NEW YORK – Take the demise of T2 Biosystems as a cautionary tale of how a diagnostics company, even with technology that seems to do what it's supposed to, can still fail.
Despite promising technology and multiple regulatory clearances, T2 Bio's inability to gain significant traction in the sepsis testing space and its multiple warnings from the Nasdaq for not meeting its listing requirement led the company to lay off its workforce last month and throw in the towel, placing its business up for sale.
In a document filed with the US Securities and Exchange Commission in mid-February, T2 Bio said that its board of directors had approved layoffs effective immediately, including T2 Bio President and CEO John Sperzel, CFO John Sprague, and Senior VP and General Counsel Michael Gibbs, though each were almost immediately rehired in their prior capacities but in part-time consulting roles.
Later that week, the company said it has engaged an advisory firm to sell the company and its assets, including its patents and other intellectual property.
In all, the demise of the company — which was founded in 2006 and developed and commercialized diagnostic platforms and tests for identifying pathogens that cause sepsis, Lyme disease, and other diseases — was not a complete surprise, though one industry observer said the crucial flaw that led to T2 Bio's breakdown could not be readily singled out.
Leading up to its collapse, the firm was continually in trouble with the Nasdaq, whose hearing panel decided to delist T2 Bio's common stock because the firm did not meet the exchange's requirements to maintain a minimum bid price of $1.00 per share and a minimum market value of $35 million. The delisting determination was originally received in November 2024 but was postponed until a hearing this past Jan. 9.
The most recent delisting determination was not T2 Bio's first brush with Nasdaq delisting, either. In April 2020, the firm received a warning from Nasdaq regarding its non-compliance with the minimum $1 per share requirement but regained compliance in June.
More than a year later, in November 2021 the firm was notified that it did not meet the minimum $1 per share requirement and was given 180 days to regain compliance. In May 2022 the company received a letter from Nasdaq saying it did not regain compliance in the allotted time frame and could have its shares delisted. To regain compliance, T2 Bio effected a reverse stock split in October 2022.
In July of that year, the firm had also received notification that it was not compliant with with the market value of listed securities requirement, though it regained compliance at the end of August.
But in November 2022, the company again received warning that it was not in compliance with the market value requirement, and in March 2023, it received a warning from Nasdaq that its common stock had closed below the minimum $1 per share requirement for 30 consecutive days once again. The company underwent a reverse stock split once more in October of that year to regain compliance with the requirement.
However, one month later T2 Bio received a delisting notice related to the market securities requirement, which it appealed in February 2024. The firm was granted an extension to the requirement in March, which it met in May.
The firm also initiated a restructuring plan in 2023 that resulted in the layoffs of nearly 30 percent of its workforce after reporting a 71 percent drop in Q1 2023 revenues. T2 Bio said at the time that it was working with an advisory firm to explore potential strategic alternatives, including an acquisition, merger, or sale of assets. In a note to investors after that announcement, BTIG analyst Mark Massaro said that the decision to pursue strategic alternatives was "primarily due to the current challenging capital market environment."
The company had previously laid off 34 employees in 2022 to cut operating expenses.
Along the way, and in spite of its trouble with Nasdaq and its challenges maintaining its workforce, the firm had its moments of success. It had multiple tests approved by the US Food and Drug Administration, such as its T2Biothreat Panel, which detects six organisms directly from blood using the T2Dx instrument. The development of the panel was funded in part by a $62 million contract from the US Department of Health and Human Services' Biomedical Advanced Research and Development Authority. Also receiving the green light from the FDA was T2 Bio's T2Candida panel for detecting five Candida species directly from blood.
The firm's T2Resistance Panel, meantime, had received CE marking and breakthrough device designation from the FDA in 2019, and the T2Bacteria Panel was cleared by the FDA in 2018 to detect five common sepsis-causing pathogens. The company received 510(k) clearance for an extended version of the T2Bacteria Panel last year.
A 2021 meta-analysis of 14 studies of T2 Bio's tests showed that the company's direct-from-blood method led to a 77-hour decrease in the time it took to identify the species causing a bloodstream infection compared to blood culture. Patients who tested positive on T2 Bio's platform received targeted therapy 42 hours faster.
Its most recent preliminary financial results, for the fourth quarter of 2024, also showed potential for improvement. The company said it had record US sales of its T2Bacteria Panel and record international sales of its T2Resistance Panel, and it was further expanding its distribution network internationally to include the Netherlands, Belgium, Qatar, Vietnam, Malaysia, and Indonesia.
The firm also announced plans to outlicense its proprietary T2 Magnetic Resonance technology for the detection of pathogens directly from whole blood, which is a key component of its T2Dx platform and tests, and it was working to launch a laboratory-developed test for Lyme disease.
According to Canaccord Genuity analyst Kyle Mikson, who covers T2 Bio, the firm had "nice, promising technology and idea." The company's Achilles' heel, he added, was that it struggled to scale its production and manufacturing.
T2 Bio's cost structure was "never really optimized," he said, and that "killed their ability to reduce the cash burn," so they were "constantly in a situation where they had to either raise money or do debt deals."
For example, in May, the firm inked deals with an undisclosed group of investors for the purchase and sale of $8 million of shares and warrants. In its most recent Form 10-Q filed with the SEC last year, T2 Bio said that its cash position was insufficient to fund future operations without financings during the fourth quarter of 2024 and that "substantial doubt exists about our ability to continue" as a company for at least one year after the filing of the document in November. The firm has never been profitable and has incurred net losses each year since its inception, T2 Bio said.
Mikson also noted the difficult environment T2 Bio was operating in as an infectious disease diagnostics company selling instruments to the hospital market. "Diagnostics, especially in the hospital market, probably requires a really big sales team," he said, and a smaller company like T2 Bio likely couldn't compete with larger diagnostics firms such as Roche and BioMérieux.
Like many others, T2 Bio was also impacted by the COVID-19 pandemic. The company saw a boom during the COVID-19 years as it was able to place more instruments in hospitals and saw its revenues increase.
Sperzel said on a conference call to discuss the firm's Q1 2021 financial results that the company would retain its focus on sepsis despite the contributions it saw from the T2SARS-CoV-2 panel and would work to transition its US instruments sold for COVID-19 testing to sepsis testing.
But as the pandemic waned and COVID-19 testing became less essential to many healthcare settings, the firm couldn't deliver on that promise and convert its COVID-19 testing customers to sepsis testing customers, leaving the firm with many inactive instruments, Mikson noted.
"They couldn't regain the mojo of those COVID years," he said, but also emphasized that T2 Bio's struggles were not "easily explainable" and hard to pinpoint.
The future of what remains of the company's technology and assets are up in the air for now. Executives from the company and members of the board of directors did not respond to requests for comment.
According to Mikson, though, sepsis testing remains a booming market and T2 Bio's technology and tests have an attractive use case, so acquiring its technology would make sense for companies already in the sepsis testing space or those looking to enter it.
Eliminating the need for blood culture remains "a pretty unique differentiator," he said. "There's definitely promise here, and potential."