (2015-2019), highlighting consistent net losses, significant R&D expenses, and fluctuations in cash and total assets Selected Consolidated Statement of Operations Data (in thousands) | Year ended December 31, | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue: | | | | | | | Product revenue | $5,327 | $4,805 | $3,440 | $1,747 | $599 | | Research revenue | $563 | $5,695 | $1,226 | $2,333 | $2,214 | | Contribution revenue | $2,445 | — | — | — | — | | Total revenue | $8,335 | $10,500 | $4,666 | $4,080 | $2,813 | | Costs and expenses: | | | | | | | Cost of product revenue | $16,763 | $15,404 | $12,028 | $6,872 | $1,740 | | Research and development | $16,326 | $14,489 | $23,733 | $24,009 | $25,362 | | Selling, general and administrative | $27,304 | $25,697 | $22,757 | $24,077 | $19,094 | | Total costs and expenses | $60,393 | $55,590 | $58,518 | $54,958 | $46,196 | | Loss from operations | $(52,058) | $(45,090) | $(53,852) | $(50,878) | $(43,383) | | Interest expense, net | $(7,348) | $(6,682) | $(8,907) | $(4,098) | $(1,967) | | Other income, net | $400 | $619 | $331 | $172 | $60 | | Net loss and comprehensive loss | $(59,006) | $(51,153) | $(62,428) | $(54,804) | $(45,290) | | Net loss per share — basic and diluted | $(1.30) | $(1.26) | $(1.94) | $(2.11) | $(2.21) | | Weighted-average number of common shares used in computing net loss per share — basic and diluted | 45,507,754 | 40,558,826 | 32,131,512 | 26,015,751 | 20,501,748 | Selected Consolidated Balance Sheet Data (in thousands) | As of December 31, | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $11,033 | $50,805 | $41,799 | $73,488 | $73,662 | | Total assets | $28,486 | $64,309 | $54,861 | $89,568 | $86,825 | | Current liabilities | $60,572 | $52,297 | $51,782 | $9,885 | $12,253 | | Notes payable, net of current portion | — | — | $1,008 | $39,504 | $26,121 | | Total liabilities | $62,491 | $52,922 | $53,521 | $50,230 | $39,886 | | Total stockholders' (deficit) equity | $(34,005) | $11,387 | $1,340 | $39,338 | $46,939 | - The company has consistently incurred net losses, with a net loss of $59.0 million in 2019, $51.2 million in 2018, and $62.4 million in 2017[329] - Total revenue decreased from $10.5 million in 2018 to $8.3 million in 2019, primarily due to a decrease in research revenue, partially offset by an increase in product and new contribution revenue[329] - Cash and cash equivalents significantly decreased from $50.8 million in 2018 to $11.0 million in 2019[329] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes T2 Biosystems' financial condition and operating results, detailing revenue and expense changes, liquidity, capital resources, and critical accounting policies, while reiterating going concern doubts - T2 Biosystems is an in vitro diagnostics company using T2MR technology to develop rapid, sensitive, and simple diagnostic applications for sepsis and Lyme disease, aiming to lower mortality, improve patient outcomes, and reduce healthcare costs[333] - The company's FDA-cleared products, T2Dx, T2Candida, and T2Bacteria, are the only ones that detect sepsis-causing pathogens directly from whole blood in hours, not days, with high sensitivity (1-11 CFU/mL)[341][344] - The company has never been profitable, with an accumulated deficit of $376.2 million and a stockholders' deficit of $34.0 million as of December 31, 2019, raising substantial doubt about its ability to continue as a going concern[337][339][340][405] - Management's plans to alleviate going concern doubt include raising additional funding, earning co-development payments, and reducing expenditures, but the likelihood of success is less than probable[340][406] - Sepsis is the most expensive hospital-treated condition in the U.S., costing over $27 billion in 2017, with a 30% mortality rate[345] - T2Candida demonstrated 91.1% sensitivity and 99.4% specificity in its DIRECT trial, with an average time to positive result of 4.4 hours vs. 129 hours for blood culture[351] - An economic study showed T2Candida could save an average hospital $5.8 million annually, reduce care costs by $26,887 per patient, and reduce patient deaths by 60.6%[353] - T2Bacteria, FDA-cleared in May 2018, delivers actionable results in an average of 5.4 hours (vs. 60 hours for blood culture) and identified 69 bloodstream infections missed by blood culture in its pivotal clinical trial[348] - The T2Bacteria Panel received a New Technology Add-on Payment (NTAP) from CMS for FY 2020, providing an additional $97.50 reimbursement for Medicare inpatients[361] - The T2Cauris investigational use only panel is being validated by the CDC for rapid detection of multi-drug resistant Candida auris, a 'serious global health threat'[362] - The T2Lyme Panel, currently in development and clinical trials, aims to identify Lyme disease-causing bacteria directly from blood[368] Total Revenue by Source (in thousands) | Source | 2019 | 2018 | | :--- | :--- | :--- | | Product Revenue | $5,327 | $4,805 | | Research Revenue | $563 | $5,695 | | Contribution Revenue | $2,445 | — | | Total Revenue | $8,335 | $10,500 | - Product revenue increased by $0.5 million (10.9%) in 2019, driven by higher T2Dx instrument sales and service agreement revenue[383] - Research revenue decreased by $5.1 million (89.9%) in 2019, primarily due to the completion of the Allergan Co-Development Agreement and lower revenue from the Canon US Life Sciences agreement[384] - Contribution revenue of $2.4 million in 2019 resulted from cost-sharing with CARB-X ($0.9 million) and a US Government Contract with BARDA ($1.5 million), following the adoption of a new accounting standard[385] - Cost of product revenue increased by $1.4 million (9.5%) in 2019, mainly due to higher Bacteria sales, service repairs, and instrument sales, partially offset by a non-recurring impairment charge in 2018[386] - Research and development expenses increased by $1.8 million (12.7%) in 2019, driven by increased lab-related and payroll expenses, partially offset by decreased stock compensation[387] - Selling, general and administrative expenses increased by $1.6 million (6.2%) in 2019, due to higher payroll and professional fees, offset by decreased stock compensation[388] - Net cash used in operating activities was $45.4 million in 2019, $40.1 million in 2018, and $47.7 million in 2017, reflecting consistent cash outflows[407][408][409][410] - The Term Loan Agreement with CRG (initially $40.0 million) has been amended multiple times, extending interest-only payments and reducing revenue targets, but requires maintaining a minimum cash balance of $5.0 million and classifies the debt as current due to potential covenant violations[416][417][418][426] - The company adopted ASC 606 (Revenue from Contracts with Customers) on January 1, 2018, and ASU 2016-02 (Leases) on January 1, 2019, which resulted in the recognition of operating lease liabilities and right-of-use assets[431][463] Business Overview T2 Biosystems is an in vitro diagnostics company leveraging T2MR technology for rapid pathogen detection in sepsis and Lyme disease, facing substantial doubt about its going concern ability due to recurring losses - T2 Biosystems is an in vitro diagnostics company utilizing T2 Magnetic Resonance (T2MR) technology for rapid, sensitive, and simple detection of pathogens and biomarkers directly from unpurified patient samples, primarily targeting sepsis and Lyme disease[333] - FDA-cleared products include T2Dx, T2Candida (Sept 2014), and T2Bacteria (May 2018). Other products include T2Cauris (research use only) and T2Resistance (FDA Breakthrough Device, CE Mark Nov 2019)[334] - The company has never been profitable, with an accumulated deficit of $376.2 million and a stockholders' deficit of $34.0 million as of December 31, 2019, raising substantial doubt about its ability to continue as a going concern[337][339][340] - Management's plans to alleviate going concern doubt include raising additional funding, earning co-development payments, and reducing expenditures, but the likelihood of success is less than probable[340] Our Commercial Products and the Unmet Clinical Need T2 Biosystems' FDA-cleared products offer rapid, direct detection of sepsis pathogens from whole blood, significantly faster than traditional methods, aiming to improve patient outcomes and reduce costs in critical conditions like sepsis - T2 Biosystems' portfolio (T2Dx, T2Candida, T2Bacteria) offers the only FDA-cleared products for direct detection of sepsis-causing bacterial and fungal pathogens from whole blood, without blood culture, at limits of detection of 1 to 11 CFU/mL[341][344] - These products provide species identification at least two days faster than traditional methods, potentially increasing the proportion of patients on effective therapy from 55% to 95% within 3-5 hours[341][342] - Faster time to effective therapy can reduce patient length of stay (2.7 hours reduction per hour faster therapy), increase hospital cost savings ($1,149 per patient tested with T2Candida), and reduce mortality (7.6% decrease in survival for each hour delay in septic shock)[343][345] - Sepsis is a leading cause of death in the U.S. (30% mortality rate) and the most expensive hospital-treated condition ($27 billion in 2017), with traditional diagnostics causing delays and high false-negative rates[345] - T2Candida, T2Bacteria, T2Resistance, and T2Cauris aim to redefine sepsis management by improving precision and speed of pathogen detection, enabling targeted therapy within 12 hours for 90% of sepsis patients[335][346] Our T2Candida Panel The T2Candida Panel significantly reduces mortality and costs associated with Candida bloodstream infections by providing rapid, highly sensitive, and specific detection, enabling earlier targeted antifungal therapy - Candida is the fourth leading hospital-acquired bloodstream infection, with a 40% average mortality rate, which can be reduced to 11% with targeted therapy within 12 hours of symptom presentation[350] - A typical Candida infection costs over $130,000 per patient and results in an average 40-day hospital stay; targeted antifungal therapy within 24 hours can decrease hospital stay by 10 days and costs by $30,000[350] - The DIRECT pivotal clinical trial for T2Candida demonstrated 91.1% sensitivity and 99.4% specificity, with a species-specific positive result in 4.4 hours (vs. 129 hours for blood culture) and a negative result in 4.2 hours (vs. >120 hours)[351] - An IMS Health economic study showed T2Candida could save an average hospital $5.8 million annually, reduce care costs by $26,887 per patient, and reduce patient deaths by 60.6%[353] - Post-implementation data from hospitals (Henry Ford, Lee Health, Huntsville, Riverside) showed T2Candida led to significant reductions in ICU/total length of stay, avoidance/discontinuation of unnecessary antifungal therapy, and net pharmacy savings[353] - T2MR technology provided accurate diagnostic results from patient skin samples for Candida auris, a multi-drug resistant superbug, enabling more rapid detection[354] Our T2Bacteria Panel The T2Bacteria Panel, FDA-cleared in May 2018, rapidly detects five major sepsis-causing bacterial pathogens directly from whole blood, significantly faster than blood culture, and received a New Technology Add-on Payment from CMS - T2Bacteria, FDA-cleared in May 2018, is a multiplex diagnostic panel running on the T2Dx Instrument, detecting five major sepsis-causing bacterial pathogens (E. faecium, E. coli, K. pneumoniae, P. aeruginosa, S. aureus) directly from whole blood[356][357] - The pivotal clinical study for T2Bacteria demonstrated an average time to actionable results of 5.4 hours, compared to 60 hours for blood culture, and identified 69 bloodstream infections missed by paired blood cultures[348] - Clinical data showed T2Bacteria achieved 90% overall sensitivity and 98% overall average specificity, providing results more than 2.5 days faster than blood culture[348] - In emergency department settings, T2Bacteria showed 100% positive percent agreement and 99.2% negative percent agreement relative to blood culture, detecting more positive results and providing identification 56.6 hours faster[360] - The T2Bacteria Panel received a New Technology Add-on Payment (NTAP) from CMS for FY 2020, providing hospitals with an additional $97.50 reimbursement for Medicare inpatients, recognizing its substantial clinical improvement in reducing inappropriate therapy and improving outcomes[361] Our T2Candida auris Panel The T2Cauris investigational use only panel is being validated by the CDC for rapid detection of multi-drug resistant Candida auris, a serious global health threat with high mortality and rapid hospital spread - The CDC agreed to validate the T2Dx Instrument and T2Cauris investigational use only panel for testing and monitoring Candida auris, a multi-drug resistant superbug and 'serious global health threat'[362] - Candida auris is resistant to major antifungal drugs, spreads quickly in hospitals, and has a high mortality rate (>1 in 3 patients), with existing lab methods suffering from prolonged detection times and low accuracy[362] Our T2Biosystems Product Portfolio The T2 Biosystems Product Portfolio, including T2Bacteria and T2Candida, aims to revolutionize sepsis management by enabling rapid, targeted therapy for 90% of patients within 12 hours, significantly reducing mortality and costs - The T2 Biosystems Product Portfolio, including T2Bacteria and T2Candida on the T2Dx, enables clinicians to potentially treat 90% of sepsis patients with targeted therapy within 12 hours, compared to 60% with initial broad-spectrum antibiotics[363] - The products aim to reduce sepsis mortality by as much as 75% if treated within 12 hours of suspicion, and significantly reduce the cost burden of sepsis[364] - Limits of Detection as Low as 1 CFU/mL: Only technology for sepsis pathogen identification directly from blood at this sensitivity[370] - Rapid and Specific Results in as Few as Three Hours: Species-specific results for sepsis pathogens directly from blood, without blood culture[370] - Accurate Results Even in the Presence of Antimicrobial Therapy: Reliably detects pathogens, including slow-growing ones like C. glabrata, even with antimicrobial therapy[370] - Easy-to-Use Platform: Eliminates sample purification/extraction, enabling on-site operation by hospital staff without highly skilled technicians[370] Our T2Dx Instrument The FDA-cleared T2Dx Instrument is a fully automated, benchtop system that uses T2MR technology for direct, sensitive, and accurate detection across a broad range of diagnostic tests, processing up to seven specimens simultaneously - The FDA-cleared T2Dx Instrument is an easy-to-use, fully automated, benchtop system for a broad range of diagnostic tests in hospitals and labs[365] - It utilizes T2MR technology for direct detection, eliminating sample purification and analyte extraction, which increases diagnostic sensitivity and accuracy, and simplifies consumables[366] - The instrument can efficiently process up to seven specimens simultaneously[366] Our T2MR Platform The T2MR platform is a miniaturized, magnetic resonance-based technology capable of direct, highly sensitive detection of molecular targets from various unpurified clinical samples, also being applied to Lyme disease diagnostics - T2MR is a miniaturized, magnetic resonance-based approach that measures water molecule reactions in magnetic fields, using magnetic particles with target-specific binding agents to enhance signals and detect targets[367] - It is the first technology capable of direct detection from clinical samples (whole blood, plasma, serum, saliva, sputum, urine) at limits of detection as low as 1 CFU/mL, without purification or extraction[369] - T2MR is also being applied to Lyme disease diagnostics, with the T2Lyme product candidate in development to identify bacteria directly from patient blood[368] Financial Overview The company generates revenue from product sales, reagent rentals, R&D agreements, and government contributions, with expenses categorized into cost of product revenue, R&D, selling, general and administrative, and net interest - Revenue is generated from product sales (instruments, consumables, services), reagent rental agreements, research and development agreements, and government contributions[370][373] - Research revenue is recognized over time using an input method, while contribution revenue (from grants/cost reimbursement) is recognized when donor-imposed conditions are met[371][372] - Product revenue from instrument sales is recognized upon control transfer (typically shipment), and from consumable diagnostic tests (under reagent rental agreements) upon shipment[373] - Cost of product revenue includes materials, labor, manufacturing overhead for consumables and instruments, depreciation on rented instruments, and customer support/warranty costs[375] - Research and development expenses include costs for technology development, product candidates, clinical trials, lab expansion, and services under research revenue agreements, expensed as incurred[377] - Selling, general and administrative expenses cover sales, marketing, finance, legal, HR, business development, and professional services, also expensed as incurred[379] - Interest expense, net, primarily relates to notes payable, changes in derivative liability fair value, and amortization of financing costs, offset by interest earned on cash[380] Results of Operations for the Years Ended December 31, 2019 and 2018 In 2019, total revenue decreased by $2.2 million due to a significant drop in research revenue, partially offset by increased product and new contribution revenue, while operating expenses and net loss increased Consolidated Statements of Operations Data (in thousands) | | Year ended December 31, 2019 | Year ended December 31, 2018 | Change | | :--- | :--- | :--- | :--- | | Revenue: | | | | | Product revenue | $5,327 | $4,805 | $522 | | Research revenue | $563 | $5,695 | $(5,132) | | Contribution revenue | $2,445 | — | $2,445 | | Total revenue | $8,335 | $10,500 | $(2,165) | | Costs and expenses: | | | | | Cost of product revenue | $16,763 | $15,404 | $1,359 | | Research and development | $16,326 | $14,489 | $1,837 | | Selling, general and administrative | $27,304 | $25,697 | $1,607 | | Total costs and expenses | $60,393 | $55,590 | $4,803 | | Loss from operations | $(52,058) | $(45,090) | $(6,968) | | Interest expense, net | $(7,348) | $(6,682) | $(666) | | Other income, net | $400 | $619 | $(219) | | Net loss | $(59,006) | $(51,153) | $(7,853) | - Product revenue increased by $0.5 million (10.9%) in 2019, driven by higher T2Dx instrument sales ($0.3 million) and service agreement revenue ($0.2 million)[383] - Research revenue decreased by $5.1 million (89.9%) in 2019, primarily due to $3.0 million less from the completed Allergan Co-Development Agreement and $1.1 million less from the Canon US Life Sciences agreement[384] - Contribution revenue of $2.4 million in 2019 was newly recognized due to a new accounting standard, comprising $0.9 million from CARB-X and $1.5 million from a US Government Contract (BARDA)[385] - Cost of product revenue increased by $1.4 million (9.5%) in 2019, mainly due to higher Bacteria sales ($0.7 million), service repairs ($0.4 million), and instrument sales ($0.3 million), partially offset by a $0.7 million non-recurring impairment charge in 2018[386] - Research and development expenses increased by $1.8 million (12.7%) in 2019, driven by increased lab-related expenses ($1.3 million) and payroll ($1.1 million), partially offset by decreased stock compensation ($0.5 million)[387] - Selling, general and administrative expenses increased by $1.6 million (6.2%) in 2019, attributed to higher payroll ($3.3 million) and professional fees ($0.7 million), offset by a $3.5 million decrease in stock compensation[388] - Net interest expense increased by $0.6 million in 2019 due to a change in the fair value of the derivative liability and increased interest[389] Results of Operations for the Years Ended December 31, 2018 and 2017 In 2018, total revenue significantly increased by $5.8 million, driven by higher product and research revenue, while R&D expenses decreased, leading to a reduced operating loss and net loss compared to 2017 Consolidated Statements of Operations Data (in thousands) | | Year ended December 31, 2018 | Year ended December 31, 2017 | Change | | :--- | :--- | :--- | :--- | | Revenue: | | | | | Product revenue | $4,805 | $3,440 | $1,365 | | Research revenue | $5,695 | $1,226 | $4,469 | | Total revenue | $10,500 | $4,666 | $5,834 | | Costs and expenses: | | | | | Cost of product revenue | $15,404 | $12,028 | $3,376 | | Research and development | $14,489 | $23,733 | $(9,244) | | Selling, general and administrative | $25,697 | $22,757 | $2,940 | | Total costs and expenses | $55,590 | $58,518 | $(2,928) | | Loss from operations | $(45,090) | $(53,852) | $8,762 | | Interest expense, net | $(6,682) | $(8,907) | $2,225 | | Other income, net | $619 | $331 | $288 | | Net loss | $(51,153) | $(62,428) | $11,275 | - Product revenue increased by $1.4 million (39.7%) in 2018, driven by higher T2Dx instrument sales ($0.9 million) and consumables sales ($0.5 million) due to a larger install base[392] - Research revenue increased by $4.5 million (364.5%) in 2018, primarily from higher revenue under the Allergan Co-Development Agreement ($2.2 million), Canon US Life Sciences agreement ($1.2 million), and a new CARB-X cost-sharing agreement ($1.1 million)[393] - Cost of product revenue increased by $3.4 million (28.1%) in 2018, due to higher instrument sales ($2.7 million), idle capacity ($1.7 million), and consumables sales ($0.9 million), partially offset by a decrease in impairment charges ($1.9 million)[394] - Research and development expenses decreased by $9.2 million (38.9%) in 2018, mainly due to fewer employees, completion of the T2Bacteria clinical trial, and reduced lab-related and clinical expenses[395] - Selling, general and administrative expenses increased by $2.9 million (12.9%) in 2018, primarily due to increased stock compensation expense ($4.1 million) and other payroll expenses, partially offset by decreased professional fees[397] - Net interest expense decreased by $2.2 million in 2018 due to a non-recurring charge related to the derivative liability in 2017[398] Liquidity and Capital Resources The company faces substantial doubt about its going concern ability due to significant accumulated deficit and low cash reserves, relying on future equity offerings, debt financing, and collaboration revenues for funding - As of December 3