10-K 1 ttoo-10k_20181231.htm 10-K ttoo-10k_20181231.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

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

For the year ended December 31, 2018

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

For the transition period from to            

Commission File Number: 001-36571

 

T2 Biosystems, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

20-4827488

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

101 Hartwell Avenue, Lexington, MA

 

02421

(Address of principal executive offices)

 

(Zip code)

 

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

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

 

Title of Each Class:

 

Name of Each Exchange on which Registered:

Common Stock, par value $0.001 per share

 

The NASDAQ Stock Market LLC

(NASDAQ Global Market)

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933, as amended.    YES       NO  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended.    YES       NO  

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  

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

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.       Yes       No  

As of June 29, 2018, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock held by non-affiliates was approximately $286.6 million based on the closing price for the common stock of $7.74 on that date. Shares of common stock held by each executive officer, director, and their affiliated stockholders have been excluded from this calculation as such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

The number of outstanding shares of the registrant’s common stock on March 8, 2019 was 44,320,048. The common stock is listed on the NASDAQ Global Market (trading symbol “TTOO”).

 

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year are incorporated by reference into Part III of this report.

 

 

 

 


TABLE OF CONTENTS

 

 

 

 

 

Page

PART I.

 

 

 

 

 

 

 

 

 

Item 1.

 

Business

 

3

 

 

 

 

 

Item 1A.

 

Risk Factors

 

28

 

 

 

 

 

Item 1B.

 

Unresolved Staff Comments

 

52

 

 

 

 

 

Item 2.

 

Property

 

52

 

 

 

 

 

Item 3.

 

Legal Proceedings

 

52

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

52

 

 

 

 

 

PART II.

 

 

 

 

 

 

 

 

 

Item 5.

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

53

 

 

 

 

 

Item 6.

 

Selected Consolidated Financial Data

 

55

 

 

 

 

 

Item 7.

 

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

 

56

 

 

 

 

 

Item 7A.

 

Quantitative and Qualitative Disclosures about Market Risk

 

73

 

 

 

 

 

Item 8.

 

Financial Statements and Supplementary Data

 

74

 

 

 

 

 

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

101

 

 

 

 

 

Item 9A.

 

Controls and Procedures

 

102

 

 

 

 

 

Item 9B.

 

Other Information

 

103

 

 

 

 

 

PART III.

 

 

 

 

 

 

 

 

 

Item 10.

 

Directors, Executive Officers and Corporate Governance

 

103

 

 

 

 

 

Item 11.

 

Executive Compensation

 

103

 

 

 

 

 

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

103

 

 

 

 

 

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

 

103

 

 

 

 

 

Item 14.

 

Principal Accountant Fees and Services

 

103

 

 

 

 

 

Item 15.

 

Exhibits, Financial Statement and Schedules

 

104

 

 

 

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. All statements other than statements of historical facts contained in this Annual Report on Form 10-K, including statements regarding our future results of operations and financial position, business strategy, prospective products and product candidates, their expected performance and impact on healthcare costs, marketing clearance from the U.S. Food and Drug Administration, or the FDA, regulatory clearance, reimbursement for our product candidates, research and development costs, timing of regulatory filings, timing and likelihood of success, plans and objectives of management for future operations and future results of anticipated products, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “forecast,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Annual Report on Form 10-K are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Annual Report on Form 10-K and are subject to a number of risks, uncertainties and assumptions described under the sections in this Annual Report on Form 10-K entitled “Item 1A.—Risk Factors”. These forward looking statements are subject to numerous risks, including, without limitation, the following:

 

our status as an early stage company;

1


 

our expectation to incur losses in the future;

 

the market acceptance of our T2MR technology;

 

our ability to timely and successfully develop and commercialize our existing products and future product candidates;

 

the length and variability of our anticipated sales and adoption cycle;

 

our limited sales history;

 

our ability to gain the support of leading hospitals and key thought leaders and publish the results of our clinical trials in peer-reviewed journals;

 

our ability to successfully manage our growth;

 

our future capital needs and our ability to raise additional funds;

 

the performance of our diagnostics;

 

our ability to compete in the highly competitive diagnostics market;

 

our ability to obtain marketing clearance from the FDA or regulatory clearance for new product candidates in the United States or any other jurisdiction;

 

impacts of and delays caused by future federal government shutdowns;

 

federal, state, and foreign regulatory requirements, including diagnostic product reimbursements and FDA regulation of our product candidates;

 

our ability to protect and enforce our intellectual property rights, including our trade secret-protected proprietary rights in T2MR;

 

our ability to recruit, train and retain key personnel;

 

our dependence on third parties;

 

our ability to continue as a going concern;

 

manufacturing and other product risks;

 

the impact of the adoption of new accounting standards; and

 

the Tax Cuts and Jobs Act of 2017 (Tax Reform)

These forward-looking statements represent our estimates and assumptions only as of the date of this Annual Report on Form 10-K.  Unless required by U.S. federal securities laws, we do not intend to update any of these forward-looking statements to reflect circumstances or events that occur after the statement is made or to conform these statements to actual results. The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this Annual Report on Form 10-K. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors.

You should read the following discussion and analysis of our financial condition and results of operations together with our 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.

2


PART I.

Item 1.

BUSINESS

Overview

We are 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. We are using our T2 Magnetic Resonance technology, or T2MR, to develop a broad set of applications aimed at lowering mortality rates, improving patient outcomes and reducing the cost of healthcare by helping medical professionals make targeted treatment decisions earlier. T2MR enables rapid detection of pathogens, biomarkers and other abnormalities in a variety of unpurified patient sample types, including whole blood, plasma, serum, saliva, sputum and urine, and can detect cellular targets at limits of detection as low as one colony forming unit per milliliter, or CFU/mL. Our initial development efforts target sepsis and Lyme disease, which are areas of significant unmet medical need in which existing therapies could be more effective with improved diagnostics.

On September 22, 2014, we received market clearance from the FDA for our first two products, the T2Dx instrument, or the T2Dx and the T2Candida Panel, or T2Candida, which have the ability to rapidly identify the five clinically relevant species of Candida, a fungal pathogen known to cause sepsis, directly from whole blood. On May 24, 2018, we received market clearance from the FDA for our T2Bacteria Panel, or T2Bacteria, which runs on the T2Dx and has the ability to rapidly identify five of the most common and deadly sepsis-causing bacteria (members of the ESKAPE pathogens) directly from whole blood. We have also developed and sell a research use only Candida auris assay for the rapid identification of Candida auris, a species of Candida that is highly drug resistant. Two additional diagnostic applications in development are called T2Carba Resistance+ and T2Lyme, which are focused on gram-negative bacterial sepsis infections and Lyme disease, respectively. Diagnostic applications for additional bacteria species and resistance markers are in development as part of a collaboration with CARB-X, a public-private partnership with the U.S. Department of Health and Human Services, or HHS, and the Wellcome Trust of London, focused on combatting antibiotic resistant bacteria. We anticipate that existing reimbursement codes will support our sepsis and Lyme disease product candidates, and that the anticipated economic savings associated with our sepsis products will be realized directly by hospitals. In the United States, we have built a direct sales force that is primarily targeting the top 1,200 hospitals with the highest concentration of patients at risk for sepsis-related infections. Internationally, we have primarily partnered with distributors that target large hospitals in their respective international markets.

Sepsis is one of the leading causes of death in the United States, claiming more lives annually than breast cancer, prostate cancer, and AIDS combined, and it is the most expensive hospital-treated condition. Most commonly afflicting immunocompromised, critical care, and elderly patients, sepsis is a severe inflammatory response to a bacterial or fungal infection with a mortality rate of approximately 30%. Based on data published by the HHS in 2017, the cost of sepsis was over $27 billion in the United States, building on data from 2013 demonstrating that sepsis was responsible for approximately 5% of the total aggregate costs associated with domestic hospital stays. Sepsis is typically caused by one or more of five Candida species or over 25 bacterial pathogens, and effective treatment requires the early detection and identification of these specific target pathogens in a patient’s bloodstream. Today, sepsis is typically diagnosed through a series of blood cultures followed by post-blood culture species identification if a blood culture tests positive. These methods have substantial diagnostic limitations that lead to a high rate of false negative test results, a delay of up to several days in administration of targeted treatment, and the incurrence of unnecessary hospital expense. In addition, the Survey of Physicians’ Perspectives and Knowledge About Diagnostic Tests for Bloodstream Infections in 2015 reported that negative blood culture results are only trusted by 36% of those physicians. Without the ability to rapidly identify pathogens, physicians typically start treatment of at-risk patients with broad-spectrum antibiotics and switch therapies every 12 to 24 hours if a patient is not responding. These drugs, which can be costly, are often ineffective and unnecessary and have contributed to the spread of antimicrobial resistance. The speed to getting the patient on the right targeted therapy is critical.  According to a study published by Critical Care Medicine in 2006, in sepsis patients with documented hypotension, administration of effective antimicrobial therapy within the first hour of detection was associated with a survival rate of 79.9% and, over the ensuing six hours, each hour of delay in initiation of treatment was associated with an average decrease in survival of 7.6%.

Candida is the fourth leading hospital-acquired bloodstream infection, afflicting more than 135,000 patients per year in the United States, and the most lethal form of common bloodstream infections that cause sepsis, with an average mortality rate of approximately 40%. This high mortality rate is largely due to a delay in providing targeted therapy to the patient due to the elapsed time from Candida infection to positive diagnosis. According to a study published in Antimicrobial Agents and Chemotherapy, the Candida mortality rate can be reduced to 11% with the initiation of targeted therapy within 12 hours of presentation of symptoms. Additionally, a typical patient with a Candida infection averages 40 days in the hospital, including nine days in intensive care, resulting in an average cost per hospital stay of more than $130,000 per patient. In a study published in the American Journal of Respiratory and Critical Care Medicine, providing targeted antifungal therapy within 24 hours of the presentation of symptoms decreased the length of hospital stay by approximately ten days and decreased the average cost of care by approximately $30,000 per patient.

We believe our sepsis products, which include T2Candida and T2Bacteria, will redefine the standard of care in sepsis management while lowering healthcare costs by improving both the precision and the speed of detection of sepsis-causing pathogens. According to a study published in the Journal of Clinical Microbiology in 2010, targeted therapy for patients with bloodstream infections can be delayed up to 72 hours due to the wait time for blood culture results. In another study published in Clinical Infectious Diseases in 2012, the delayed administration of appropriate antifungal therapy was associated with higher mortality among patients with septic shock attributed to Candida infection and, on that basis, the study concluded that more rapid and accurate diagnostic techniques are needed.

3


Our pivotal clinical trial for T2Candida demonstrated that it can deliver actionable results in as few as three hours, with an average time to result during the trial of 4.2 hours, compared to the average time to result of one to six or more days typically required for blood-culture-based diagnostics and the pivotal clinical trial for T2Bacteria demonstrated that it can deliver actionable results in an average of 5.4 hours, compared to an average of 60 hours for detecting the same species by blood culture. We believe the speed of the T2Candida and T2Bacteria tests will enable physicians to potentially make treatment decisions and administer targeted treatment to patients in four to six hours versus 24 to 144 hours for blood culture.  Furthermore, in April 2015, Future Microbiology published the results of an economic study regarding the use of T2Candida conducted by IMS Health, a healthcare economics agency. In that economic study, IMS demonstrated that an average hospital admitting 5,100 patients at risk for Candida infections could save approximately $5.8 million annually due to decreased hospital stays for patients, reduction in use of antifungal drugs and other associated savings. The economic study further showed T2Candida can potentially reduce the costs of care by $26,887 per Candida patient and that rapid detection of Candida reduces patient deaths by 60.6%. Results from a data analysis of T2Candida for the detection and monitoring of Candida infection and sepsis were published comparing aggregated results from the use of T2Candida to blood culture-based diagnostics for the detection of invasive candidiasis and candidemia. The analysis included samples acquired from more than 1,900 patients. Out of 55 prospective patient cases that were tested with T2Candida and blood culture and determined to be positive or likely to be positive for a Candida infection, T2Candida detected 96.4% of the patients (53 cases) compared to detection of 60% of the patients (33 cases) with blood culture.

In addition, due to the high mortality rate associated with Candida infections, physicians often will place patients on antifungal drugs while they await blood culture diagnostic results which generally take at least five days to generate a negative test result. Antifungal drugs are toxic and may result in side effects and can cost over $50 per day. The speed to result of T2Candida and T2Bacteria coupled with their superior sensitivity as compared to blood culture may help reduce the overuse of ineffective, or even unnecessary, antimicrobial therapy which may reduce side effects for patients, lower hospital costs and potentially counteract the growing resistance to antifungal therapy. The administration of inappropriate therapy is a driving force behind the spread of antimicrobial-resistant pathogens, which the United States Centers for Disease Control and Prevention, or the CDC, recently called “one of our most serious health threats.” The addition of the use of our products, T2Bacteria and T2Candida, which both run on the T2Dx instrument, with the standard of care for the management of patients suspected of sepsis, enables clinicians to potentially treat 90% of patients with sepsis pathogen infections with the right targeted therapy within the first twelve hours of development of the symptoms of disease. Currently, high risk patients are typically initially treated with broad spectrum antibiotic drugs that typically cover approximately 60% of patients with infections. Of the remaining 40% of patients, approximately 30% of the patients typically have a bacterial infection and 10% typically have Candida infections. T2Candida and T2Bacteria are designed to identify pathogens commonly not covered by broad spectrum antibiotic drugs.

Our Strategy

T2MR enables rapid and sensitive direct detection of a range of targets, and we believe it can be used in a variety of diagnostic applications that will improve patient outcomes and reduce healthcare costs. Our objective is to establish T2MR as a standard of care for clinical diagnostics. To achieve this objective, our strategy is to:

 

Drive Commercial Adoption of Our Sepsis Products by Demonstrating Their Value to Physicians, Laboratory Directors and Hospitals.  We expect our sepsis products to meaningfully improve patient outcomes while reducing costs to hospitals. We have established a targeted, direct sales force in the United States and have partnered with distributors internationally, all of whom are initially focused on educating physicians and demonstrating our clinical and economic value proposition to hospitals that have the highest populations of at-risk critical care and immunocompromised patients. We believe a sustained focus on these hospitals will drive adoption of the T2Dx, T2Candida, T2Bacteria, and future T2MR-based diagnostics. As a part of this effort, we will continue to work with thought leaders, conduct clinical and health economic studies and seek publication and presentation of these studies.

 

Establish a Recurring, Consumables-Based Business Model.  We are pursuing a consumables-based business model for our products by securing placements of the T2Dx at hospitals and driving utilization of our diagnostic panels starting with T2Candida and T2Bacteria. We believe this strategy will foster a sustainable and predictable business model with recurring revenue streams.

 

Broaden Our Addressable Markets in Infectious Disease.  Our product development pipeline includes additional diagnostic panels that provide near-term and complementary market expansion opportunities. We will expand our panels through partnerships similar to our agreement with Allergan, in which Allergan agreed to cover a portion of the costs of our development of certain additional products, including antibiotic resistance tests.  We also are utilizing T2MR to address the challenges of providing rapid and sensitive diagnosis of Lyme disease and initiated a T2Lyme clinical trial in 2018.

 

Broaden Our Addressable Markets Beyond Infectious Disease.  We intend to expand our product offerings by applying T2MR to new applications beyond sepsis and Lyme disease. We plan to conduct internal development and to work with thought leaders, physicians, clinical researchers and business development partners to pursue new applications for T2MR. We believe the benefits of our proprietary technology, including the ability to rapidly and directly detect a broad range of targets, in a wide variety of sample types, will have potential applications within and outside of the in vitro diagnostics market, including environmental, food safety, industrial and veterinary applications. 

 

Drive International Expansion.  We are commercializing T2Candida, T2Bacteria and the T2Dx internationally through distributors that target large hospitals in their respective markets. We intend to continue to expand in international markets through similar distribution channels. We have received CE marking for T2Candida, T2Bacteria and the T2Dx. 

4


Our Technology Platform

T2 Magnetic Resonance Technology Overview

We have built an innovative and proprietary technology platform that offers a rapid, sensitive and simple alternative to existing diagnostic methodologies. T2MR is a miniaturized, magnetic resonance-based approach that measures how water molecules react in the presence of magnetic fields. Our proprietary platform is capable of detecting a variety of targets, including:

 

molecular targets, such as DNA;

 

immunodiagnostics targets, such as proteins; and

 

a broad range of hemostasis measurements.

For molecular and immunodiagnostics targets, T2MR utilizes advances in the field of magnetic resonance by deploying particles with magnetic properties that enhance the magnetic resonance signals of specific targets. When particles coated with target-specific binding agents are added to a sample containing the target, the particles bind to and cluster around the target. This clustering changes the microscopic environment of water in that sample, which in turn alters the magnetic resonance signal, or the T2 relaxation signal that we measure, indicating the presence of the target.

We also believe T2MR is the first technology that can rapidly and accurately detect the presence of molecular targets within samples without the need for time- and labor-intensive purification or extraction of target molecules from the sample, such as that required by traditional polymerase chain reaction, or PCR, where 90% or more of the target can be lost. We can eliminate these steps because the T2 relaxation signal is not compromised or disrupted by the sample background, even the highly complex sample background that is present after a target amplification process, such as thermocycling. This enables T2MR’s low limit of detection, such as 1 CFU/mL, compared to the 100 to 1,000 CFU/mL typically required for PCR-based methods. More than 100 studies published in peer-reviewed journals have featured T2MR in a breadth of applications, including the direct detection and measurement of targets in various sample types, such as whole blood, plasma, serum, saliva, sputum and urine. We believe our T2MR technology will have potential applications within and outside of the in vitro diagnostics market, including environmental, food safety, industrial and veterinary applications.

Our Instruments

Utilizing T2MR, we have developed and received FDA marketing clearance for the T2Dx, a bench-top instrument for detecting pathogens associated with sepsis and Lyme disease, as well as other applications.

T2Dx

 

Our FDA-cleared T2Dx instrument is an easy-to-use, bench-top instrument that is capable of running a broad range of diagnostic tests and is fully automated from patient sample input to result, eliminating the need for manual work flow steps such as pipetting that can introduce risks of cross-contamination. To operate the system, a patient’s sample tube is snapped onto a disposable test cartridge, which is pre-loaded with all necessary reagents. The cartridge is then inserted into the T2Dx instrument, which automatically processes the sample and then delivers a diagnostic test result. Test results are displayed on screen and printed out.

By utilizing our proprietary T2MR technology for direct detection, the T2Dx instrument eliminates the need for sample purification and analyte extraction, which are necessary for other optical-detection devices. Eliminating these sample processing steps increases diagnostic sensitivity and accuracy, enables a broad menu of tests to be run on a single platform, and greatly reduces the complexity of the consumables. The T2Dx instrument incorporates a simple user interface and is designed to efficiently process up to seven specimens simultaneously.

The initial panels designed to run on the T2Dx are T2Candida and T2Bacteria, which are focused on identifying life-threatening pathogens associated with sepsis. In 2014 we received FDA market clearance for the T2Dx and T2Candida. In May 2018, we received FDA market clearance for T2Bacteria.

5


Sepsis

Overview

Sepsis is an illness in which the body has a severe, inflammatory response to a bacterial or fungal infection. It is a life-threatening condition to which individuals with weakened immune systems or chronic illnesses are highly susceptible. Sepsis can lead to shock and organ failure, and is a leading cause of death in the United States with a mortality rate of approximately 30%, almost double the mortality rate of acute myocardial infarction, or heart attack. One out of every two hospital deaths in the United States is attributable to sepsis.

In 2016, HHS reported that sepsis is the most expensive hospital-treated condition in the United States, with an economic burden to hospitals exceeding $23 billion annually, almost double that of acute myocardial infarction. New data on the number of sepsis cases in the United States published by HHS in 2017 indicate that the economic burden now exceeds $27 billion.  The high cost of treating sepsis is primarily driven by the extended hospitalization of patients. We believe there are many effective, targeted therapeutic choices that could reduce overall hospitalization costs if applied earlier, but clinicians need to more rapidly identify the specific sepsis-causing pathogens in order to make more informed, targeted treatment decisions. Today, the diagnostic standard to identify these pathogens is blood culture-based, despite typically requiring one to six or more days to generate species-specific results and despite blood cultures inherent low sensitivity of 50% to 65%.

The following table reflects key statistics from the 2016 HHS study regarding the five most expensive hospital-treated conditions: 

 

 

 

 

 

U.S. hospital

 

 

Percentage

 

 

 

 

 

costs

 

 

of total

 

Rank

 

Condition

 

(in billions)

 

 

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

 

 

Over 1.6 million individuals are diagnosed with sepsis each year in the United States, 1.35 million of whom are at high risk for infection due to their suppressed immune system or their presence in critical care units. Virtually all of these patients are rapidly treated with broad-spectrum antibiotic drugs because there is no diagnostic manner for determining the type of infection. Of these 1.35 million patients with sepsis and at high risk for infection, approximately 40% do not respond to broad-spectrum antibiotic treatment. Of these patients that are non-responsive, approximately 25% of them have a Candida infection, with the remaining patients having a bacterial infection. Broad-spectrum antibiotics do not treat these Candida and bacterial infections; therefore more targeted drugs are required.

We estimate that approximately 15 million patients are tested for bloodstream infections in the United States annually. Of these, approximately 8.75 million are at high risk for a Sepsis infection, 90% of whom are at a high risk for a bacterial infection and 10% of whom are at a high risk for a Candida infection. Of these 8.75 million patients, 6.75 million patients present in in-patient settings and an additional 2.0 million present in emergency departments. We believe that our sepsis products have the potential to enable clinicians to make earlier therapeutic decisions that can reduce the mortality rate for sepsis by over 50% and save the hospitals an estimated $12 billion annually by testing all high risk patients with T2Candida and T2Bacteria.

Each year, over 30 million people worldwide are affected by sepsis with approximately six million mortalities, according to the World Health Organization, making sepsis a leading cause of death worldwide.

Limitations of Traditional In Vitro Diagnostics for Sepsis

The current standard for identifying bloodstream infections that cause sepsis requires a series of lengthy and labor-intensive analyses that begin with blood culture. Completing a blood culture requires a large volume of a patient’s blood, typically 20 mLs or more, which is obtained in two 10 mL draws and placed into two blood culture bottles containing nutrients formulated to grow fungi and bacteria. Before blood culture indicates if a patient is infected, pathogens typically must reach a concentration of 1,000,000 to 100,000,000 CFU/mL. This growth process typically takes one to six or more days because the pathogen’s initial concentration in the blood specimen is often less than 10 CFU/mL. A negative test result always requires a minimum of five days. A positive blood culture typically means that some pathogen is present, but additional steps must be performed to identify the specific pathogen in order to provide targeted therapy. These additional steps, which typically must be performed by a highly trained technician, may involve any of (i) a staining procedure for inspection on a microscope slide, (ii) PCR amplification and (iii) mass spectrometry. These steps require a preceding positive blood culture specimen because they need a high concentration of cells generated by the blood culture process for analysis.

For most PCR-based diagnostics, nucleic acid extraction of target cells from the sample is performed to remove inhibitory substances that may interfere with the amplification reaction. While PCR amplifies the target signal, this loss of target cells impairs the ability to detect, resulting in typical limits of detection of 100 to 1,000 CFU/mL, which is insufficient for species-specific sepsis diagnostics.

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Blood culture-based diagnostics have substantial limitations, including:

 

Time to Result Delays Targeted Treatment.  Blood culture-based diagnostics typically require a minimum of one and as many as six or more days to identify a pathogen species, and blood culture always requires at least five days to generate a negative test result.

 

Antimicrobial Therapy Can Cause False Negative Results.  Antimicrobial therapies may be administered to a patient prior to taking a blood sample. As a result, the therapeutic agent is contained in the blood sample and its ability to stop or slow the growth of pathogens can delay or completely inhibit the growth of the pathogen during the blood culture process leading to time delays in detection or false negative results.

 

Slow-Growing Pathogens Can Cause False Negative Results.  Some sepsis pathogens grow slowly or not at all and can require up to five or more days to reach sufficient concentrations to be detected by blood culture-based diagnostics. Blood culture procedures are typically stopped after five days and declared negative. Often, pathogens that grow too slowly are not detected by blood culture during this time frame, leading to a false negative diagnosis. For example, C. glabrata, one of the most lethal species of Candida due to its growing resistance to antifungal therapy, often requires more than five days of growth to reach a detectable concentration, and therefore is frequently undetected by blood culture.

 

Labor-Intensive Workflow Increases Costs and May Delay Targeted Treatment.  Blood culture is only the first step in identifying a pathogen that causes sepsis. After a blood culture is determined to be positive, highly trained technicians are required to perform multiple post-culture procedures on the blood culture specimen to identify the specific pathogen. These additional procedures can be expensive and time-consuming and may delay targeted treatment.

Given the typical one-to-six day time to result for blood culture-based diagnostics, the first therapy for a patient at risk of sepsis is often broad-spectrum antibiotics, which treat some but not all bacteria types and do not address fungal infections. Some physicians may use first-line, antifungal therapy for patients at very high risk for fungal infection, or use antifungal therapy if the patient is not responding to broad-spectrum antibiotics while they are still awaiting the blood culture-based result. This therapeutic approach may still not treat the growing number of patients infected with the antimicrobial-resistant species nor may it be the best choice, as the type of therapy is dependent on the specific pathogen causing the infection, which is unknown.

This inefficient therapeutic approach has resulted in unnecessary treatment of a significant number of high-risk patients with expensive and often toxic therapies that can worsen a patient’s condition. Such treatments may extend for many days while clinicians await blood culture-based diagnostic results. The overuse of ineffective, or even unnecessary, antimicrobial therapy is also a driving force behind the spread of antimicrobial-resistant pathogens, which the CDC recently called “one of our most serious health threats.” The CDC has specifically noted increasing incidence of Candida infections due to azole- and echinocandin-resistant strains and considers it a “serious” threat level. According to the CDC, at least two million people in the United States acquire serious infections each year that are resistant to one or more of the antimicrobial therapies used to treat these patients. At least 23,000 of these people are estimated to die as a direct result of the resistant infections and many more may die from other conditions that are complicated by a resistant infection. Further, antimicrobial-resistant infections add considerable and avoidable costs to the already overburdened U.S. healthcare system, with the total economic cost estimated to be as high as $20 billion in excess of direct healthcare costs, with additional costs to society as high as $35 billion, due to lost productivity.

Our T2Direct Diagnostics

We believe T2MR delivers what no conventional technology currently available can: a rapid, sensitive and simple diagnostic platform to enable sepsis applications that can identify specific sepsis pathogens directly from an unpurified blood sample in hours instead of days at a level of accuracy equal to or better than blood culture-based diagnostics. The addition of the use of our products, T2Bacteria and T2Candida, with the standard of care for the management of patients suspected of sepsis enables clinicians to potentially treat 90% of patients with sepsis pathogen infections with the right targeted therapy within the first twelve hours of developing the symptoms of disease. Currently, high risk patients are typically initially treated with broad spectrum antibiotic drugs that typically cover approximately 60% of patients with infections. Of the remaining 40% of patients, approximately 30% of the patients have a bacterial infection and 10% have Candida infections. T2Candida and T2Bacteria are designed to identify pathogens commonly not covered by broad spectrum antibiotic drugs.

We believe our products provide a pathway for more rapid and targeted treatment of infections, potentially reducing the mortality rate by as much as 50% if a patient is treated within 12 hours of suspicion of infection and significantly reducing the cost burden of sepsis. Each year, approximately 250,000 patients in the United States die from sepsis. According to a study published by Critical Care Medicine in 2006, in sepsis patients with documented hypotension, administration of effective antimicrobial therapy within the first hour of detection was associated with a survival rate of 79.9% and, over the ensuing six hours, each hour of delay in initiation of treatment was associated with an average decrease in survival of 7.6%. According to such study, the survival rate for septic patients who remained untreated for greater than 36 hours was approximately 5%. The toll of sepsis on a patient’s health can be severe: more than one-in-five patients die within two years as a consequence of sepsis. Sepsis is also the most prevalent and costly cause of hospital readmissions.

We believe the T2Direct Diagnostics addresses a significant unmet need in in vitro diagnostics by providing:

 

Limits of Detection as Low as 1 CFU/mL. T2MR is the only technology currently available that can enable identification of sepsis pathogens directly from a patient’s blood sample at limits of detection as low as 1 CFU/mL.

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Rapid and Specific Results in as Few as Three Hours. T2MR is the only technology that can enable species-specific results for pathogens associated with sepsis, directly from a patient’s blood sample, without the need for blood culture, to deliver an actionable result in three hours.

 

Accurate Results Even in the Presence of Antimicrobial Therapy. T2MR is the only technology that can reliably detect pathogens associated with sepsis, including slow-growing pathogens, such as C. glabrata, directly from a patient’s blood sample, even in the presence of an antimicrobial therapy.

 

Easy-to-Use Platform. T2MR eliminates the need for sample purification or extraction of target pathogens, enabling sample- to-result instruments that can be operated on-site by hospital staff, without the need for highly skilled technicians.

Our first U.S. Food and Drug Administration, or FDA-cleared products, the T2Dx and T2Candida, focus on the most lethal form of common blood stream infections that cause sepsis, Candida, which has an average mortality rate of approximately 40%. According to a 2005 report published in Antimicrobial Agents and Chemotherapy, this high mortality rate can be reduced to 11% with the initiation of targeted therapy within 12 hours of presentation of symptoms. Currently, a typical patient with a Candida infection averages 40 days in the hospital, including nine days in intensive care, resulting in an average cost per hospital stay of over $130,000 per patient. In a study published in the American Journal of Respiratory and Critical Care Medicine in 2009, providing targeted antifungal therapy within 24 hours of the presentation of symptoms decreased the length of hospital stay by approximately ten days and decreased the average cost of care by approximately $30,000 per patient. In addition, many hospitals initiate antifungal drugs, such as Caspofungin or Micafungin, while waiting for blood culture-based diagnostic results. We estimate this practice costs approximately $500 per patient and is currently in use for over 40% of high-risk patients on average and for all high-risk patients in some hospitals. A negative result from T2Candida can provide timely data allowing physicians to avoid unnecessary antifungal treatment and potentially reduce the treatment cost further.

We believe that by identifying the specific species of Candida, physicians can administer the most effective therapy, significantly improving patient outcomes and reducing hospital costs. We further believe that the adoption of the T2Dx and T2Candida can decrease both the high mortality rate and excessive costs of Candida infections because these products can enable clinicians to make earlier and more informed decisions by providing positive test results to direct therapy and negative test results to reduce the use of antifungal drugs.

T2Bacteria, a multiplex diagnostic panel that detects the major bacterial pathogens associated with sepsis that are frequently not covered by first-line antibiotics, is CE-Marked and available commercially in Europe and other countries that accept the CE mark, as well as available as a research-use-only product in the United States. T2Bacteria runs on the T2Dx, and addresses the same approximately 6.75 million symptomatic high-risk patients as T2Candida while also expanding our reach to an additional two million people presenting with symptoms of infection in the emergency room setting. We believe that these factors make the United States market opportunity for T2Bacteria over $1.0 billion, and that T2Bacteria has the potential to achieve similar performance capabilities and provide similar benefits as T2Candida.

To the extent that T2Bacteria is performed on an outpatient basis, third-party payors may separately reimburse our customers using existing CPT codes. By way of example, Medicare payment for outpatient clinical laboratory services is the lesser of the amount billed, the local fee for a geographic area, or the national limit established by the Centers for Medicare & Medicaid Services under the Clinical Laboratory Fee Schedule, or CLFS, on an annual basis. For 2017, the national limit for the series of CPT codes used to bill T2Bacteria is approximately $220. Effective January 1, 2018, CLFS rates are based on weighted median private payor rates as required by the Protecting Access to Medicare Act of 2014. We believe that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our diagnostic products or additional pricing pressures.

Clinical Utility

T2Candida

DIRECT Clinical Trial—Clinical Infectious Disease

In 2013 and 2014, we conducted a pivotal clinical trial for our T2Dx Instrument and T2Candida, or the DIRECT trial. Our DIRECT trial consisted of two patient arms. The first arm, known as the Prospective Arm, consisted of 1,501 samples from patients with a possible infection. The second arm, known as the Contrived Arm, consisted of 300 samples, of which 250 patient specimens were labeled contrived because each contained a known quantity of Candida CFUs that were manually added to each sample, or spiked, at clinically relevant concentrations, while the remaining 50 patient specimens were specifically known not to contain Candida. The DIRECT trial was designed to evaluate the sensitivity and specificity of T2Candida on the T2Dx.

Sensitivity is the percent concordance, or the percentage of sample results that agree with a reference, or comparative, method for positive results. Specificity is the percent concordance to a reference method for negative results. If a sample does not agree with the result of a referenced method, it is considered discordant. In our clinical trial, the Prospective Arm was compared to blood culture and the Contrived Arm was compared to the known state, which means that it was in the known presence or absence of added Candida organisms.

8


The design of the DIRECT trial was reviewed by the FDA as part of pre-submission communications. The purpose of the DIRECT trial was to determine the clinical performance of T2Candida running on the T2Dx by identifying the following:

 

clinical specificity of T2Candida results as compared to Candida negative blood culture results in specimens collected from patients in the Prospective Arm;

 

clinical specificity of T2Candida results as compared to Candida negative samples collected from patients in the Contrived Arm;

 

clinical sensitivity of T2Candida results as compared to the known Candida-positive specimens collected from patients in the Contrived Arm; and

 

clinical sensitivity calculations of T2Candida results compared to the Candida-positive blood culture results in specimens collected from patients in the Prospective Arm.

50 known negative samples and 250 contrived samples (50 samples for each of the five Candida species included in the T2Candida Panel) were prepared and run in a blinded manner at the same clinical sites used for processing the prospective samples. The positive contrived samples were prepared by spiking clinical isolates into individual patient specimens at concentrations determined through publications and discussions with the FDA to be equivalent to the clinical state of patients who presented with symptoms of a Candida infection. 20% of the positive contrived samples were spiked at concentrations levels of less than 1 CFU/mL. The contrived samples were collected from patients referred for a diagnostic blood culture per routine standard of care — the same population of patients from whom prospective samples were collected. Unique isolates of the species were used for each patient sample, which means a total of 50 unique isolates were tested for each of the five species of Candida for a total of 250 unique isolates.

In addition to the pivotal clinical trial data that we submitted to the FDA, we also provided data from an analytical verification study to determine the limit of detection, or LoD, for each species identified by our T2Candida. The LoD was defined as the lowest concentration of Candida that can be detected in 95% of at least 20 samples tested at a single concentration.

The T2Candida Panel reports three results, where species are grouped together according to their responsiveness to therapy. Candida albicans and/or Candida tropicalis are reported as a single result, Candida parapsilosis is a single result, and Candida krusei and/or Candida glabrata are reported as a single result. Specificity and sensitivity are calculated for each reported result.

There are five relevant species of Candida, each of which were analyzed in the DIRECT trial. Each are listed in abbreviated form in the tables below. These species are Candida albicans, Candida tropicalis, Candida parapsilosis, Candida krusei, and Candida glabrata. The typical naming convention for a species is to abbreviate by using the first letter of the first word and the full second word; for example, Candida krusei is abbreviated as C. krusei. In the tables below, we also abbreviate each species name by the first letter of the second word; for example, Candida albicans and Candida tropicalis is A/T.

The following tables illustrate the results of the DIRECT trial. The primary sensitivity and specificity analysis is presented in Table A, followed by sub-analyses in Tables B and C. Additional data on the LoD and the time to results of T2Candida and the T2Dx are included in the remaining tables.

Table A

T2Candida Performance Characteristics

 

 

 

Overall

 

Overall

 

 

Sensitivity

 

Specificity

Number of Tests (%)

 

234/257 (91.1%)

 

5114/5146 (99.4%)

 

Table B

Overall Sensitivity and Specificity by Test

 

 

 

 

 

95% Confidence

 

 

 

 

 

Interval

 

Specificity:

 

 

 

 

 

 

 

 

A/T (C. albicans/C. tropicalis )

 

1679/1697 (98.9%)

 

98.3 -

 

 

99.4

%

P (C. parapsilosis)

 

1736/1749 (99.3%)

 

98.7 -

 

 

99.6

%

K/G (C. krusei/C. glabrata)

 

1699/1700 (99.9%)

 

99.7 -

 

 

100.0

%

Total:

 

5114/5146 (99.4%)

 

99.1 -

 

 

99.6

%

Sensitivity:

 

 

 

 

 

 

 

 

A/T (C. albicans/C. tropicalis)

 

96/104 (92.3%)

 

85.4 -

 

 

96.6

%

P (C. parapsilosis)

 

49/52 (94.2%)

 

84.1 -

 

 

98.8

%

K/G (C. krusei/C. glabrata)

 

89/101 (88.1%)

 

80.2 -

 

 

93.7

%

Total:

 

234/257 (91.1%)

 

86.9 -

 

 

94.2

%

9


Table C

Study Arm Sensitivity and Specificity by Test

 

 

 

 

 

95% Confidence

 

 

 

 

 

Interval

 

Specificity (Prospective tests):

 

 

 

 

 

 

 

 

A/T (C. albicans/C. tropicalis )

 

1479/1497 (98.8%)

 

98.1 -

 

 

99.3

%

P (C. parapsilosis)

 

1487/1499 (99.2%)

 

98.6 -

 

 

99.6

%

K/G (C. krusei/C. glabrata)

 

1499/1500 (99.9%)

 

99.6 -

 

 

100.0

%

Total:

 

4465/4496 (99.3%)

 

99.0 -

 

 

99.5

%

Sensitivity (Prospective tests):

 

 

 

 

 

 

 

 

A/T (C. albicans/C. tropicalis)

 

2/4 (50.0%)

 

6.8 -

 

 

93.2

%

P (C. parapsilosis)

 

2/2 (100.0%)

 

15.8 -

 

 

100.0

%

K/G (C. krusei/C. glabrata)

 

1/1 (100.0%)

 

2.5 -

 

 

100.0

%

Total:

 

5/7 (71.4%)

 

29.0 -

 

 

96.3

%

Specificity (Contrived tests):

 

 

 

 

 

 

 

 

A/T (C. albicans/C. tropicalis)

 

200/200 (100.0%)

 

98.2 -

 

 

100.0

%

P ( C. parapsilosis)

 

249/250 (99.6%)

 

97.8 -

 

 

100.0

%

K/G (C. krusei/C. glabrata)

 

200/200 (100.0%)

 

98.2 -

 

 

100.0

%

Total:

 

649/650 (99.8%)

 

99.1 -

 

 

100.0

%

Sensitivity (Contrived tests):

 

 

 

 

 

 

 

 

A/T (C. albicans/C. tropicalis)

 

94/100 (94.0%)

 

87.4 -

 

 

97.8

%

P (C. parapsilosis)

 

47/50 (94.0%)

 

83.5 -

 

 

98.7

%

K/G (C. krusei/C. glabrata)

 

88/100 (88.0%)

 

80.0 -

 

 

93.6

%

Total:

 

229/250 (91.6%)

 

87.4 -

 

 

94.7

%

 

Table D

T2Candida Limit of Detection

 

 

 

Final LoD

 

Species

 

CFU/mL

 

C. albicans

 

2

 

C tropicalis

 

1

 

C. parapsilosis

 

3

 

C. glabrata

 

2

 

C. krusei

 

1

 

 

Table E

Sensitivity Sub-Analysis: Sensitivity by Species Relative to LoD

 

 

 

 

 

>  LoD

 

 

< LoD

 

 

 

LoD

 

 

 

95% Confidence

 

 

 

 

95% Confidence

 

 

 

(CFU/ml)

 

Sensitivity

 

Interval

 

 

Sensitivity

 

Interval

 

C. albicans

 

2

 

39/39 (100.0%)

 

91.0 -

 

 

100.0

%

 

9/11 (81.8%)

 

48.2 -

 

 

97.7

%

C. glabrata

 

2

 

35/37 (94.6%)

 

81.8 -

 

 

99.3

%

 

7/13 (53.8%)

 

25.1 -

 

 

80.8

%

C. krusei

 

1

 

40/40 (100.0%)

 

91.2 -

 

 

100.0

%

 

6/10 (60.0%)

 

26.2 -

 

 

87.8

%

C. parapsilosis

 

3

 

32/32 (100.0%)

 

89.1 -

 

 

100.0

%

 

15/18 (83.3%)

 

58.6 -

 

 

96.4

%

C. tropicalis

 

1

 

38/40 (95.0%)

 

83.1 -

 

 

99.4

%

 

8/10 (80.0%)

 

44.4 -

 

 

97.5

%

Total:

 

 

 

184/188 (97.9%)

 

94.6 -

 

 

99.4

%

 

45/62 (72.6%)

 

59.8 -

 

 

83.1

%

 

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Table F

Sensitivity Sub-Analysis: Sensitivity by Titer Level

 

 

 

 

 

1 — 10 CFU/ml

 

11 — 30 CFU/ml

 

31 — 100 CFU/ml

 

 

<1 CFU/ml Sensitivity

 

Sensitivity

 

Sensitivity

 

Sensitivity

C. albicans

 

8/10 (80.0%)

 

18/18 (100.0%)

 

17/17 (100.0%)

 

5/5 (100.0%)

C. glabrata

 

5/10 (50.0%)

 

16/18 (88.9%)

 

16/17 (94.1%)

 

5/5 (100.0%)

C. krusei

 

6/10 (60.0%)

 

18/18 (100.0%)

 

17/17 (100.0%)

 

5/5 (100.0%)

C. parapsilosis

 

8/10 (80.0%)

 

17/18 (94.4%)

 

17/17 (100.0%)

 

5/5 (100.0%)

C. tropicalis

 

8/10 (80.0%)

 

16/18 (88.9%)

 

17/17 (100.0%)

 

5/5 (100.0%)

Total:

 

35/50 (70.0%)

 

85/90 (94.4%)

 

84/85 (98.8%)

 

25/25 (100.0%)

 

Table G

Sensitivity Sub-Analysis: Sensitivity by Species Relative to Clinically Relevant Concentrations

 

 

 

Clinically Relevant

 

Sensitivity <

 

 

Sensitivity >

 

Species

 

Concentration

 

Relevant CFU

 

 

Relevant CFU

 

C. tropicalis

 

1-10 CFU/mL

 

 

80

%

 

 

95

%

C. krusei

 

11-30 CFU/mL

 

 

85.7

%

 

 

100

%

C. glabrata

 

11-30 CFU/mL

 

 

75

%

 

 

96

%

C. albicans

 

1-10 CFU/mL

 

 

80

%

 

 

100

%

C. parapsilosis

 

11-30 CFU/mL

 

 

89.3

%

 

 

100

%

Total

 

 

 

 

82.7

%

 

 

98

%

 

Table H

Time to species identification or negative result for T2MR and Blood Culture

 

 

 

Blood Culture

 

 

T2Dx

 

Time to Results (hours)

 

 

 

 

 

 

 

 

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)

 

 

(1)

Includes samples that are 100% concordant for both methods (i.e. does not include discordant results). We do not include discordant results because a comparison of the duration of time to positive result requires that both the blood culture result and the T2Candida result be positive for a given specimen.  Similarly, a comparison of the duration of time to negative result requires that both the blood culture result and the T2Candida result be negative for a given specimen.  We therefore would exclude any sample with a discordant result where blood culture yields one result and T2Candida yields the opposite result.

(2)

Refers to time to species identification or final negative result.

Results from the study were published in Clinical Infectious Disease in 2015 in an article entitled: “T2 Magnetic Resonance Assay for the Rapid Diagnosis of Candidemia in Whole Blood: A Clinical Trial.” The study findings include:

 

the overall sensitivity (Prospective and Contrived Arm combined) of T2Candida was 91.1%;

 

the average specificity of the three test results for the Prospective and Contrived Arms combined was 99.4% (see Table A) with the specificity by test result ranging from 98.9% to 99.9% (see Table B);

 

in the Contrived Arm of the study, the average specificity was 99.8%, with the specificity by test result ranging from 99.6% to 100% (see Table C);

 

in the Prospective Arm of the study, the average specificity was 99.3%, with the specificity by test result ranging from 98.8% to 99.9% (see Table C);

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in the Contrived Arm of the study, the average sensitivity was 91.6%, with the sensitivity by test result ranging from 88.0% to 94.0% (see Table C); and

 

in the Prospective Arm of the study, the average sensitivity was 71.4% (see Table C).

In this study, the following observations were reported:

 

within the Prospective Arm, T2Candida accurately detected a rare co-infection in one study patient with C. albicans and C. parapsilosis in their bloodstream;

 

T2Candida detected at least one infection that was not identified by blood culture, which was determined to be a Candida infection seven days after the T2Candida result was obtained. This case is considered a discordant result for the purposes of the FDA filing because of the disagreement between T2Candida and the blood culture-based results, despite the accurate identification by T2Candida. Along with ten other patients with clinical symptoms or microbiological evidence of infection, the study findings indicate that the true sensitivity and specificity of T2Candida may be higher than the reported values;

 

the LoD of T2Candida was demonstrated to be 1 to 3 CFU/mL depending upon the species of Candida (see Table D). In the Contrived Arm of the study, T2Candida positively detected 97.9% of the samples spiked at and above the LoD while also detecting 72.6% of all samples spiked at concentration levels below the LoD (see Table E);

 

in the Contrived Arm of the study, T2Candida detected 97% of cases at or above 1 CFU/mL and 70% of cases below 1 CFU/mL (see Table F);

 

in the Contrived Arm of the study, T2Candida detected 98% of cases at or above clinically relevant concentrations of Candida , ranging from 95% to 100% detection depending on the Candida species (see Table G);

 

T2Candida demonstrated an average time to positive result of 4.4 hours compared to blood culture average time to result of 129 hours;

 

T2Candida demonstrated an average time to negative result of 4.2 hours compared to blood culture average time to result of >120 hours; and

 

T2Candida has a negative predictive value of 99.8% in a standard population. Negative predictive value is the probability that subjects with a negative result truly do not have the disease.

The authors of the study made the following conclusions based on the study results:

 

Because mortality due to invasive candidiasis has remained high and unchanged for the past two decades and early initiation of appropriate antifungal therapy has been reported to reduce mortality by at least two-thirds, the rapid and accurate diagnostic capability offered by this novel technology has the potential to change the management and prognosis of the disease.

 

The ability to rapidly and accurately exclude the possibility of candidemia can have significant implications in clinical practice, by decreasing the number of patients who need to be on empiric antifungal therapy, and thus decreasing the incidence of resistant strains, the potential of side effects of antifungal treatment, and substantial healthcare costs.

 

A key advantage of T2MR over other biosensors is that it does not require culture and sample purification or preparation.

Massachusetts General Hospital Study — Science Translational Medicine

We co-authored a study with investigators from Massachusetts General Hospital, or MGH, to evaluate the sensitivity and specificity of T2MR to detect Candida compared to blood culture-based diagnostics. Results from the study were published in an article entitled “T2 Magnetic Resonance Enables Nanoparticle-Mediated Rapid Detection of Candidemia in Whole Blood” in Science Translational Medicine in 2013. In this study:

 

T2MR was tested across 320 contrived whole blood samples, each containing one of the five clinically relevant species of Candida, and was able to detect each of the species at a LoD ranging from 1 to 3 CFU/mL.

 

T2MR was tested across 24 whole blood specimens from patients exhibiting symptoms of sepsis, with eight Candida positive, eight bacteria positive and eight negative samples. Results showed 100% sensitivity and 100% specificity of T2MR when compared with blood culture results for identification of Candida.

 

In patients with Candida treated with antifungal therapy, T2MR detected the presence of Candida in patient samples drawn up to four days after antifungal administration, while blood culture failed to identify the infection upon administration of antifungal therapy.

University of Houston Study — Diagnostic Microbiology and Infectious Disease

We sponsored an independent study at the University of Houston to directly compare the sensitivity and time to result of T2Candida running on the T2Dx and blood culture-based diagnostics. In this study, contrived blood samples were split between T2Candida using the T2Dx and standard blood culture. The study showed improved performance of T2Candida over blood culture in terms of speed and sensitivity. The

12


following findings were published in an article entitled “Comparison of the T2Dx Instrument with T2Candida Diagnostic Panel and Automated Blood Culture in the Detection of Candida Species Using Seeded Blood Samples” in Diagnostic Microbiology and Infectious Disease in 2013:

 

T2Candida detected all of the samples of C. glabrata at concentrations of 2.8 CFU/mL, while blood culture was not able to detect C. glabrata in any of the samples, even at a higher concentration of 11 CFU/mL and with the standard five-day run time.

 

T2Candida detected all of the samples for all of the species of Candida at concentration levels of 3.1 to 11 CFU/mL.

 

The average time to species identification was approximately three hours for T2Candida, as opposed to over 60 hours for blood culture.

The following table summarizes the results of our University of Houston study. The five relevant species of Candida were analyzed in the University of Houston study.

Contrived blood samples at concentrations between 3.1 — 11 CFU/mL

 

 

 

Blood Culture

 

 

T2Candida

 

 

 

(n=20 per species)

 

 

(n=13-20 per species)

 

Average time to positive result

 

63.23 ± 30.27 hours

 

 

 

 

 

 

3 hours

 

 

 

 

 

 

 

C. albicans

=

 

 

100

%

 

C. albicans

=

 

 

100

%

 

 

C. tropicalis

=

 

 

100

%

 

C. tropicalis

=

 

 

100

%

Detection rate

 

C. parapsilosis

=

 

 

100

%

 

C. parapsilosis

=

 

 

100

%

 

 

C. glabrata

=

 

 

0

%

 

C. glabrata

=

 

 

100

%

 

 

C. krusei

=

 

 

100

%

 

C. krusei

=

 

 

100

%

Sensitivity

 

 

 

 

 

 

 

 

100%

 

 

 

 

 

Specificity

 

 

 

 

 

 

 

 

98%

 

 

 

 

 

 

Clinical Data Review of T2MR and T2Candida—Future Microbiology

Dr. Michael Pfaller (former T2 Biosystems Chief Medical Officer), Donna Wolk, PhD (Geisinger Health System), and Tom Lowery, PhD (T2 Biosystems Chief Scientific Officer) collaborated to perform a meta-analysis of T2MR and T2Candida data that was published in Future Microbiology in 2015 with the title T2MR and T2Candida: novel technology for the rapid diagnosis of candidemia and invasive candidiasis. The article had the following overall summary statements and conclusions:

 

There is an urgent need to rapidly and accurately detect and identify fungal pathogens. Current culture-based methodologies are too slow and, with some organisms like C. glabrata, may fail altogether due to the insensitivity of some blood culture systems to detect this slow-growing species. 

 

The development and FDA approval of T2Candida represents the advent of a new class of infectious disease diagnostics that enable rapid, direct detection and identification of pathogens in a culture-independent manner. The new panel will reduce the time to detection and species identification for common Candida species.

 

As of the date of publication of the article, the T2Candida Panel had identified over 31 cases of candidemia and 12 cases of candidiasis. In the latter 12 cases, blood culture was unable to detect any of those proven infections. There were an additional ten patients with probable or suspected invasive candidiasis, but patient record review was not available to include these cases. More specifically, across all studies to date, T2Candida had successfully detected 43 of 45 patients with confirmed candidemia (31/33) or candidiasis (12/12). When including patients with probable candidiasis, T2Candida detected 10 of 10 patients, totaling 53 of 55 cases detected for candidemia or candidiasis. In this aggregate population, blood culture only detected 33 of 55 patients.  Table 7 from the article summarizes the data showing increases in sensitivity for T2Candida vs. blood culture.

 

 

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-

Across all studies to date, T2Candida had an overall specificity of greater than 99.4% from more than 1,560 patients.

 

-

Application of the T2Candida Panel facilitates the diagnosis of candidemia and other forms of invasive candidiasis and promises to have major clinical impact resulting from the diagnosis of previously unrecognized, deep-seated candidiasis as well as from the ‘real-time’ (hours) detection of candidemia.  The earlier species-level diagnosis provided by T2Candida will allow targeted pre-emptive antifungal therapy which should result in a decrease in Candida -associated morbidity, mortality, and excess length of stay in the hospital and at the same time reduce unnecessary empiric antifungal therapy.  T2Candida provides breakthrough performance in the detection and identification of Candida direct from patient samples and may significantly impact patient mortality and hospital costs.

DIRECT2 Pivotal Clinical Trial – Clinical Infectious Diseases

The DIRECT2 study, published in Clinical Infectious Diseases, was a multi-center study involving 14 sites and evaluated the performance of T2Candida and blood culture in N=152 candidemic patients. T2Candida detected 89% of infections across this patient population, validating the 91.1% clinical sensitivity reported from the FDA pivotal study for the T2Candida in a much larger patient population. Additionally, T2Candida detected almost twice as many confirmed infections as blood culture in patients receiving antifungal therapy. This indicates that T2Candida is a more effective diagnostic tool for patients treated with pre-emptive or empiric antifungal therapy. Consistent with other studies, the time savings afforded by T2Candida was significant. The median time to detection of Candida by diagnostic blood cultures and subsequent species identification was 3.4 days. In comparison, T2Candida provides diagnostic results in an average time of 4.4 hours. The authors noted that T2Candida “ushers in a new era in which rapid molecular testing for invasive candidiasis will serve as an adjunct to microbiologic cultures.”

STAMP Study – Journal of Clinical Microbiology

The STAMP study, published in the Journal of Clinical Microbiology, compared blood culture to T2Candida for monitoring the clearance of an infection when a patient is being treated with antifungal drugs. The study demonstrated that T2Candida can detect the ongoing presence of a Candida infection while blood culture often yields false negative test results because the administration of antifungal drugs can impede the growth of cells that blood culture requires to detect an infection. These observations are consistent with the DIRECT2 study. The authors concluded that T2Candida can be an effective tool for reliably identifying patients that have cleared an infection, which can reduce the unnecessary and expensive antifungal therapy. The STAMP study evaluated running multiple diagnostic tests for patients with confirmed Candida infections who were receiving antifungal drugs. The study demonstrated that T2Candida outperforms blood culture for monitoring the clearance of Candida infections.

 

T2Candida was positive in 23 patient samples, compared to only 7 for blood culture in cases of true infection.

 

T2Candida identified every infection that was detected by blood culture and provided actionable results 3 days earlier than blood culture.

 

T2Candida detected a Candida infection that blood culture missed in one patient during the study.

 

T2Candida results were a better indicator of disease clearance than blood culture, as two consecutive T2Candida negative results indicated that the patient no longer had an active infection in the blood that required aggressive management.

 

STAMP study data suggest that serial testing of patients with the T2Candida Panel may enable more timely management of infections, de-escalation of therapy, better source control and overall reduced costs of care.

T2 Magnetic Resonance Assay Improves Timely Management of Candidemia – The Journal of Antimicrobial Stewardship

Another study published in The Journal of Antimicrobial Stewardship entitled “T2 Magnetic Resonance Assay Improves Timely Management of Candidemia” compared the management of candidemic patients before and after the implementation of T2Candida and was designed to evaluate time to appropriate therapy. Patients tested with the T2MR platform were treated in a median of 5 hours, a more than 8-fold reduction as compared to that based on blood culture, which delayed appropriate therapy by a median of 44 hours. This speed advantage demonstrates that the T2MR platform may be a valuable clinical tool to aid antifungal stewardship’s goal to deliver timely antifungal therapy for infected patients. In addition to speed, the use of the T2MR platform provided increased identification of Candida infections. Consistent with the performance of blood culture and T2MR published in other studies, the Candida species was definitively identified in 93% of patients after implementation of T2MR and in only 57% of patients prior to implementation of T2MR. Prior to implementation of T2Candida, the only diagnostic tests used at Henry Ford Health System were blood culture and beta-D-glucan (BDG). The authors also identified an additional clinically relevant improvement in patient outcomes after the implementation of T2MR: a significant reduction of Candida ocular involvement from 30% to 12% was observed. The authors point out this could be associated with improved sensitivity of T2MR or due to improved timeliness of patient management by T2MR. Although the study was not adequately powered to evaluate reduction in patient mortality rates, the authors note that appropriately treating patients within 24 hours of the onset of disease is proven to reduce mortality rates from 41% to below 16%. T2MR is the only diagnostic method presented in this study with the speed and accuracy necessary to enable therapeutic decisions that achieve this reduction in mortality.    

14


Customer Presentations

Over the past 12 to 18 months, customers have begun to report on their experiences with T2Candida at conferences and in publications. Below is a summary of some those reports.

 

-

Investigators at the Henry Ford Health System reported data that demonstrated that after the implementation of T2Candida in their hospital system, the hospital system projected that it may save an estimated $2.3M annually, reduced median ICU length of stay by seven days per patient (p=0.009), and reduced total length of stay by four days per patient (p=0.164).  Additionally, 75% of negative patients had antifungals discontinued or deescalated.

 

-

Investigators at the Lee Health System reported that after the implementation of T2Candida, they have experienced a reduction in the average length of stay per patient by 7 days, unnecessary antifungal therapy was avoided in 41% of patients, and unnecessary antifungal therapy was discontinued after 1 dose in another 15% of patients, and the average net antifungal savings was $195 for every patient tested with T2Candida.

 

-

Investigators at Riverside Community Hospital reported that implementation of T2Candida led to therapy being discontinued for 100% of patients who tested negative, and for patients who tested positive and had not been on antifungals prior to testing, 83% of patients who tested positive received appropriate therapy within six hours of blood drawing and 100% within nine hours of blood draw.

 

-

Investigators at Huntsville Hospital, showed that use of T2Candida resulted in reduction in duration of therapy and time to de-escalation in negative patients. This yielded net pharmacy savings of approximately $280 per patient tested. T2Candida also detected 56% more positive patients than blood culture. 

 

-

Investigators at the University Di Roma reported that T2Candida detected invasive candidiasis that were not identified by blood culture. T2Candida identified three cases of C. albicans and one case of C. glabrata that were proven accurate with additional in vitro diagnostic testing and diagnostic imaging.

Candida Auris

In September 2017, we entered into an agreement with the CDC, pursuant to which the CDC agreed to validate the T2Dx in its laboratory for potentially testing and monitoring the emergence and outbreaks of the superbug Candida auris.

Candida auris is a multi-drug resistant pathogen recognized by the CDC as a serious global health threat because it can be resistant to all three major classes of antifungal drugs and is difficult to identify. The CDC has also reported that more than one-in-three patients with Candida auris infections have died. Unlike most other species of Candida, Candida auris can spread quickly in a hospital making rapid identification and hospital environment surveillance a critical component of containing these outbreaks. Existing laboratory methods that detect Candida auris, including blood culture, suffer from prolonged detection times and low accuracy, which exacerbates the challenge in the fight to contain the superbug. Recently, reported cases have surged internationally, and the CDC has reported a significant increase in infected patients in the United States. According to the European Centre for Disease Prevention and Control, hospital outbreaks have occurred in the United Kingdom and Spain. Because Candida auris can be resistant to most treatment options and can spread so quickly, these hospital outbreaks have been difficult to contain by even the most enhanced control measures.

The goals of the CDC collaboration were to use the T2Dx Instrument to (i) validate the detection of Candida auris from patient skin samples and hospital environmental samples, (ii) validate a process for surveillance of Candida auris in healthcare facilities from skin and environmental samples, and (iii) assist state and local public health labs in combating the outbreak. In a study presented at ASM Microbe 2018 regarding the detection of Candida auris, it was found that the T2MR technology provided accurate diagnostic results from patient skin samples. The study concluded that T2MR could be used to provide a more rapid detection of Candida auris in patient skin swabs. This study was subsequently published as an article entitled “Evaluation of a new T2 Magnetic Resonance assay for rapid detection of emergent fungal pathogen Candida auris on clinical swab samples” in the journal Mycoses.   

T2Bacteria

T2Bacteria Panel Pivotal Clinical Study Information

On May 24, 2018, we received market clearance from the FDA for T2Bacteria, a multiplex diagnostic panel that runs on the T2Dx instrument and detects five major bacterial pathogens associated with sepsis and, in conjunction with T2Candida and standard empiric therapy regimens, may enable the early, appropriate treatment of 90% of sepsis patients. T2Bacteria addresses the same approximately 6.75 million symptomatic high-risk patients as T2Candida and also a new population of patients who are at increased risk for bacterial infections, including an additional two million patients presenting with symptoms of infection in the emergency room setting.  

On August 4, 2017 we completed a pivotal clinical study of T2Bacteria, which is a qualitative T2MR assay designed for the direct detection of bacterial species in human whole blood specimens from patients with suspected bacteremia. T2Bacteria is designed to identify five species of bacteria directly from human whole blood specimens: Enterococcus faecium, Escherichia coli, Klebsiella pneumoniae, Pseudomonas aeruginosa, and Staphylococcus aureus. Outside of the United States, the CE marked T2Bacteria panel identifies all 5 of these species along with a 6th species, Acinetobacter Baumannii.

15


To the extent that T2Bacteria is performed on an outpatient basis, third-party payors may separately reimburse our customers using existing CPT codes for patients who are not admitted to the hospital. By way of example, Medicare payment for outpatient clinical laboratory services is the lesser of the amount billed, the local fee for a geographic area, or the national limit established by the Centers for Medicare & Medicaid Services under the Clinical Laboratory Fee Schedule, or CLFS, on an annual basis. For 2017, the national limit for the series of CPT codes used to bill T2Bacteria is approximately $220. Effective January 1, 2018, CLFS rates are based on weighted median private payor rates as required by the Protecting Access to Medicare Act of 2014. We believe that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our diagnostic products or additional pricing pressures.

The performance characteristics of T2Bacteria were evaluated through a series of analytical studies as well as a multi-center clinical study.  The clinical study evaluated the performance of T2Bacteria in comparison to the current standard of care, blood culture. 

The clinical study consisted of two arms, a prospective arm and a seeded arm. In the prospective arm, a total of 1,427 subjects were tested at eleven geographically dispersed and demographically diverse sites in the United States.  In the seeded arm, 300 specimens of known bacterial composition were evaluated at three sites. Seeded specimens were prepared by spiking whole blood with multiple strains of the bacterial species detected by T2Bacteria at defined concentrations (CFU/mL). Fifty negative blood samples also were evaluated as part of the seeded arm of the study.  In total, 1,777 (1,427 prospective specimens and 350 seeded and negative) clinical samples were tested to evaluate the clinical performance of T2Bacteria.

Data from the pivotal clinical trial was presented at the Association of Molecular Pathology annual meeting in November 2017. Results from the trial demonstrated that T2Bacteria can deliver actionable results in an average of 5.4 hours, compared to an average of 60 hours for detecting the same species by blood culture. In addition, T2Bacteria identified 63 infected patients that were missed by the paired blood culture that was simultaneously run. The reported sensitivity was 96%, compared to a sensitivity of 38% for the paired blood culture as measured by the total of 102 patients with confirmed infections by any culture result.  More specifically, the study findings include:

 

The overall sensitivity for the prospective and seeded arms combined was 95.8% (see Table I below);

 

In the seeded arm of the study, the average sensitivity was 96.8% (see Table K), with the sensitivity by bacterial target ranging from 90.9% to 100.0% (see Table L);

 

In the prospective arm of the study, the average sensitivity was 89.7% (see Table M), with the sensitivity by bacterial target ranging from 81.3%% to 100.0% (see Table N);

 

The average specificity for the prospective and seeded arms combined was 98.1% (see Table I);

 

In the seeded arm of the study, the average specificity of the test was 99.0% (see Table K), with the specificity by bacterial target ranging from 97.3% to 100.0% (see Table L);

 

In the prospective arm of the study the average specificity of the test was 97.9% (see Table M), with the specificity by bacterial target ranging from 95.0% to 99.4% (see Table N);

 

In the prospective arm of the study, results that were identified as positive by T2Bacteria but negative by blood culture were evaluated by looking at additional blood culture results obtained +/- 14 days of the paired T2 / blood culture draw.  36% of the T2 positive / blood culture negative results were found to be culture positive for the organism identified by the T2Bacteria Panel within the defined 14 day window (Table N).

 

In the prospective arm of the study, four specimens that were identified as negative by T2Bacteria but positive by blood culture were evaluated by running a second archived blood sample.  Two of the four samples generated positive results by T2Bacteria that were in agreement with blood culture, one for S. aureus and the other for E.coli.

Table I: T2Bacteria Panel Overall Performance for 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%

 

Table J: T2Bacteria Panel Combined Performance for Prospective and Seeded Arms

 

 

 

Sensitivity (PPA)

 

Specificity (NPA)

Species

 

Sensitivity

 

95% CI

 

Specificity

 

95% CI

E. coli

 

90.9% (30/33)

 

76.4% - 96.9%

 

95.4% (1637/1716)

 

94.3% - 96.3%

E. faecium

 

100.0% (41/41)

 

91.4% - 100.0%

 

99.5% (1717/1726)

 

99.0% - 99.7%

K. pneumoniae

 

100.0% (46/46)

 

92.3% - 100.0%

 

98.6% (1697/1721)

 

97.9% - 99.1%

P. aeruginosa

 

97.7% (43/44)

 

88.2% - 99.6%

 

97.7% (1682/1722)

 

96.9% - 98.3%

S. aureus

 

89.1% (49/55)

 

78.2% - 94.9%

 

98.4% (1683/1711)

 

97.6% - 98.9%

 

16


 

PPA (sensitivity) calculated against samples with titer levels at or above limit of detection (LoD) in Seeded Arm and blood culture positives in Prospective Arm

 

NPA (specificity) calculated from all samples (including below LoD and unspiked negative samples) as the total number of negative channels divided by total number of non-spiked channels in Seeded Arm and blood culture negatives in Prospective Arm.

 

Table K: T2Bacteria Panel Seeded Sample Performance

 

Sensitivity

 

95% CI

 

Specificity

 

95% CI

96.7% (174 / 180)

 

92.9%-98.5%

 

98.9% (1,483/1,500)

 

98.2%-99.3%

 

 

PPA (sensitivity) calculated against samples with titer levels at or above limit of detection (LoD)

 

Table L: T2Bacteria Panel Seeded Sample Performance

 

 

 

Sensitivity (PPA)

 

Specificity (NPA)

Species

 

PPA

 

95% CI

 

NPA

 

95% CI

E. coli

 

90.9% (20/22)

 

72.2 - 97.5%

 

97.3% (292/300)

 

94.8 - 98.6%

E. faecium

 

100% (40/40)

 

91.2 - 100%

 

100% (300/300)

 

98.7 - 100%

K. pneumoniae

 

100% (40/40)

 

91.2 - 100%

 

99.3% (298/300)

 

97.6 - 99.8%

P. aeruginosa

 

97.4% (38/39)

 

86.8 - 99.5%

 

97.7% (293/300)

 

95.3 - 98.9%

S. aureus

 

92.3% (36/39)

 

79.7 - 97.3%

 

100% (300/300)

 

98.7 - 100%

 

 

PPA (sensitivity) calculated against samples with titer levels at or above limit of detection (LoD)

 

Table M: T2Bacteria Panel Overall Performance for Prospective Arm

 

Sensitivity

 

95% CI

 

Specificity

 

95% CI

89.7% (35/39)

 

76.4%-95.9%

 

97.7% (6,933/7,096)

 

97.3%-98.0%

 

Table N: T2Bacteria Panel Performance as Compared to Blood Culture — Prospective Arm

 

 

 

Sensitivity (PPA)

 

Specificity (NPA)

Species

 

Sensitivity

 

95% CI

 

Specificity

 

95% CI

E. coli

 

90.9% (10/11)

 

62.3 - 98.4%

 

95.0% (1345/1416)

 

93.7 - 96.0%

E. faecium

 

100.0% (1/1)

 

20.7 - 100%

 

99.4% (1417/1426)

 

98.8 - 99.7%

K. pneumoniae

 

100.0% (6/6)

 

61.0 - 100%

 

98.5% (1399/1421)

 

97.7 - 99.0%

P. aeruginosa

 

100.0% (5/5)

 

56.6 - 100%

 

97.7% (1389/1422)

 

96.8 - 98.3%

S. aureus

 

81.3% (13/16)

 

57.0 - 93.4%

 

98.0% (1383/1411)

 

97.1 - 98.6%

 

Table O:  Summary of T2(+)/BC(-) Results in Prospective Arm

 

 

Species

 

T2(+) / BC(-) total

 

Other Blood Culture positive1

 

Sequencing positive2

 

T2(+) / BC(-)

associated with strong evidence of infection3

 

T2(+) / BC(-) associated with other evidence of infection Non-Blood Matrices Culture Positive4

 

T2(+) / BC(-) associated with no evidence of infection

E. faecium

 

9

 

2

 

2

 

44.4% (4/9)

 

33.3% (3/9)

 

22.2% (2/9)

E. coli

 

63

 

12

 

9

 

33.3% (21/63)

 

12.7% (8/63)

 

54.0% (34/63)

K. pneumoniae

 

22

 

6

 

8

 

63.6% (14/22)

 

13.6% (3/22)

 

22.7% (5/22)

P. aeruginosa

 

33

 

3

 

8

 

33.3% (11/33)

 

12.1% (4/33)

 

54.5% (18/33)

S. aureus

 

28

 

16

 

3

 

67.9% (19/28)

 

17.9% (5/28)

 

14.3% (4/28)

Total

 

155

 

39

 

30

 

44.5% (69/155)

 

14.8% (23/155)

 

40.7% (63/155)

 

1Blood cultures positive for the T2 species identified other than the paired blood culture and processed within ± 14 days of collection of the T2 sample.

2 Sequencing from blood samples drawn at the same time as collection of the T2 sample and positive for the T2 species identified, where this sequencing assay was only run on subjects without positive evidence from other sample sources (footnote 1 and 4).

17


3 Strong evidence defined as a T2 positive result associated with a blood culture positive from a different draw than T2 draw or a sequencing positive result from a blood sample drawn concurrently with the T2 draw.

4 Other cultures from non-blood sample matrices positive for the T2 species identified within ± 14 days of collection of the T2 sample.

 

Customer Presentations

In 2017, two customers reported on their experiences with T2Bacteria. Below is a summary of those reports.

 

Investigators at the Catholic University School of Medicine in Rome, Italy, presented interim data from a study in which T2Bacteria achieved 100% sensitivity and 97% specificity in analytical studies, and in clinical studies, it identified patients with infection in as fast as four hours, while blood culture took up to five days, inclusive of multiple cases where T2Bacteria identified patients missed by blood culture with proven infections.

 

Investigators at Northwestern University in Chicago, Illinois, presented data demonstrating that T2Bacteria had 89% sensitivity for bacterial infections while blood culture only detected 68% of infections, and positive T2Bacteria results for patients on antibiotic therapy correlated to more serious and poorly controlled infections.

In 2018, several other customers and clinical researchers have reported on their experience with T2Bacteria. These include the following:

 

Investigators at the Gemelli Hospital in Rome, Italy published a study in the Journal of Antimicrobial Chemotherapy (April 2018) entitled “T2Bacteria magnetic resonance assay for the rapid detection of ESKAPE pathogens directly in whole blood. This prospective study was with 129 adult patients in the ICU and ED. It showed that T2Bacteria achieved faster time to species ID than blood culture, or BC: 5.5h ±1.4h vs. BC 25.2h ± 15.2h (P<0.001) and faster time to negative results 6.1h ± 1.5h vs. BC 120.0h ± 0.0h (p<0.001). Additionally, T2Bacteria performed with a sensitivity and specificity of 90% and 98%, respectively, according to true infection criteria.

 

 

Investigators at Lee Health in Fort Myers, FL reported at MAD-ID in May 2018 a study entitled “Early experience with the T2Bacteria Research Use Only (RUO) Panel at a community hospital”. This prospective study was conducted at Lee Health, Fort Myers, FL in 28 adult patients presenting to the ED. It showed that T2Bacteria allowed testing from whole blood samples and provided final results within 4 hours. T2Bacteria provided positive and negative results approximately 20 hours and 122 hours sooner than BCs, respectively (p<0.001). It detected 5 organisms not identified by BC and in these 28 patients greater than 30 opportunities for de-escalation of coverage based on negative results for S. aureus or P. aeruginosa were identified.

 

 

At ASM Microbe in June 2018 investigators from the Ochsner Medical Center presented a study entitled “Evaluation of the T2Bacteria Panel compared to standard blood culture at Ochsner Medical Center”. This blinded, prospective study was conducted at Ochsner Medical Center, New Orleans, LA in 178 adult subjects presenting to the ED. In this cohort, T2Bacteria demonstrated an overall average of 100% sensitivity and 99% specificity. T2Bacteria did not miss any growth from BC of a bacteria species on panel and detected true positives.

 

 

Another group of investigators presented at ASM Microbe in June 2018 a study entitled “Validation of a rapid diagnostic test on whole blood for early identification of pathogens in patients in the intensive care unit.” This a combined prospective and retrospective study conducted by Northwestern University with 91 retrospective samples and 58 prospective samples from patients admitted to the ICU. Overall, T2Bacteria was 87% sensitive and 95% specific for the detection of six different organisms compared to BC; The calculated specificity is limited by comparison to BC because many studies demonstrate that BC itself is poorly sensitive. As further support, T2Bacteria detected organisms in the blood when BC was negative but evidence of infection in the kidney, bone, soft-tissue, intra-abdominal area, or lungs was available; a positive T2Bacteria result in this setting may indicate poor source control, inappropriate antibiotics or poor host defenses.

 

 

Researchers from UPMC presented at ASM Microbe 2018 and ID Week in October 2018 on the pivotal T2Bacteria study in a presentation entitled “Clinical performance of T2Bacteria among patients with bloodstream infections due to five common bacterial species.” This pivotal, clinical multicenter prospective trial was conducted in 11 U.S. Centers with 1427 subjects from presenting to the ICU or ED. They further reported in the pivotal study manuscript that overall, T2Bacteria detected ~66% of BSIs, excluding common contaminants. The mean time to BC+ was 38.5h ± 32.8h; the mean time to BC speciation was 71.7h ± 39.3h; mean time to T2B result was 3.6h ± 0.2h – 7.70hr ± 1.38h; T2Bacteria demonstrated 90% per patient specificity in detecting Blood Stream Infection (BSI) and per assay specificity of 90%. The study pointed out that potential advantages of T2Bacteria over Blood Culture include detection of bacteremia several days before Blood Culture (3-5 hours versus 2-3 days), diagnosing infections missed by Blood Culture, identifying patients with incorrect antibiotics and patients with extra-blood site infections.

 

Lyme Disease

We believe that T2MR can also address the significant unmet need associated with Lyme disease, a tick-borne illness that can cause prolonged neurological disease and musculoskeletal disease. For patients with Lyme disease, early diagnosis and appropriate treatment significantly reduces both the likelihood of developing neurological and musculoskeletal disorders, as well as the significant costs associated with treating these complications. Multiple diagnostic methods are used to test for Lyme disease today, which are labor-intensive, can take weeks to

18


process, and are subject to high false negative rates due to their inability to detect the disease, making each method unreliable in the diagnosis of the condition. Because of these limitations, patients are frequently misdiagnosed or are delayed in the diagnosis of this disease.

According to the CDC, Lyme disease affects approximately 30,000 people in the U.S. each year, but the CDC also estimates that the actual number is closer to 360,000 due to under-reporting because of poor diagnostic methods. Approximately 3.4 million tests are run for Lyme disease each year, including serology testing, PCR techniques and blood culture, which has low sensitivity and takes approximately two to three weeks to provide results.  Inadequate identification of Lyme disease may lead to antibiotic resistance, significant costs, and transmission of the disease through healthcare procedures such as blood transfusion. The misdiagnosis of Lyme disease has been reported to have an annual cost of more than $10,000 per patient in the United States, representing over $3 billion per year.

Our product candidate, T2Lyme, will identify the bacteria that cause Lyme disease directly from the patient’s blood, without the need for blood culture which, for the bacteria associated with Lyme disease, can take several weeks. Our Lyme product candidate is currently in development and we initiated a T2Lyme clinical trial in May 2018. The test panel is expected to be run on the T2Dx, the same instrument currently used to run T2Candida and T2Bacteria. We anticipate the T2Lyme test panel to benefit from similar advantages provided by T2MR as T2Candida, including high sensitivity, high specificity, ease of use and rapid time to result. T2Lyme may provide accurate and timely diagnosis of Lyme disease and may prevent the evolution of the disease to its later stages with associated neurological and musculoskeletal diseases.

We expect that existing CPT codes will be used to facilitate reimbursement of our T2Lyme diagnostic panel.

T2Lyme identifies the microorganisms responsible for most cases of Lyme disease in North America and Europe and are detected directly in whole blood using T2MR and the same methodology used in the T2Candida and T2Bacteria tests. Preliminary data demonstrate that the detection of three species of Borrelia at limits of detection as low as 10 cells/mL was achieved in spiked whole blood and detection of spirochetes in clinical samples from patients with early stage Lyme disease using T2MR.  

In 2016 Dr. Tom Lowery, our Chief Scientific Officer, presented on T2Lyme at a forum titled “Diagnostic Tests for Lyme Disease: A Reassessment” held at the Banbury Center of the Cold Spring Harbor Laboratory. In this presentation he reported preliminary T2Lyme limit of detection data that consisted of N=60 replicates for each target species consisting of three spike preparations of N=20 across three successive days prepared with a quantitative spiking method. Positivity rates were ≥95% for B. afzelii and B. burgdorferi at 5 cells/mL and B. garinii at 8 cells/mL. Additionally, Dr. Lowery shared data from initial clinical samples. Samples were frozen, ethylenediaminetetraacetic acid whole blood samples from patients diagnosed with Early Stage Lyme disease at the Gunderson Clinic in Wisconsin. All 21 samples had confirmed Erythema multiforme lesions and were tested with a Gunderson Clinic PCR test and the T2Lyme T2MR test. Only one sample tested positive by PCR, which was confirmed by T2MR. Seven additional samples were tested negative by PCR but were tested positive by T2MR. Of the 21 samples, 8 were positive for B. burgdorferi by T2MR, demonstrating that T2MR can detect Borrelia cells in blood samples from infected patients.

In 2018, T2 Biosystems presented new pre-clinical data suggesting that the T2Lyme Panel is more accurate than other diagnostics for identifying Borrelia infections for patients suspected of having early-stage Lyme disease. The data were presented at a conference hosted by the Centers for Disease Control and Prevention (CDC), the National Institutes of Health (NIH), and the National Environmental Health Association (NEHA). It showed that the T2Lyme Panel was the most accurate diagnostic compared to tissue culture, with a 78% positive percent agreement (PPA) and 100% negative percent agreement (NPA). This compares to a 56% PPA and 92% NPA for the currently recommended diagnostic, two-tier serology. The 100% negative percent agreement of the T2Lyme Panel indicates greater specificity over serology resulting in less incidence of false positive results.

Sales, Marketing and Distribution

We are working to drive awareness and adoption of our T2MR technology and related products by building a direct sales force in the United States, initially targeting high-volume hospitals, and continuing to educate physicians, key decision makers and thought leaders through publishing scientific data in peer-reviewed journals, presenting at major industry conferences and conducting and supporting clinical studies. We have added a small team of employees in Europe primarily to support our network of European distributors.

At the end of 2018, our direct sales organization consisted of 30 people, including marketing and a medical affairs team of three United States based Doctor of Pharmacy (PharmD) clinicians. Our sales team, employing a clinical data-driven sales approach, focus on the clinical performance of our products, the improved outcomes for patients and the economic value for hospitals, including providing hospitals with customized budget impact analysis. They demonstrate the ease-of-use of our products and the advantages of our products over existing diagnostics and empiric therapy practices. We plan to continue to invest in our direct sales force as we expand both the array of diagnostic panels and our customer reach.

Today, our sales force markets the T2Dx, T2Candida and T2Bacteria directly to hospitals in the United States, targeting 1,200 hospitals treating the largest number of high-risk patients. We estimate that these 1,200 hospitals annually see an average of over 3,400 symptomatic patients at high risk for a Sepsis-related infection. If these institutions adopt our technology, we expect a positive network effect in the hospital community, accelerating adoption of T2Candida and T2Bacteria. We believe key aspects of healthcare reform, including the focus on cost containment, risk-sharing, and outcomes-based treatment and reimbursement, align with the value proposition of our sepsis products, contributing positively to their adoption. We believe the key decision-makers at hospitals are infectious disease and critical care physicians, laboratory directors, the hospital pharmacy and hospital administrators. In response to the severity and complexity of managing bloodstream

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infections, a growing number of hospitals have instituted antimicrobial stewardship committees to control hospital practices related to infections, including the use of antibiotic and antifungal therapy. These committees typically include key decision-makers, and we believe they can provide a central forum to present the benefits of our products. In addition, we plan to continue to publish scientific data in peer-reviewed journals, present at major industry conferences and conduct and support clinical trials to provide additional data relative to the performance of T2Candida and T2Bacteria to these decision-makers. For the year ended December 31, 2018, the Company derived approximately 29% of its total revenue from one customer, 15% from a second customer and 10% from a third customer.

Outside of the United States, we have received regulatory approvals in Europe and certain countries in Asia and expect to seek regulatory approvals in other international markets. We market our platform primarily through distributor partners who deploy a similar model to our sales approach in the United States.  In July 2014, we received CE marking for T2Candida and the T2Dx and in September 2017 we received CE marking for T2Bacteria. As of the end of 2018, we had distributors throughout the European Union (EU) and the Middle East. These distributors have knowledge of infectious diseases and/or microbiology.  They typically have strong, existing relationships with international thought leaders in these areas and have good relationships with important hospitals in their respective countries.  We continue to develop partner relationships in other key international markets and will further investigate potential distribution channels in other key markets around the world.  We have employed a small team of direct sales/marketing, PharmD and field service personnel primarily to support the efforts of our distributors in the EU and Middle East. 

Manufacturing

We manufacture our proprietary T2Dx at our manufacturing facility in Lexington, Massachusetts and our T2Candida and T2Bacteria reagent trays at our manufacturing facility in Wilmington, Massachusetts. We perform all instrument and tray manufacturing and packaging of final components in accordance with applicable guidelines for medical device manufacturing. We outsource manufacturing of our T2Candida and T2Bacteria consumable cartridge to a contract manufacturer. Our particles are supplied by a sole source supplier, GE Healthcare. We believe we can secure arrangements with other suppliers on commercially reasonable terms for the products and parts we outsource.

We have implemented a quality management system designed to comply with FDA regulations and International Standards Organization, or ISO, standards governing medical device products. These regulations govern the design, manufacture, testing, release and service of diagnostic products as well as raw material receipt and control. We have received ISO 13485:2012 registration from the National Standards Authority of Ireland. Our key outsourcing partners are ISO-certified.

We plan to continue to manufacture components that we determine are proprietary or require special processes to produce, while outsourcing the manufacture of more commodity-like components. We expect to establish additional outsourcing partnerships as we manufacture more products. We believe our facilities in Lexington and Wilmington, Massachusetts are adequate to meet our current manufacturing needs and that additional manufacturing space is readily available for future expansion.

Intellectual Property

We strive to protect and enhance the proprietary technologies that we believe are important to our business, and seek to obtain and maintain patents for any patentable aspects of our product and product candidates, including their methods of use and any other inventions that are important to the development of our business. Our success will depend significantly on our ability to obtain and maintain patent and other proprietary protection for commercially important proprietary technology, inventions and know-how related to our business, including our methods, processes and product candidate designs, and our ability to defend and enforce our patents, maintain our licenses to use intellectual property owned by third parties, preserve the confidentiality of our trade secrets and operate without infringing the valid and enforceable patents and other proprietary rights of third parties. We also rely on trademarks, copyrights, know-how, continuing technological innovation and in-licensing opportunities to develop, strengthen, and maintain our proprietary position in the fields targeted by our products and product candidates. Protecting these rights is a primary focus in our relationships with other parties, and we seek to protect such rights, in part, by entering into confidentiality and non-disclosure agreements with such third parties and including protections for such proprietary information and intellectual property rights in our other contracts with such third parties, including material transfer agreements, licenses and research agreements.

We are the owner or licensee of over 60 patents and over 40 patent applications and possess substantial know-how and trade secrets which protect various aspects of our business and products. The patent families comprising our patent portfolio are primarily focused on protection of a range of general and specific attributes of our proprietary assay architecture and assay instrumentation for our T2Candida and T2Bacteria products and our T2Lyme and resistance marker panel product candidates, as well as protection of certain aspects of the conduct of the assays and detection of analytes. The issued patents in our patent families that cover T2Candida and T2Bacteria are expected to expire between 2023 and 2034, while additional pending applications covering T2Candida and T2Bacteria would be expected, if issued, to expire as late as 2037. The issued patents in our patent families that cover T2Lyme are expected to expire between 2023 and 2034, while additional pending applications covering T2Lyme would be expected, if issued, to expire as late as 2037. In all cases, the expiration dates are subject to any extension that may be available under applicable law.

Proprietary Rights and Processes

We rely, in some circumstances, on proprietary technology and processes (including trade secrets) to protect our technology. However, these can be difficult to protect. We require all full-time and temporary employees, scientific advisors, contractors and consultants working for us

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who have access to our confidential information to execute confidentiality agreements in order to safeguard our proprietary technologies, methods, processes, know-how, and trade secrets. We also seek to preserve the integrity and confidentiality of our proprietary technology and processes by maintaining physical security of our premises and physical and electronic security of our information technology systems. All of our full-time and temporary employees and independent contractors and consultants are also bound by invention assignment obligations, pursuant to which rights to all inventions and other types of intellectual property conceived by them during the course of their employment are assigned to us.

While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. To the extent that our employees, consultants, scientific advisors, contractors, or any future collaborators use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. Further, any of our intellectual property and proprietary rights could be challenged, invalidated, circumvented, infringed or misappropriated, or such intellectual property and proprietary rights may not be sufficient to provide competitive advantages. For more information, please see “Risks Related to Intellectual Property.”

Trademarks

We have trademarks and intend to continue to seek trademark protection.

License Agreements

License Agreement with Massachusetts General Hospital

In 2006, we entered into an exclusive license agreement with MGH, pursuant to which MGH granted to us 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. In 2008 and 2011, we amended our agreement with MGH to add patent rights and to modify, among other things, our diligence and payment obligations.

We are required to use reasonable commercial efforts to develop and make available to the public products and processes covered by the agreement, and to achieve specified organizational, development and commercialization milestones by specified dates. To date, we have met all of our diligence obligations pursuant to this agreement.

We paid MGH an upfront fee and issued to MGH shares of our common stock equal to a low single-digit percentage of our then-outstanding common stock, subject to limited adjustments to prevent dilution in certain circumstances. In addition, we are responsible for reimbursing MGH’s costs associated with prosecution and maintenance of the patent rights licensed to us under the agreement. We will also be required to make payments for achievement of specified regulatory milestones with respect to products and processes covered by the agreement. In addition, we are required to pay an annual license maintenance fee, which is creditable against any royalty payments we are obligated to make to MGH under the agreement.

We are required to pay royalties to MGH on net sales of products and processes that are covered by patent rights licensed to us under the agreement at percentages in the low single digits, subject to reductions and offsets in specified circumstances. The products and processes covered by the agreement include T2Candida, T2Bacteria and other particle-based T2MR panels that we may develop in the future. Our royalty obligations, if any, and their duration, will depend on the specific patent rights covering the product or process being sold, and the particular category of product or process, as noted above. With respect to T2Candida and T2Bacteria and other potential particle-based T2MR panels we may develop in the future, our obligation to pay royalties to MGH will expire upon the later of ten years after the first commercial sale of the first product or process in the particular category and the expiration of the patent rights licensed to us under the agreement. We will also be required to pay to MGH a low double-digit percentage of specified gross revenue that we receive from our sublicensees. In addition, we will be required to pay royalties to MGH of less than one percent on net sales of specified products and processes that are not covered by the patent rights licensed to us under the agreement. Our obligation to pay royalties to MGH with respect to such products and processes will expire upon the earlier of 12 years after the first commercial sale of the first such product or process and the termination by MGH of all of the licenses granted to us under the agreement.

We have the right to terminate our agreement with MGH for any reason upon 90 days’ written notice to MGH. MGH may terminate our agreement in its entirety if we fail to make a payment required under the agreement and do not cure such failure within a specified time period, if we fail to maintain adequate insurance coverage or if we become insolvent. MGH may also terminate our agreement, with respect to a given category of products or processes, on 60 days’ notice for our uncured breach with respect to such category of products or processes. Absent earlier termination, our agreement with MGH will remain in force until the later of the expiration or abandonment of the licensed patents and patent applications, and the expiration of our obligations under the agreement.

Supply Agreement with SMC Ltd.

We are currently party to a supply agreement with SMC Ltd. for the supply and manufacture of products related to plastic injection molding, including the consumable cartridge used in connection with T2Candida.  The agreement contains other terms and conditions generally consistent with an agreement for the manufacture and supply of materials or products for use in the development and commercialization of

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biotechnology products such as our products and product candidates, including with respect to ordering, supply of such product in accordance with specifications, and quality assurance and quality control activities.

The supply agreement may be terminated prior to the end of its term upon the occurrence of certain specified events and further provides that upon termination, including upon the expiration of the term, SMC shall continue to manufacture and ship products subject to outstanding purchase orders and the Company shall be responsible for purchasing finished products, inventory, raw materials and work-in-progress held by SMC to the extent SMC, after the use of commercially reasonable efforts to use such inventory, cannot use such inventory in a financially viable way.

Competition

While we believe that we are currently the only diagnostic company developing products with the potential to identify pathogens associated with bloodstream infections in a variety of unpurified patient sample types at limits of detection as low as 1 CFU/mL, we compete with commercial diagnostics companies for the limited resources of our customers.  Our principal competition is from a number of companies that offer platforms and applications in our target sepsis markets, most of which are more established commercial organizations with considerable name recognition and significant financial resources.

Companies that currently provide traditional blood culture-based diagnostics include Becton Dickinson & Co. and bioMerieux, Inc. In addition, companies offering post-culture species identification using both molecular and non-molecular methods include bioMerieux, Inc. (and its affiliate, BioFire Diagnostics, Inc.), Bruker Corporation, Accelerate Diagnostics, Luminex, Genmark, Cepheid and Beckman Coulter, a Danaher company.  These post-culture competitors rely on a positive result from blood culture in order to perform their tests, significantly prolonging their results when compared to T2MR. Some of the products offered by our competitors require hours of extensive hands-on labor by an operator, while some rely on high concentrations of pathogens present in a positive blood culture, which can require a final concentration of at least 1,000,000 CFU/mL. In addition, there may be a number of new market entrants in the process of developing other post-blood culture diagnostic technologies that may be perceived as competitive with our technology. Karius, Inc. offers a lab developed culture independent diagnostic test for the identification of pathogens that has not been cleared by the FDA but may be perceived as competitive with our technology.

We believe that we have a number of competitive advantages, including:

 

T2MR’s ability to detect targets directly in complex and high volume samples, eliminating the need for sample extraction and purification;

 

T2MR’s ability to detect a broad range of targets, providing a wide variety of potential applications both within and outside of the in vitro diagnostics market;

 

T2MR’s ability to provide rapid and highly-sensitive diagnostic results, which can provide timely information to assist physicians and hospitals to make therapeutic decisions that can improve patient outcomes and reduce healthcare costs;

 

our ability to develop easily operable products for end users;

 

our initial applications in the field of sepsis that we believe will not require separate reimbursement codes due to the established payment and reimbursement structure in place; and

 

our initial applications may provide substantial economic benefits to hospitals that can accrue the savings related to the rapid treatment of sepsis patients.

Government Regulation

Our products under development and our operations are subject to significant government regulation. In the United States, our products are regulated as medical devices by the FDA and other federal, state, and local regulatory authorities.

FDA Regulation of Medical Devices

The FDA and other U.S. and foreign governmental agencies regulate, among other things, with respect to medical devices:

 

design, development and manufacturing;

 

testing, labeling, content and language of instructions for use and storage;

 

clinical trials;

 

product safety;

 

marketing, sales and distribution;

 

pre-market clearance and approval;

 

record keeping procedures;

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advertising and promotion;

 

recalls and field safety corrective actions;

 

post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or serious injury;

 

post-market approval studies; and

 

product import and export.

In the United States, numerous laws and regulations govern all the processes by which medical devices are brought to market and marketed. These include the Federal Food, Drug and Cosmetic Act, or FDCA, and the FDA’s implementing regulations, among others.

FDA Pre-market Clearance and Approval Requirements

Each medical device we seek to commercially distribute in the United States must first receive 510(k) clearance, de novo down classification, or pre-market approval from the FDA, unless specifically exempted by the FDA. For some devices we may seek Breakthrough Device Designation to aid in communications with the FDA during the pre-submission process. The FDA classifies all medical devices into one of three classes. Devices deemed to pose the lowest risk are categorized as either Class I or II, which requires the manufacturer to submit to the FDA a 510(k) pre-market notification submission requesting clearance of the device for commercial distribution in the United States. Some low risk devices are exempted from this requirement. Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, or devices deemed not substantially equivalent to a previously 510(k) cleared device are categorized as Class III. These devices require submission and approval of a premarket approval, or PMA, application.

 

Breakthrough Device Program

The FDA offers a voluntary Breakthrough Devices Program where companies can apply to be granted Breakthrough Device Designation from the FDA. To be eligible for Breakthrough Designation a device must (A) “provide for more effective treatment or diagnosis of life-threatening or irreversibly debilitating human disease or conditions and (B) one of the following: (1) represent breakthrough technology; (2) no approved or cleared alternatives can exist; (3) must offer significant advantages over existing approved or cleared alternatives; or (4) device availability is in the best interest of patients. The program offers manufacturers an opportunity to interact with the FDA's experts through several different program options to efficiently address topics as they arise during the premarket review phase, which can help manufacturers receive feedback from the FDA and identify areas of agreement in a timely way. Manufacturers can also expect prioritized review of their submission.

 

510(k) Clearance Process

To obtain 510(k) clearance, we must submit a pre-market notification to the FDA demonstrating that the proposed device is substantially equivalent to a previously-cleared 510(k) device, a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission of pre-market approval applications, or is a device that has been reclassified from Class III to either Class II or I. In rare cases, Class III devices may be cleared through the 510(k) process. The FDA’s 510(k) clearance process usually takes from three to 12 months from the date the application is submitted and filed with the FDA, but may take significantly longer and clearance is never assured. Although many 510(k) pre-market notifications are cleared without clinical data, in some cases, the FDA requires significant clinical data to support substantial equivalence. In reviewing a pre-market notification submission, the FDA may request additional information, including clinical data, which may significantly prolong the review process.  

After a device receives 510(k) clearance, any subsequent modification of the device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, will require a new 510(k) clearance or could require pre-market approval. The FDA requires each manufacturer to make this determination initially, but the FDA may review any such decision and may disagree with a manufacturer’s determination. If the FDA disagrees with a manufacturer’s determination, the FDA may require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or approval of a PMA is obtained. Under these circumstances, the FDA may also subject a manufacturer to significant regulatory fines or other penalties. In addition, the FDA is currently evaluating the 510(k) process and may make substantial changes to industry requirements, including which devices are eligible for 510(k) clearance, the ability to rescind previously granted 510(k)s and additional requirements that may significantly impact the process.

Pre-market Approval Process

A PMA application must be submitted if the medical device is in Class III (although the FDA has the discretion to continue to allow certain pre- amendment Class III devices to use the 510(k) process) or cannot be cleared through the 510(k) process. A PMA application must be supported by, among other things, extensive technical, preclinical, and clinical trials, as well as manufacturing and labeling data to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device.

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After a PMA application is submitted and filed, the FDA begins an in-depth review of the submitted information, which typically takes between one and three years, but may take significantly longer. During this review period, the FDA may request additional information or clarification of information already provided. Also during the review period, an advisory panel of experts from outside the FDA will usually be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. In addition, the FDA will conduct a pre-approval inspection of the manufacturing facility to ensure compliance with Quality System Regulation, or QSR, which imposes elaborate design development, testing, control, documentation and other quality assurance procedures in the design and manufacturing process. The FDA may approve a PMA application with post-approval conditions intended to ensure the safety and effectiveness of the device including, among other things, restrictions on labeling, promotion, sale and distribution and collection of long-term follow-up data from patients in the clinical study that supported approval. Failure to comply with the conditions of approval can result in materially adverse enforcement action, including the loss or withdrawal of the approval. New PMA applications or supplements are required for significant modifications to the manufacturing process, labeling of the product and design of a device that is approved through the PMA process. PMA supplements often require submission of the same type of information as an original PMA application, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA application, and may not require as extensive clinical data or the convening of an advisory panel.

De novo Classification Process

Medical device types that the FDA has not previously classified as Class I, II, or III are automatically classified into Class III regardless of the level of risk they pose. The Food and Drug Administration Modernization Act of 1997 established a new route to market for low to moderate risk medical devices that are automatically placed into Class III due to the absence of a predicate device, called the “Request for Evaluation of Automatic Class III Designation,” or the de novo classification procedure. This procedure allows a manufacturer whose novel device is automatically classified into Class III to request down-classification of its medical device into Class I or Class II on the basis that the device presents low or moderate risk, rather than requiring the submission and approval of a PMA application. Prior to the enactment of the Food and Drug Administration Safety and Innovation Act, or FDASIA, in July 2012, a medical device could only be eligible for de novo classification if the manufacturer first submitted a 510(k) premarket notification and received a determination from the FDA that the device was not substantially equivalent. FDASIA streamlined the de novo classification pathway by permitting manufacturers to request de novo classification directly without first submitting a 510(k) premarket notification to the FDA and receiving a not substantially equivalent determination. Under FDASIA, FDA is required to classify the device within 120 days following receipt of the de novo application. If the manufacturer seeks reclassification into Class II, the manufacturer must include a draft proposal for special controls that are necessary to provide a reasonable assurance of the safety and effectiveness of the medical device. In addition, the FDA may reject the reclassification petition if it identifies a legally marketed predicate device that would be appropriate for a 510(k) or determines that the device is not low to moderate risk or that general controls would be inadequate to control the risks and special controls cannot be developed. We utilized the de novo classification process to obtain marketing clearance for our T2Dx and T2Candida, which were given a Class II designation.  We received marketing clearance for these devices from the FDA on September 22, 2014. We received marketing clearance for our T2Bacteria on May 24, 2018.

Clinical Trials

A clinical trial is typically required to support a PMA application and is sometimes required for a 510(k) pre-market notification. Clinical trials generally require submission of an application for an Investigational Device Exemption, or IDE, to the FDA. The IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing that it is safe to test the device in humans and that the investigational protocol is scientifically sound. The IDE application must be approved in advance by the FDA for a specified number of patients, unless the product is deemed a non-significant risk device and eligible for more abbreviated IDE requirements. Clinical trials for a significant risk device may begin once the IDE application is approved by the FDA as well as the appropriate institutional review boards, or IRBs, at the clinical trial sites, and the informed consent of the patients participating in the clinical trial is obtained. After a trial begins, the FDA may place it on hold or terminate it if, among other reasons, it concludes that the clinical subjects are exposed to an unacceptable health risk. Any trials we conduct must be conducted in accordance with FDA regulations as well as other federal regulations and state laws concerning human subject protection and privacy. Moreover, the results of a clinical trial may not be sufficient to obtain clearance or approval of the product.

Pervasive and Continuing U.S. Food and Drug Administration Regulation

After a medical device is placed on the market, numerous FDA regulatory requirements apply, including, but not limited to the following:

 

the Quality System Regulation, or QSR, which requires manufacturers to follow design, testing, control, documentation and other quality assurance procedures during the manufacturing process;

 

establishment registration, which requires establishments involved in the production and distribution of medical devices, intended for commercial distribution in the United States, to register with the FDA;

 

medical device listing, which requires manufacturers to list the devices they have in commercial distribution with the FDA;

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labeling regulations, which prohibit “misbranded” devices from entering the market, as well as prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on labeling; and

 

post-market surveillance including Medical Device Reporting, which requires manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury, or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur.

The FDA enforces these requirements by inspection and market surveillance. Failure to comply with applicable regulatory requirements may result in enforcement action by the FDA, which may include one or more of the following sanctions:

 

untitled letters or warning letters;

 

fines, injunctions and civil penalties;

 

mandatory recall or seizure of our products;

 

administrative detention or banning of our products;

 

operating restrictions, partial suspension or total shutdown of production;

 

refusing our request for 510(k) clearance or pre-market approval of new product versions;

 

revocation of 510(k) clearance or pre-market approvals previously granted; and

 

criminal prosecution and penalties.

International Regulation

Sales of medical devices outside the United States are subject to foreign government regulations, which vary substantially from country to country. In order to market our products in other countries, we must obtain regulatory approvals and comply with extensive safety and quality regulations in other countries. The time required to obtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ significantly.

In the European Economic Area, or EEA, which comprises the 28 Member States of the EU plus Liechtenstein, Norway and Iceland, in vitro medical devices are required to conform with the essential requirements of the EU Directive on in vitro diagnostic medical devices (Directive 98/79/EC, as amended). To demonstrate compliance with the essential requirements, the manufacturer must undergo a conformity assessment procedure. The conformity assessment varies according to the type of medical device and its classification. For low-risk devices, the conformity assessment can be carried out internally, but for higher risk devices (self-test devices and those included in List A and B of Annex II of Directive 98/79/EC) it requires the intervention of an accredited EEA Notified Body. If successful, the conformity assessment concludes with the drawing up by the manufacturer of an EC Declaration of Conformity entitling the manufacturer to affix the CE mark to its products and to sell them throughout the EEA. We concluded an assessment of the conformity of the T2Dx and T2Candida with the EU in vitro diagnostic medical devices directive in late 2014, based upon an EC Declaration of Conformity dated July 7, 2014 and updated on September 9, 2015 and May 26, 2016, allowing us to affix the CE mark to these products. For T2Bacteria we obtained a declaration of conformity on June 30, 2017.    

Other Healthcare Laws

Our current and future business activities are subject to healthcare regulation and enforcement by the federal government and the states and foreign governments in which we conduct our business. These laws include, without limitation, state and federal anti-kickback, fraud and abuse, false claims, privacy and security and physician sunshine laws and regulations.

The federal Anti-Kickback Statute prohibits, among other things, any person from knowingly and willfully offering, soliciting, receiving or providing remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce either the referral of an individual, for an item or service or the purchasing, leasing, ordering, or arranging for or recommending the purchase, lease or order of any good, facility, item or service, for which payment may be made, in whole or in part, under federal healthcare programs such as the Medicare and Medicaid programs. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all its facts and circumstances. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the Anti-Kickback Statute has been violated.

Further, the recently enacted Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the Affordable Care Act, among other things, amends the intent requirement of the federal Anti-Kickback Statute and certain criminal statute governing healthcare fraud statutes to a stricter standard. A person or entity no longer needs to have actual knowledge of these statutes or specific intent to violate them. In addition, the Affordable Care Act codifies case law that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of

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the federal False Claims Act. The majority of states also have anti-kickback laws which establish similar prohibitions and in some cases may apply to items or services reimbursed by any third-party payor, including commercial insurers.

Additionally, the civil False Claims Act prohibits, among other things, knowingly presenting or causing the presentation of a false or fraudulent claim for payment to, or approval by, the U.S. government. In addition to actions initiated by the government itself, the statute authorizes actions to be brought on behalf of the federal government by a private party having knowledge of the alleged fraud. Because the complaint is initially filed under seal, the action may be pending for some time before the defendant is even aware of the action. If the government intervenes and is ultimately successful in obtaining redress in the matter, or if the plaintiff succeeds in obtaining redress without the government’s involvement, then the plaintiff will receive a percentage of the recovery. The federal government is using the False Claims Act, and the accompanying threat of significant liability, in its investigation and prosecution of life sciences companies throughout the country, for example, in connection with the promotion of products for unapproved uses and other sales and marketing practices. The government has obtained multi-million and multi-billion dollar settlements under the False Claims Act in addition to individual criminal convictions under applicable criminal statutes. Given the significant size of actual and potential settlements, it is expected that the government will continue to devote substantial resources to investigating healthcare providers’ and manufacturers’ compliance with applicable fraud and abuse laws.

The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created new federal criminal statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Like the Anti-Kickback Statute, the Affordable Care Act amended the intent standard for certain healthcare fraud under HIPAA such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

The civil monetary penalties statute imposes penalties against any person or entity that, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.

Also, as stated above, many states have similar fraud and abuse laws that may be broader in scope and may apply regardless of payor.

Moreover, Section 6002 of the Affordable Care Act included new requirements for device manufacturers, among others, to report certain payments or “transfers of value” provided to physicians and teaching hospitals, and to report ownership and investment interests held by physicians and their immediate family members during the preceding calendar year. Section 6002 of the Affordable Care Act includes in its reporting requirements a broad range of transfers of value including, but not limited to, consulting fees, speaker honoraria, charitable contributions, research payments and grants. We collect data annually and report it to the Centers for Medicare & Medicaid Services, or CMS, no later than the last day of March each year. Failure to report could subject companies to significant financial penalties. Tracking and reporting the required payments and transfers of value may result in considerable expense and additional resources. Several states currently have similar laws and more states may enact similar legislation, some of which may be broader in scope. For example, certain states require the implementation of compliance programs, compliance with industry ethics codes, implementation of gift bans and spending limits, and/or reporting of gifts, compensation and other remuneration to healthcare professionals.

We also may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their respective implementing regulations, including the final omnibus rule published on January 25, 2013, imposes specified requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH, through its implementing regulations, makes certain of HIPAA’s privacy and security standards directly applicable to business associates, defined as a person or organization, other than a member of a covered entity’s workforce, that creates, receives, maintains or transmits protected health information for or on behalf of a covered entity for a function or activity regulated by HIPAA. In addition to HIPAA criminal penalties, HITECH created four new tiers of civil and monetary penalties and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

The shifting commercial compliance environment and the need to build and maintain robust and expandable systems to comply with different compliance and/or reporting requirements in multiple jurisdictions increase the possibility that a healthcare company may violate one or more of the requirements. If our future operations are found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject to penalties, including, without limitation, civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, exclusion from participation in federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to operate our business and our financial results.

Coverage and Reimbursement

Maintaining and growing sales of our products and product candidates depends in large part on the availability of adequate coverage and reimbursement from third-party payors, including government programs such as Medicare and Medicaid, private insurance plans and managed care programs. These third-party payors are increasingly limiting coverage and reducing reimbursement for medical products and services. In

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addition, the U.S. government, state legislatures and foreign governments have continued implementing cost-containment programs, including price controls and restrictions on coverage and reimbursement. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. Decreases in third-party reimbursement for our products and/or product candidates or a decision by a third-party payor to not cover our products and/or product candidates could reduce physician utilization of our products, if approved, and have a material adverse effect on our sales, results of operations and financial condition.

Hospitals, clinical laboratories and other healthcare provider customers that may purchase our products and/or product candidates generally bill various third-party payors to cover all or a portion of the costs and fees associated with diagnostic tests, including the cost of the purchase of our products and/or product candidates. We currently expect that the majority of our diagnostic tests will be performed in a hospital inpatient setting, where governmental payors, such as Medicare, generally reimburse hospitals with a single bundled payment that is based on the patients’ diagnosis under a classification system known as the Medicare severity diagnosis-related groups, or MS-DRGs, classification for all items and services provided to the patient during a single hospitalization, regardless of whether our diagnostic tests are performed during such hospitalization. To the extent that our diagnostic tests will be performed in an outpatient setting, our products and/or product candidates may be eligible for separate payment using existing Current Procedural Terminology, or CPT, codes. Third-party payors may deny coverage, however, if they determine that our products are not cost-effective as determined by the payor, or are deemed by the third-party payor to be experimental or medically unnecessary. We are unable to predict at this time whether our products and/or product candidates, if approved, will be covered by third-party payors. Nor can we predict at this time the adequacy of payments, whether made separately in an outpatient setting or with a bundled payment amount in an inpatient setting. Our customers’ access to adequate coverage and reimbursement for our products and/or product candidates by government and private insurance plans is central to the acceptance of our products. We may be unable to sell our products on a profitable basis if third-party payors deny coverage or reduce their current levels of payment, or if our costs of production increase faster than increases in reimbursement levels.

Healthcare Reform

In the United States and foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system seeking, among other things, to reduce healthcare costs that could affect our future results of operations as we begin to directly commercialize our products.

By way of example, in the United States, the Affordable Care Act which was signed into law in March 2010, substantially changed the way healthcare is delivered and financed by both governmental and private insurers. Among other things, the Affordable Care Act:

 

established a new Patient-Centered Outcomes Research Institute to oversee and identify priorities in comparative clinical effectiveness research in an effort to coordinate and develop such research;

 

implemented payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians and other providers to improve the coordination, quality and efficiency of certain healthcare services through bundled payment models; and

 

created an independent payment advisory board that will submit recommendations to reduce Medicare spending if projected Medicare spending exceeds a specified growth rate.

In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. On August 2, 2011, the President signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering the legislation’s automatic reduction to several government programs. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several providers, including hospitals.

We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressure.

Research and Development

We have committed, and expect to commit, significant resources to developing new technologies and products, improving product performance and reliability and reducing costs. We have assembled an experienced research and development team with the scientific, engineering, software and process talent that we believe is required to successfully grow our business. We are currently focused on several product candidates and enhancements utilizing our T2MR platform. We incurred research and development expenses of $14.5 million for the year ended December 31, 2018, $23.7 million for the year ended December 31, 2017 and $24.0 million for the year ended December 31, 2016. Research and development expenses represented 26% of our total costs and expenses for the year ended December 31, 2018, 41% of our total costs and expenses for the year ended December 31, 2017 and 44% of our total costs and expenses for the year ended December 31, 2016. Major components of the research and development expenses were salaries and benefits, research-related facility and overhead costs, laboratory supplies, equipment and contract services.

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We continuously seek to improve T2MR, including improvements in its technology and accessibility. As we make improvements, we anticipate we will make available new and improved generations of our diagnostic instruments and panels. Our technology developmental efforts are focused on applying T2MR to additional potential applications in the in vitro diagnostics area. We believe that technical advantage is important to sustain a competitive advantage, and therefore our research and development efforts are focused on the continued enhancement of our T2MR platform. We are dedicated to ongoing innovation to T2MR and expanding our pipeline of product candidates. Our goal is for T2MR to become a standard of care by providing technology that offers a rapid, sensitive and simple diagnostic alternative to existing methodologies for identifying sepsis, with a long-term objective of targeting the broader in vitro diagnostics market.

Employees

As of December 31, 2018, we had 153 full-time employees, of which 67 work in operations (which includes manufacturing, service and support, clinical and regulatory support, quality control, quality assurance, and facilities), 37 in research and development, 30 in sales and marketing (which includes PharmD), and 19 in general and administrative.

Facilities

Our corporate headquarters is located in Lexington, Massachusetts, where we currently lease approximately 31,000 square feet of office space, 20,800 square feet of laboratory space and 3,400 square feet of manufacturing space in various facilities. Our base rent, for leases at our corporate headquarters, is $2.1 million annually. We also lease approximately 7,600 square feet in Wilmington, Massachusetts for our manufacturing facility, for $0.1 million annually.

Corporate and Available Information

We were incorporated under the laws of the state of Delaware in 2006. Our principal corporate offices are located at 101 Hartwell Avenue, Lexington, MA 02421.

We make available, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission, or the SEC. We also make these documents and certain public financial information available on our website, which is www.t2biosystems.com. Our SEC reports and other financial information can be accessed through the investor relations section of our website. Some of the information found on our website is not part of this or any other report we file with or furnish to the SEC.

Item 1A.

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus, including our financial statements and the related notes and “Management’s Discussion and Analysis of Results of Operations and Financial Condition,” before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations and growth prospects. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

Risks Related to our Business and Strategy

We have identified conditions and events that raise substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.

As of December 31, 2018, we had cash and cash equivalents of $50.8 million, which we believe that should be sufficient to fund our operating plan through March 2020. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Pursuant to the requirements of Accounting Standards Codification (ASC) 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, and as a result of our financial condition and other factors described herein, there is substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern will depend on our ability to obtain additional funding, as to which no assurances can be given. Our future success depends on our ability to raise capital and/or execute our current operating plan. However, we cannot be certain that these initiatives or raising additional capital, whether through selling additional debt or equity securities or obtaining a line of credit or other loan, will be available to us or, if available, will be on terms acceptable to us. If we issue additional securities to raise funds, these securities may have rights, preferences, or privileges senior to those of our common stock, and our current shareholders may experience dilution. If we are unable to obtain funds when needed or on acceptable terms, we may be required to curtail our current development programs, cut operating costs, forego future development and other opportunities or even terminate our operations, which may involve seeking bankruptcy protection.  

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We have incurred significant losses since inception and expect to incur losses in the future. We cannot be certain that we will achieve or sustain profitability.

We have incurred significant losses since inception through December 31, 2018 and expect to incur losses in the future. Our accumulated deficit as of December 31, 2018 was $317.2 million and we incurred net losses of $51.2 million, $62.4 million and $54.8 million for the years ended December 31, 2018, 2017 and 2016, respectively. We expect that our losses will continue for at least the next few years as we will be required to invest significant additional funds toward the continued development and commercialization of our technology. We also expect that our selling, general and administrative expenses will continue to increase due to the additional costs associated with growing our sales and marketing infrastructure, and obtaining regulatory clearance or approval for our products currently under development. Our ability to achieve or sustain profitability depends on numerous factors, many of which are beyond our control, including the market acceptance of our products and future product candidates, future product development, our ability to achieve marketing clearance from the FDA and international regulatory clearance for future product candidates, our ability to compete effectively against an increasing number of competitors and new products, and our market penetration and margins. We may never be able to generate sufficient revenue to achieve or sustain profitability. As noted above, we and our auditors have identified conditions and events that raise doubt about our ability to continue as a going concern.

We have a limited operating history and may face difficulties encountered by companies early in their commercialization in competitive and rapidly evolving markets.

We received marketing clearance from the FDA for the T2Dx instrument and T2Candida on September 22, 2014 and began commercializing these products in the fourth quarter of 2014. We received marketing clearance from the FDA for T2Bacteria on May 24, 2018 and began commercializing thereafter. Accordingly, we have a limited operating history upon which to evaluate our business and forecast our future sales and operating results. In assessing our business prospects, you should consider the various risks and difficulties frequently encountered by companies early in their commercialization in competitive and rapidly evolving markets, particularly companies that develop and sell medical devices. These risks include our ability to:

 

implement and execute our business strategy;

 

expand and improve the productivity of our sales and marketing infrastructure to grow sales of our products and product candidates;

 

increase awareness of our brand;

 

manage expanding operations;

 

expand our manufacturing capabilities, including increasing production of current products efficiently while maintaining quality standards and adapting our manufacturing facilities to the production of new product candidates;

 

respond effectively to competitive pressures and developments;

 

enhance our existing products and develop new products;

 

obtain and maintain regulatory clearance or approval to commercialize product candidates and enhance our existing products;

 

effectively perform clinical trials with respect to our proposed products;

 

attract, retain and motivate qualified personnel in various areas of our business; and

 

implement and maintain systems and processes that are compliant with applicable regulatory standards.

We may not have the institutional knowledge or experience to be able to effectively address these and other risks that may face our business. In addition, we may not be able to develop insights into trends that could emerge and negatively affect our business and may fail to respond effectively to those trends. As a result of these or other risks, we may not be able to execute key components of our business strategy, and our business, financial condition and operating results may suffer.

Until we achieve scale in our business model our revenue will be primarily generated from research revenue and the T2Dx instrument, T2Candida and T2Bacteria, and any factors that negatively impact sales of these products may adversely affect our business, financial condition and operating results.

We began to offer our initial sepsis products for sale in the fourth quarter of 2014 and our bacteria product in 2018 and expect that we will be dependent upon the sales of these products for the majority of our revenue until we receive regulatory clearance or approval for our other product candidates currently in development.  Because we currently rely on a limited number of products to generate a significant portion of our revenue, any factors that negatively impact sales of these products, or result in sales of these products increasing at a lower rate than expected, could adversely affect our business, financial condition and operating results and negatively impact our ability to successfully launch future product candidates currently under development.

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If T2MR, our T2Dx, T2Candida and T2Bacteria products or any of our other product candidates fail to achieve and sustain sufficient market acceptance, we will not generate expected revenue and our growth prospects, operating results and financial condition may be harmed.

The commercialization of T2MR, our T2Dx, T2Candida, and T2Bacteria products and the future commercialization of our other product candidates in the United States and other jurisdictions in which we intend to pursue marketing clearance are key elements of our strategy. If we are not successful in conveying to hospitals that our current products and future product candidates provide equivalent or superior diagnostic information in a shorter period of time compared to existing technologies, or that these products and future product candidates improve patient outcomes or decrease healthcare costs, we may experience reluctance, or refusal, on the part of hospitals to order, and third-party payors to pay for performing a test in which our product is utilized. For example, T2Candida is labeled for the presumptive diagnosis of candidemia. The results of the web-based survey we conducted of decision makers involved with laboratory purchasing may not be indicative of the actual adoption of T2Candida. In addition, our expectations regarding cost savings from using our products may not be accurate.

These hurdles may make it difficult to demonstrate to physicians, hospitals and other healthcare providers that our current diagnostic products and future product candidates are appropriate options for diagnosing sepsis may be superior to available tests and may be more cost-effective than alternative technologies. Furthermore, we may encounter significant difficulty in gaining inclusion in sepsis treatment guidelines, gaining broad market acceptance by healthcare providers, third-party payors and patients using T2MR and our related products and product candidates. Furthermore, healthcare providers may have difficulty in maintaining adequate reimbursement for sepsis treatment, which may negatively impact adoption of our products.

If we fail to successfully commercialize our products and product candidates, we may never receive a return on the significant investments in product development, sales and marketing, regulatory, manufacturing and quality assurance we have made and further investments we intend to make, and may fail to generate revenue and gain economies of scale from such investments.

If T2Lyme does not successfully identify Lyme disease in clinical patients or does not receive FDA marketing clearance, our future revenue could be negatively impacted.

If T2Lyme does not successfully identify Lyme disease in clinical patients with adequate clinical sensitivity and specificity or does not receive FDA marketing clearance, the revenue opportunity for this product candidate could be limited or not realized at all.

We have limited experience in marketing and selling our products, and if we are unable to expand, manage and maintain our direct sales and marketing organizations, or otherwise commercialize our products, our business may be adversely affected.

Because we received FDA clearance to sell our initial sepsis products in the third quarter of 2014 and our T2Bacteria product in 2018, we have limited experience marketing and selling our products. As of December 31, 2018, our direct sales organization consisted of 30 employees, including marketing and a medical affairs team of three United States based Doctor of Pharmacy (PharmD) clinicians. Our financial condition and operating results are highly dependent upon the sales and marketing efforts of our sales and marketing employees with the assistance of the medical affairs team.  If our sales and marketing efforts fail to adequately promote, market and sell our products, our sales may not increase at levels that are in line with our forecasts.

Our future sales growth will depend in large part on our ability to successfully expand the size and geographic scope of our direct sales force and medical affairs team in the United States.  Accordingly, our future success will depend largely on our ability to continue to hire, train, retain and motivate skilled sales and marketing and medical affairs personnel.  Because the competition for their services is high, there is no assurance we will be able to hire and retain additional personnel on commercially reasonable terms.  If we are unable to expand our sales and marketing capabilities, we may not be able to effectively commercialize our products and our business and operating results may be adversely affected.

Outside of the United States, we sell our products through distribution partners and there is no guarantee that we will be successful in attracting or retaining desirable distribution partners for these markets or that we will be able to enter into such arrangements on favorable terms. Distributors may not commit the necessary resources to market and sell our products effectively or may choose to favor marketing the products of our competitors. If distributors do not perform adequately, or if we are unable to enter into effective arrangements with distributors in particular geographic areas, we may not realize international sales and growth.

The sales cycle and implementation and adoption timeline is lengthy and variable and we have a limited sales history, which makes it difficult for us to forecast revenue and other operating results.

 

Our sales process involves numerous interactions with multiple individuals within an organization and often includes in-depth analysis by potential customers of our products, performance of proof-of-principle studies, preparation of extensive documentation and a lengthy review process. As a result of these factors and the budget cycles of our potential customers, the time from initial contact with a potential customer to our receipt of a purchase order from such potential customer and then implementation and adoption of our products, varies significantly and can be up to 12 months or longer. Given the length and uncertainty of our anticipated sales cycle and implementation and adoption timeline, we likely will experience fluctuations in our product sales on a period-to-period basis. Expected revenue streams are highly dependent on hospitals’ adoption of our consumables-based business model, and we cannot assure you that our potential hospital clients will follow a consistent purchasing pattern. Moreover, it is difficult for us to forecast our revenue as it is dependent upon our ability to convince the medical community of the clinical utility and economic benefits of our products and their potential advantages over existing diagnostic tests, the willingness of hospitals to utilize our

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products and the cost of our products to hospitals.  In addition, we started selling the T2Dx and T2Candida products in the fourth quarter of 2014 and T2Bacteria in May of 2018 and have a limited sales history to rely on when forecasting revenue and other operating results.

We may not be able to gain and retain the ongoing support of leading hospitals and key thought leaders, or to continue the publication of the results of new clinical trials in peer-reviewed journals, which may make it difficult to establish T2MR as a standard of care and may limit our revenue growth and ability to achieve profitability.

 

Our strategy includes developing relationships with leading hospitals and key thought leaders in the industry. If these hospitals and key thought leaders determine that T2MR and related products are not clinically effective or that alternative technologies are more effective, or if we encounter difficulty promoting adoption or establishing T2MR as a standard of care, our revenue growth and our ability to achieve profitability could be significantly limited.

We believe that the publication of scientific and medical results in peer-reviewed journals and presentation of data at leading conferences are critical to the broad adoption of T2MR. Publication in leading medical journals is subject to a peer-review process, and peer reviewers may not consider the results of studies involving T2MR sufficiently novel or worthy of publication.

If we are unable to successfully manage our growth, our business will be harmed.  

During the past few years, we have significantly expanded our operations. We expect this expansion to continue to an even greater degree as we continue to commercialize our initial sepsis products, build a targeted sales force, and seek marketing clearance from the FDA and international regulatory bodies for our future product candidates. Our growth has placed, and will continue to place, a significant strain on our management, operating and financial systems and our sales, marketing and administrative resources. As a result of our growth, operating costs may escalate even faster than planned, and some of our internal systems and processes, including those relating to manufacturing our products, may need to be enhanced, updated or replaced. Additionally, our anticipated growth will increase demands placed on our suppliers, resulting in an increased need for us to manage our suppliers and monitor for quality assurance.  If we cannot effectively manage our expanding operations, manufacturing capacity and costs, including scaling to meet increased demand and properly managing suppliers, we may not be able to continue to grow or we may grow at a slower pace than expected and our business could be adversely affected.

Our future capital needs are uncertain, and we may need to raise additional funds in the future.

We believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash requirements, based on our operating plan, for at least the next 12 months from the date of issuance of these consolidated financial statements. However, we may need to raise substantial additional capital to:

 

expand our product offerings;

 

expand our sales and marketing infrastructure;

 

increase our manufacturing capacity;

 

fund our operations; and

 

continue our research and development activities.

Our future funding requirements will depend on many factors, including:

 

our ability to obtain marketing clearance from the FDA and international regulatory clearance to market our future product candidates;

 

market acceptance of our products and product candidates;

 

the cost and timing of establishing sales, marketing and distribution capabilities;

 

the cost of our research and development activities;

 

the ability of healthcare providers to obtain coverage and adequate reimbursement by third-party payors for procedures using our products and product candidates;

 

the cost and timing of marketing clearance or regulatory clearances;

 

the cost of goods associated with our products and product candidates;

 

the effect of competing technological and market developments; and

 

the extent to which we acquire or invest in businesses, products and technologies, including entering into licensing or collaboration arrangements for products or technology.

We cannot assure you that we will be able to obtain additional funds on acceptable terms, or at all. If we raise additional funds by issuing equity or equity-linked securities, our stockholders may experience dilution. Debt financing, if available, may involve covenants restricting our

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operations or our ability to incur additional debt. Any debt or additional equity financing that we raise may contain terms that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish some rights to our technologies or our products, or grant licenses on terms that are not favorable to us. If we are unable to raise adequate funds, we may need to liquidate some or all of our assets or delay, reduce the scope of or eliminate some or all of our development programs.

If we do not have, or are not able to obtain, sufficient funds, we may be required to delay development or commercialization of our product candidates or license to third parties the rights to commercialize our product candidates or technologies that we would otherwise seek to commercialize ourselves. We also may need to reduce marketing, customer support or other resources devoted to our products or cease operations. Any of these factors could harm our operating results.

Our future success is dependent upon our ability to create and expand a customer base for our products in large hospitals.

We market our initial sepsis products to the approximately 1,200 leading hospitals in the United States.  We are also targeting the top-tier hospitals in each of the European and Asian markets where we currently sell our products. We may not be successful in promoting adoption of our technologies in those targeted hospitals, which may make it difficult for us to achieve broader market acceptance of these products.

We utilize third-party, single-source suppliers for some components and materials used in our products and product candidates, and the loss of any of these suppliers could have an adverse impact on our business.

We rely on single-source suppliers for some components and materials used in our products and product candidates. Our ability to supply our products commercially and to develop any future products depends, in part, on our ability to obtain these components in accordance with regulatory requirements and in sufficient quantities for commercialization and clinical testing. We have entered into supply agreements with most of our suppliers to help ensure component availability and flexible purchasing terms with respect to the purchase of such components.  While our suppliers have generally met our demand for their products on a timely basis in the past, we cannot assure that they will in the future be able to meet our demand for their products, either because we do not have long-term agreements with those suppliers, our relative importance as a customer to those suppliers, or their ability to produce the components used in our products.

While we believe replacement suppliers exist for all components and materials we obtain from single sources, establishing additional or replacement suppliers for any of these components or materials, if required, may not be accomplished quickly. Even if we are 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. While we seek to maintain adequate inventory of the single-source components and materials used in our products in the event of disruption, those inventories may not be sufficient.

If our third-party suppliers fail to deliver the required commercial quantities of materials on a timely basis and at commercially reasonable prices, and we are 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 our products, the supply of our products to customers and the development of any future products would be delayed, limited or prevented, which could have an adverse impact on our business.

If we are unable to recruit, train and retain key personnel, we may not achieve our goals.

Our future success depends on our ability to recruit, train, retain and motivate key personnel, including our senior management, research and development, science and engineering, manufacturing and sales and marketing personnel. In particular, we are highly dependent on the management and business expertise of John McDonough, our President and Chief Executive Officer and on the scientific expertise of Dr. Thomas Lowery, our Chief Scientific Officer. We do not maintain fixed-term employment contracts or key man life insurance with any of our employees. Competition for qualified personnel is intense, particularly in the Boston, Massachusetts area. Our growth depends, in particular, on attracting, retaining and motivating highly trained sales personnel with the necessary scientific background and ability to understand our systems at a technical level. In addition, we may need additional employees at our manufacturing facilities to meet demand for our products as we scale up our sales and marketing operations. Because of the complex and technical nature of our products and the dynamic market in which we compete, any failure to attract, train, retain and motivate qualified personnel could materially harm our operating results and growth prospects.

If our diagnostics do not perform as expected, our operating results, reputation and business will suffer.

Our future success will depend on the market’s confidence that our technologies can provide reliable, high-quality diagnostic results. We believe that our customers are likely to be particularly sensitive to any defects or errors in our products. If our technology fails to detect the presence of Candida or another bacterial pathogen and a patient subsequently suffers from sepsis, then we could face claims against us or our reputation could suffer as a result of such failures. The failure of our current products or planned diagnostic product candidates to perform reliably or as expected could significantly impair our reputation and the public image of our products, and we may be subject to legal claims arising from any defects or errors.

The diagnostics market is highly competitive. If we fail to compete effectively, our business and operating results will suffer.

While the technology of our products and product candidates is different than other products currently available, we compete with commercial diagnostics companies for the limited resources of our customers. In this regard, our principal competition is from a number of

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companies that offer platforms and applications in our target sepsis and hemostasis markets, most of which are more established commercial organizations with considerable name recognition and significant financial resources.

We compete with companies that currently provide traditional blood culture-based diagnostics, including Becton Dickinson & Co. and bioMerieux, Inc. In addition, companies offering post-culture species identification using both molecular and non-molecular methods include bioMerieux, Inc. (and its affiliate, BioFire Diagnostics, Inc.), Bruker Corporation, Accelerate Diagnostics, Luminex, Genmark, Cepheid and Beckman Coulter, a Danaher company. In addition, there may be a number of new market entrants in the process of developing other post-blood culture diagnostic technologies that may be perceived as competitive with our technology. Karius, Inc. offers a lab developed culture independent diagnostic test for the identification of pathogens that has not been cleared by the FDA but may be perceived as competitive with our technology.

Most of our expected competitors are either publicly traded, or are divisions of publicly traded companies, and have a number of competitive advantages over us, including:

 

greater name and brand recognition, financial and human resources;

 

established and broader product lines;

 

larger sales forces and more established distribution networks;

 

substantial intellectual property portfolios;

 

larger and more established customer bases and relationships; and

 

better established, larger scale and lower-cost manufacturing capabilities.

We believe that the principal competitive factors in all of our target markets include:

 

impact of products on the health of the patient;

 

impact of the use of products on the cost of treating patients in the hospital;

 

cost of capital equipment;

 

reputation among physicians, hospitals and other healthcare providers;

 

innovation in product offerings;

 

flexibility and ease-of-use;

 

speed, accuracy and reproducibility of results; and

 

ability to implement a consumables-based model for panels.

We believe that additional competitive factors specific to the diagnostics market include:

 

breadth of clinical decisions that can be influenced by information generated by diagnostic tests;

 

volume, quality and strength of clinical and analytical validation data;

 

availability of adequate reimbursement for testing services and procedures for healthcare providers using our products; and

 

economic benefit accrued to hospitals based on the total cost to treat a patient for a health condition.

We cannot assure you that we will effectively compete or that we will be successful in the face of increasing competition from new products and technologies introduced by our existing competitors or new companies entering our markets. In addition, we cannot assure you that our future competitors do not have or will not develop products or technologies that enable them to produce competitive products with greater capabilities or at lower costs than our products and product candidates. Any failure to compete effectively could materially and adversely affect our business, financial condition and operating results.

Undetected errors or defects in our products or product candidates could harm our reputation, decrease market acceptance of our products or expose us to product liability claims.

Our products or product candidates may contain undetected errors or defects. Disruptions or other performance problems with our products or product candidates may damage our customers’ businesses and could harm our reputation. If that occurs, we may incur significant costs, the attention of our key personnel could be diverted or other significant customer relations problems may arise. We may also be subject to warranty and liability claims for damages related to errors or defects in our products or product candidates. A material liability claim or other occurrence that harms our reputation or decreases market acceptance of our products or product candidates could harm our business and operating results.

The sale and use of products or product candidates or services based on our technologies, or activities related to our research and clinical studies, could lead to the filing of product liability claims if someone were to allege that one of our products contained a design or manufacturing

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defect. A product liability claim could result in substantial damages and be costly and time consuming to defend, either of which could materially harm our business or financial condition. We cannot assure you that our product liability insurance would adequately protect our assets from the financial impact of defending a product liability claim. Any product liability claim brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing insurance coverage in the future.

We may not be able to develop new product candidates or enhance the capabilities of our systems to keep pace with our industry’s rapidly changing technology and customer requirements, which could have a material adverse impact on our revenue, results of operations and business.

Our industry is characterized by rapid technological changes, frequent new product introductions and enhancements and evolving industry standards. Our success depends on our ability to develop new product candidates and applications for our technology in new markets that develop as a result of technological and scientific advances, while improving the performance and cost-effectiveness of our existing product candidates. New technologies, techniques or products could emerge that might offer better combinations of price and performance than the products and systems that we plan to sell. Existing markets for our intended diagnostic product candidates are characterized by rapid technological change and innovation. It is critical to our success that we anticipate changes in technology and customer requirements and physician, hospital and healthcare provider practices and successfully introduce new, enhanced and competitive technologies to meet our prospective customers’ needs on a timely and cost-effective basis. At the same time, however, we must carefully manage our introduction of new products. If potential customers believe that such products will offer enhanced features or be sold for a more attractive price, they may delay purchases until such products are available. We may also have excess or obsolete inventory of older products as we transition to new products, and we have no experience in managing product transitions. If we do not successfully innovate and introduce new technology into our anticipated product lines or manage the transitions of our technology to new product offerings, our revenue, results of operations and business will be adversely impacted.

Competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. We anticipate that we will face strong competition in the future as expected competitors develop new or improved products and as new companies enter the market with new technologies and products.

We are developing additional product candidates that we intend to be used with the T2Dx, including T2Lyme for the detection of certain strains of Lyme disease-causing bacteria. We may have problems applying our technologies to these other areas and our new applications may not be as effective in detection as our initial applications. Any failure or delay in creating a customer base or launching new applications may compromise our ability to achieve our growth objectives.

Manufacturing risks may adversely affect our ability to manufacture products and could reduce our gross margins and negatively affect our operating results.

Our business strategy depends on our ability to manufacture and assemble our current and proposed products in sufficient quantities and on a timely basis so as to meet consumer demand, while adhering to product quality standards, complying with regulatory requirements and managing manufacturing costs. We are subject to numerous risks relating to our manufacturing capabilities, including:

 

quality or reliability defects in product components that we source from third party suppliers;

 

our inability to secure product components in a timely manner, in sufficient quantities or on commercially reasonable terms;

 

our failure to increase production of products to meet demand;

 

the challenge of implementing and maintaining acceptable quality systems while experiencing rapid growth;

 

our inability to modify production lines to enable us to efficiently produce future products or implement changes in current products in response to regulatory requirements; and