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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended September 30, 2023

OR

 

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

For the transition period from

Commission File Number: 001-40047

 

Talis Biomedical Corporation

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

(State or other jurisdiction of

incorporation or organization)

 

46-3122255

(I.R.S. Employer

Identification No.)

1100 Island Drive

Redwood City, California

 

94065

(Address of principal executive offices)

 

(Zip Code)

(650) 433-3000

(Registrant’s telephone number, including area code)

 

 

 

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

 

TLIS

 

The Nasdaq Stock Market LLC

 

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

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

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

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

As of November 8, 2023, there were 3,812,038 shares of the Registrant’s common stock and preferred stock outstanding consisting of 1,821,128 shares of common stock and 1,990,910 shares of Series 1 convertible preferred stock, as converted from 29,863,674 shares to reflect the 1-for-15 Reverse Stock Split effective July 5, 2023. Our Series 1 convertible preferred stock is a voting common stock equivalent, subject to certain limitations.


 

Table of Contents

 

Page

 

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

1

PART I.

FINANCIAL INFORMATION

3

Item 1.

Financial Statements

3

Condensed Balance Sheets at September 30, 2023 (unaudited) and December 31, 2022

3

Condensed Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2023 and 2022 (unaudited)

4

 

Condensed Statements of Convertible Preferred Stock and Stockholders’ Equity for the three and nine months ended September 30, 2023 and 2022 (unaudited)

5

Condensed Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (unaudited)

6

 

Notes to Condensed Financial Statements (unaudited)

7

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

26

PART II.

OTHER INFORMATION

27

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

Item 3.

Defaults Upon Senior Securities

28

Item 4.

Mine Safety Disclosures

28

Item 5.

Other Information

28

Item 6.

Exhibits

29

Signatures

30


 

i


 

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (this Quarterly Report) contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors which 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. Forward-looking statements include, but are not limited to, statements about:

our recently announced plan to review strategic alternatives and to significantly reduce our expenditures on research and development activities and taking other cost cutting measures;
our decision to cease operations in our Redwood City, CA laboratory and office facility and consolidate our operations to our Chicago facility and to seek strategic alternatives, due to unforeseen operational challenges, setbacks in product development timelines and volatile market conditions;
our expectations regarding the exploration of strategic alternatives;
the expected timing of implementing and completing our cost savings plan;
future investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements, future revenues, expenses, reimbursement rates and needs for additional financing;
our ability to retain key personnel;
our planned regulatory clearance pathways;
our efforts to successfully develop and commercialize our products and services, including our ability to successfully conduct clinical trials and studies and expand our product menu;
the timing or outcome of any of our domestic and international regulatory submissions;
our expectations of the reliability, accuracy and performance of our products and services, as well as expectations of the benefits to patients, clinicians and providers of our products and services;
our ability to manufacture a regulatory cleared product at a low cost;
impact from future regulatory, judicial, and legislative changes or developments in the United States and foreign countries;
our ability to re-establish and deploy our commercial capabilities and acquire customers;
our expectations regarding our sales models;
the costs and success of our research and development efforts, including the potential effects of inflation;
our ability to increase demand for our products and services, obtain and maintain favorable coverage and reimbursement determinations from third-party payors and expand geographically;
the performance of our third-party suppliers and manufacturers;
our ability to compete effectively with existing competitors and new market entrants;
the impact on our business of economic or political events or trends;
the size and growth potential of the markets for our products and services, and our ability to serve those markets; and
the rate and degree of market acceptance of our products and services.

In some cases, you can identify these statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms, and similar expressions that convey uncertainty of future events or outcomes. These forward-looking statements reflect our management’s beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this Quarterly Report and are subject to risks and uncertainties. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to

1


 

predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking statements. You should carefully read this Quarterly Report and the documents that we reference in this Quarterly Report and have filed as exhibits to this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this Quarterly Report by these cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, whether as a result of new information, future events or otherwise.

2


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Talis Biomedical Corporation

Condensed Balance Sheets

(in thousands, except for shares and par value)

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

87,996

 

 

$

130,191

 

Accounts receivable, net

 

 

5

 

 

 

308

 

Prepaid expenses and other current assets

 

 

1,531

 

 

 

2,783

 

Total current assets

 

 

89,532

 

 

 

133,282

 

Property and equipment, net

 

 

3,332

 

 

 

3,312

 

Operating lease right-of-use-assets

 

 

12,822

 

 

 

30,920

 

Other long-term assets

 

 

1,542

 

 

 

1,776

 

Total assets

 

$

107,228

 

 

$

169,290

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

2,697

 

 

$

3,768

 

Accrued compensation

 

 

2,255

 

 

 

4,212

 

Accrued liabilities

 

 

637

 

 

 

989

 

Operating lease liabilities, current portion

 

 

2,861

 

 

 

3,703

 

Total current liabilities

 

 

8,450

 

 

 

12,672

 

Operating lease liabilities, long-term portion

 

 

17,222

 

 

 

29,879

 

Total liabilities

 

$

25,672

 

 

$

42,551

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Series 1 convertible preferred stock, $0.0001 par value—60,000,000 shares authorized as of September 30, 2023 and December 31, 2022; 29,863,674 shares issued and outstanding as of September 30, 2023 and December 31, 2022; aggregate liquidation preference of $3 as of September 30, 2023 and December 31, 2022

 

 

3

 

 

 

3

 

Common Stock, $0.0001 par value; 200,000,000 shares authorized as of
September 30, 2023 and December 31, 2022;
1,819,136 and 1,811,396 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

 

 

 

 

 

 

Additional paid-in capital

 

 

608,054

 

 

 

604,690

 

Accumulated deficit

 

 

(526,501

)

 

 

(477,954

)

Total stockholders’ equity

 

 

81,556

 

 

 

126,739

 

Total liabilities and stockholders’ equity

 

$

107,228

 

 

$

169,290

 

 

See accompanying notes to the unaudited condensed financial statements

3


 

Talis Biomedical Corporation

Condensed Statements of Operations and Comprehensive Loss (Unaudited)

(in thousands, except for share and per share amounts)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Grant revenue

 

$

64

 

 

$

66

 

 

$

1,678

 

 

$

1,010

 

Product revenue, net

 

 

76

 

 

 

730

 

 

 

261

 

 

 

3,545

 

Total revenue, net

 

 

140

 

 

 

796

 

 

 

1,939

 

 

 

4,555

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of products sold

 

 

6

 

 

 

1,236

 

 

 

33

 

 

 

6,059

 

Research and development

 

 

8,302

 

 

 

17,521

 

 

 

32,653

 

 

 

55,589

 

Selling, general and administrative

 

 

8,803

 

 

 

8,825

 

 

 

21,612

 

 

 

29,933

 

Total operating expenses

 

 

17,111

 

 

 

27,582

 

 

 

54,298

 

 

 

91,581

 

Loss from operations

 

 

(16,971

)

 

 

(26,786

)

 

 

(52,359

)

 

 

(87,026

)

Other income, net

 

 

1,289

 

 

 

765

 

 

 

3,812

 

 

 

943

 

Net loss and comprehensive loss

 

$

(15,682

)

 

$

(26,021

)

 

$

(48,547

)

 

$

(86,083

)

Net loss per share, basic and diluted

 

$

(8.62

)

 

$

(14.44

)

 

$

(26.73

)

 

$

(47.91

)

Weighted average shares used in the calculation of net loss per share, basic and diluted

 

 

1,819,066

 

 

 

1,801,391

 

 

 

1,816,294

 

 

 

1,796,800

 

 

See accompanying notes to the unaudited condensed financial statements

4


 

Talis Biomedical Corporation

Condensed Statements of Convertible Preferred Stock and Stockholders’ Equity (Unaudited)

(in thousands, except for share amounts)

 

 

 

Series 1 Convertible
Preferred Stock

 

 

Common Stock

Additional
Paid-in

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Value

 

 

Shares

 

 

Value

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2022

 

 

29,863,674

 

 

$

3

 

 

 

1,811,396

 

 

$

 

 

$

604,690

 

 

$

(477,954

)

 

$

126,739

 

Issuance of common stock pursuant to equity incentive plan

 

 

 

 

 

 

 

 

233

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock pursuant to employee stock purchase plan

 

 

 

 

 

 

 

 

4,560

 

 

 

 

 

 

33

 

 

 

 

 

 

33

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,183

 

 

 

 

 

 

1,183

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,831

)

 

 

(17,831

)

Balance at March 31, 2023

 

 

29,863,674

 

 

$

3

 

 

 

1,816,189

 

 

$

-

 

 

$

605,906

 

 

$

(495,785

)

 

$

110,124

 

Issuance of common stock pursuant to equity incentive plan

 

 

 

 

 

 

 

 

2,840

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,076

 

 

 

 

 

 

1,076

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,034

)

 

 

(15,034

)

Balance at June 30, 2023

 

 

29,863,674

 

 

$

3

 

 

 

1,819,029

 

 

$

-

 

 

$

606,982

 

 

$

(510,819

)

 

$

96,166

 

Issuance of common stock pursuant to equity incentive plan

 

 

 

 

 

 

 

 

107

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,072

 

 

 

 

 

 

1,072

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,682

)

 

 

(15,682

)

Balance at September 30, 2023

 

 

29,863,674

 

 

$

3

 

 

 

1,819,136

 

 

$

-

 

 

$

608,054

 

 

$

(526,501

)

 

$

81,556

 

 

 

 

Series 1 Convertible
Preferred Stock

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Value

 

 

Shares

 

 

Value

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2021

 

 

29,863,674

 

 

$

3

 

 

 

1,785,476

 

 

$

 

 

$

598,916

 

 

$

(364,942

)

 

$

233,977

 

Issuance of common stock pursuant to equity incentive plan

 

 

 

 

 

 

 

 

4,388

 

 

 

 

 

 

98

 

 

 

 

 

 

98

 

Issuance of common stock pursuant to employee stock purchase plan

 

 

 

 

 

 

 

 

9,695

 

 

 

 

 

 

216

 

 

 

 

 

 

216

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,545

 

 

 

 

 

 

1,545

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(33,051

)

 

 

(33,051

)

Balance at March 31, 2022

 

 

29,863,674

 

 

$

3

 

 

$

1,799,559

 

 

$

 

 

$

600,775

 

 

$

(397,993

)

 

$

202,785

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,245

 

 

 

 

 

 

1,245

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(27,011

)

 

 

(27,011

)

Balance at June 30, 2022

 

 

29,863,674

 

 

$

3

 

 

$

1,799,559

 

 

$

 

 

$

602,020

 

 

$

(425,004

)

 

$

177,019

 

Issuance of common stock pursuant to employee stock purchase plan

 

 

 

 

 

 

 

 

8,026

 

 

 

 

 

 

92

 

 

 

 

 

 

92

 

Issuance of common stock pursuant to equity incentive plan

 

 

 

 

 

 

 

 

2,869

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,296

 

 

 

 

 

 

1,296

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,021

)

 

 

(26,021

)

Balance at September 30, 2022

 

 

29,863,674

 

 

$

3

 

 

$

1,810,454

 

 

$

 

 

$

603,408

 

 

$

(451,025

)

 

$

152,386

 

See accompanying notes to the unaudited condensed financial statements

5


 

Talis Biomedical Corporation

Condensed Statements of Cash Flows (Unaudited)

(in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

Operating activities

 

 

 

 

 

 

Net loss

 

$

(48,547

)

 

$

(86,083

)

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

 

 

 

 

 

 

Stock-based compensation

 

 

3,331

 

 

 

4,086

 

Depreciation and amortization

 

 

559

 

 

 

5,268

 

Non-cash lease expense

 

 

3,901

 

 

 

1,953

 

Impairment of long-lived assets

 

 

2,766

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

304

 

 

 

(250

)

Inventory

 

 

 

 

 

(2,027

)

Prepaid expenses and other current assets

 

 

1,251

 

 

 

(747

)

Other long-term assets

 

 

 

 

 

980

 

Accounts payable

 

 

(1,071

)

 

 

(1,009

)

Accrued expenses and other liabilities

 

 

(2,309

)

 

 

(8,525

)

Lease liabilities

 

 

(2,068

)

 

 

(239

)

Net cash used in operating activities

 

$

(41,883

)

 

$

(86,593

)

Investing activities

 

 

 

 

 

 

Purchase of property and equipment

 

 

(579

)

 

 

(1,566

)

Net cash used in investing activities

 

$

(579

)

 

$

(1,566

)

Financing activities

 

 

 

 

 

 

Proceeds from stock option exercises

 

 

 

 

 

98

 

Proceeds from stock issuances pursuant to employee stock purchase plan

 

 

33

 

 

 

308

 

Net cash provided by financing activities

 

$

33

 

 

$

406

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(42,429

)

 

 

(87,753

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

131,967

 

 

 

233,312

 

Cash, cash equivalents and restricted cash at end of period

 

$

89,538

 

 

$

145,559

 

Supplemental disclosure of noncash investing and financing activities

 

 

 

 

 

 

Right-of-use asset obtained in exchange for lease liability

 

$

7,265

 

 

$

19,245

 

Remeasurement of operating lease right-of-use asset for lease modification

 

$

(18,696

)

 

$

 

 

The following table provides a reconciliation of the cash, cash equivalents and restricted cash balances as of each of the periods shown above:

Nine Months Ended September 30,

 

2023

 

 

2022

 

Cash and cash equivalents

$

87,996

 

 

$

143,783

 

Restricted cash – other long-term assets

 

 

1,542

 

 

 

1,776

 

Total cash, cash equivalents and restricted cash

$

89,538

 

 

$

145,559

 

See accompanying notes to the unaudited condensed financial statements

6


 

Talis Biomedical Corporation

Notes to Condensed Financial Statements (Unaudited)

1. Organization and nature of business

 

Talis Biomedical Corporation (the Company) is a molecular diagnostic company focused on advancing health equity and outcomes through the delivery of accurate infectious disease testing in the moment of need, at the point of care. The Company plans to develop and commercialize innovative products on its sample-to-answer Talis One system to enable accurate, low cost, and rapid molecular testing. The Company was incorporated in 2013 under the general laws of the State of Delaware and is based in Redwood City, California (CA) and Chicago, Illinois (IL).

Liquidity

The Company has incurred significant losses and negative cash flows since inception, including a net loss of $48.5 million for the nine months ended September 30, 2023.

Management expects to continue to incur additional losses in the foreseeable future while the Board of Directors considers strategic alternatives for the Company, including without limitation equity and debt financing alternatives, merger and acquisition transactions, divestiture of assets, licensing opportunities, joint ventures, collaborations or partnerships with other companies. The Company’s activities are subject to significant risks and uncertainties, including failing to secure a strategic alternative or additional funding to continue to develop the Company’s current technology and to achieve clinical approval of its products.

As of September 30, 2023, the Company had unrestricted cash and cash equivalents of $88.0 million and $1.5 million of restricted cash. The Company expects its existing unrestricted cash and cash equivalents will be sufficient to fund its operations through at least one year from the date these condensed financial statements are issued. The Company expects to finance its future operations with its existing unrestricted cash and cash equivalents and through one or more possible strategic alternatives. However, there is no guarantee that any of these strategic opportunities will be executed or realized on favorable terms, if at all, and some could be dilutive to existing stockholders.

In March 2022 and August 2022, the Company implemented two separate reductions in force (RIF) designed to reduce its operating expenses, preserve cash and align our remaining resources to focus on, among other things, developing women's health and sexual transmitted infection (STI) tests on the Talis One system and internal manufacturing expertise to support our strategic plans. During the year ended December 31, 2022, the Company incurred $1.0 million of expenses related to the March 2022 RIF and $1.5 million of expenses related to the August 2022 RIF.

In November 2023, due to unforeseen operational challenges, setbacks in product development timelines and volatile market conditions, the Company decided to close its Redwood City, CA laboratory and office facility and consolidate operations to its Chicago facility and to seek strategic alternatives. In order to further reduce costs and extend its remaining cash, the Company announced a reduction in force of approximately 90% of its work force on November 14, 2023 ("November 2023 RIF"). As part of these actions, the Company provided notices to the impacted employees under the Worker Adjustment and Retraining Act ("WARN Act") for job eliminations to occur through March 2024. The Company expects to incur approximately $5.0 million to $6.0 million of expenses related to the November 2023 RIF, substantially all of which will consist of one-time charges related to the staff reduction, including cash expenditures and other costs.

Reverse Stock Split

On June 30, 2023, the Company filed a certificate of amendment to the Company’s Amended and Restated Certificate of Incorporation (the “Certificate of Amendment”) with the Secretary of State of Delaware to effect a 1-for-15 reverse stock split of the shares of the Company’s common stock, par value $0.0001 per share, effective as of 5:00 p.m., Eastern Time, on July 5, 2023 (the “Reverse Stock Split”). On this date, every 15 issued and outstanding shares of common stock were converted into one share of common stock, with any fractional shares resulting from the Reverse Stock Split rounded up to the nearest whole share. The number of outstanding shares of common stock was reduced from approximately 26.9 million shares to approximately 1.8 million shares.

The Reverse Stock Split did not change the Company's authorized shares of common stock and Series 1 convertible preferred stock, which remained at 200,000,000 and 60,000,000 shares, respectively. The Reverse Stock Split did not change the par value of the common stock and, therefore, the Company reclassified an amount equal to the reduction in the number of shares of common stock at par value to additional paid-in capital. Proportionate adjustments were made to the per share exercise price and/or the number of shares issuable upon the exercise of stock options and the settlement of restricted stock units and the number of shares authorized and reserved for issuance pursuant to the Company’s equity incentive plans, see Note 7. Additionally, the Reverse Stock Split had no impact on the number of shares of the Company's Series 1 convertible preferred stock issued and outstanding. However, the

7


 

conversion ratio of the outstanding Series 1 convertible preferred stock increased and the number of shares of common stock issuable upon conversion of such preferred stock decreased in proportion to the 1-for-15 split ratio, see Note 6.

All share and per share amounts for common stock in these condensed financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to the Reverse Stock Split.

2. Summary of significant accounting policies

Basis of presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial reporting. Accordingly, these unaudited condensed financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited condensed financial statements include all adjustments necessary to fairly state the financial position and the results of our operations and cash flows for interim periods in accordance with GAAP. All such adjustments are of a normal, recurring nature. The results for any interim period are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 or for any future period.

The condensed balance sheet presented as of December 31, 2022 has been derived from the audited financial statements as of that date. The condensed financial statements and notes as presented do not contain all information that is included in the annual financial statements and notes thereto of the Company. The condensed financial statements and notes included in this Quarterly Report should be read in conjunction with the financial statements and notes included in the Company’s 2022 Annual Report on Form 10-K (Annual Report) filed with the SEC.

The significant accounting policies used in preparation of these condensed financial statements as of and for the three and nine months ended September 30, 2023 are consistent with those described in our Annual Report.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company bases its estimates and judgments on historical experience and on various other assumptions, including knowledge about current events and expectations about actions the Company may take in the future, that the Company believes are reasonable under the circumstances. Actual results could vary from the amounts derived from management’s estimates and assumptions.

Concentration of credit risk and other risks and uncertainties

Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, and accounts receivables. The Company’s cash is deposited in accounts at large financial institutions and its cash equivalents are primarily held in prime and U.S. government money market funds. The Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the cash and cash equivalents are held.

The Company is subject to risks common to companies in the diagnostics industry including, but not limited to, uncertainties related to commercialization of products, regulatory approvals, and protection of intellectual property rights.

Global economic conditions remain volatile resulting from the continuing and evolving effects of the COVID-19 pandemic, inflationary pressures, rising interest rates, the ongoing military conflict between Russia and Ukraine and related sanctions imposed against Russia and otherwise. The Company continues to evaluate the potential impact of these global issues on our current and future business operations, including our expenses, clinical trials and addressable markets as well as on our industry and healthcare system.

The Company is dependent on key suppliers for certain manufacturing and research and development activities. An interruption in the supply of these materials could temporarily impact the Company’s ability to commercialize, manufacture inventory and perform research and development, testing and clinical trials related to its products. The Company is also dependent on its manufacturing partners that are critical to the Company's ability to supply product to its end customers.

Grant revenue and receivables

Grants awarded to the Company for research and development by government entities are outside the scope of ASC 606. This is because the granting entities are not considered to be customers and are not receiving reciprocal value for their grant support provided to the Company. These grants provide the Company with payments for certain types of expenditures in return for research and development activities or for meeting certain development milestones over a contractually defined period. For efforts performed under these grant agreements, the Company’s policy is to recognize revenue when it is reasonably assured that the grant funding will be

8


 

received as evidenced through the existence of a grant arrangement, amounts eligible for reimbursement are determinable and have been incurred and paid, the applicable conditions under the grant arrangements have been met, and collectability of amounts due is reasonably assured. Costs of grant revenue are recorded as a component of research and development expenses in the Company’s condensed statements of operations and comprehensive loss.

Grant funds received from third parties are recorded as revenue if the Company is deemed to be the principal participant in the arrangement. If the Company is not the principal participant, the funds from grants are recorded as a reduction to research and development expense. Reimbursable costs paid prior to being billed are recorded as unbilled grant receivables. Funds received in advance are recorded as deferred grant revenue. Management has determined that the Company is the principal participant under the Company’s grant agreements, and accordingly, the Company records amounts earned under these arrangements as grant revenue.

Impairment of long-lived assets

A long-lived asset may be impaired when the undiscounted cash flows expected to be generated by the asset (or asset group) are less than the asset’s carrying amount. Any required impairment loss would be measured as the amount by which the asset or asset group's carrying value exceeds its fair value, and would be recorded as a reduction in the carrying value of the related asset to its fair value and a charge to operating expense. The Company reviews the carrying amount of its long-lived assets, including property and equipment and operating lease right-of-use assets, for impairment whenever events indicate that the carrying amount of the assets may not be fully recoverable.

As the Company’s market capitalization is below the carrying value of equity, the Company regularly assesses if its long-lived assets are impaired by comparing the estimated fair value of the long-lived assets to their respective carrying amounts. A $2.8 million impairment of long-lived assets charge was recorded within selling, general and administrative expenses on the condensed statement of operations and comprehensive loss for the three months ended September 30, 2023. The impairment of long-lived asset charge relates solely to the operating lease right-of-use assets and reduces the carrying value of the associated right-of-use assets to the estimated fair values. The fair values are estimated using a discounted cash flows approach on forecasted future cash flows derived from current market data including discount rate, rent and rent escalation rates, downtime and abatement assumptions. The fair value of our right-of-use assets may change as a result of a change in any of these inputs. There was no impairment recorded for the three and nine months ended September 30, 2022 .

New accounting pronouncements

Recently issued accounting pronouncements

There are no accounting pronouncements pending at September 30, 2023 that we expect to have a material impact on our financial statements and disclosures.

Recently adopted accounting standards

We did not adopt any new accounting standards during the nine months ended September 30, 2023.

3. Fair value measurement

The following table summarizes the Company's financial assets carried at fair value and measured on a recurring basis by level within the fair value hierarchy (in thousands):

 

 

September 30, 2023

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents (money market funds)

 

$

81,706

 

 

$

 

 

$

 

 

$

81,706

 

Total assets measured at fair value

 

$

81,706

 

 

$

 

 

$

 

 

$

81,706

 

 

 

 

December 31, 2022

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents (money market funds)

 

$

127,404

 

 

$

 

 

$

 

 

$

127,404

 

Total assets measured at fair value

 

$

127,404

 

 

$

 

 

$

 

 

$

127,404

 

 

9


 

4. Revenue

Grant revenue and receivables

NIH grant

In May 2018, the Company was awarded a grant from the NIH for the Diagnostics via Rapid Enrichment, Identification, and Phenotypic Antibiotic Susceptibility Testing of Pathogens from Blood project. In April 2023, the Company exercised a one-year option under the grant, extending the term through April 2024. There is $0.5 million in additional funding available under the grant as of September 30, 2023, which the Company does not expect to fully utilize.

During each of the three months ended September 30, 2023 and 2022, the Company recognized $0.1 million of revenue related to this grant. During the nine months ended September 30, 2023 and 2022, the Company recognized $1.7 million and $0.3 million of revenue related to this grant, respectively.

NIH Rapid Acceleration of Diagnostics - RADx Initiative contracts

In July 2020, the Company was awarded a sub-award grant from the University of Massachusetts Medical School for Phase 1 of the NIH’s RADx initiative and a contract from the NIH directly for Phase 2 of the RADx initiative. The RADx initiative aims to speed the development, validation, and commercialization of innovative, rapid tests that can directly detect COVID-19. In 2021, the Company and the NIH amended the contract for the completion of the RADx initiative, extending the term of the contract to January 30, 2022 and decreased the potential milestone payment from $4.0 million to $2.0 million. The contract expired on January 30, 2022.

The Company recognized revenue of $0.7 million related to the RADx initiative during the nine months ended September 30, 2022.

5. Commitments and contingencies

Operating leases

In March 2023, the Company entered into a lease termination agreement with the landlord of its former Redwood City, CA facility. The original term of the lease commenced in June 2022 and was for an initial term of 10.5 years. As a result of this modification, the Company remeasured the lease liability and the corresponding right-of-use asset resulting in a reduction of each by $18.7 million. The Company incurred immaterial customary termination and broker fees during the nine months ended September 30, 2023. The lease of our Redwood City, CA facility was terminated on May 12, 2023.

In March 2023, the Company entered into a sublease for laboratory and office space in its current Redwood City, CA facility. The sublease will continue for a term of 7 years, with no option to extend. The minimum annual commitment under the new sublease is approximately $1.0 million with fixed escalations of 3.5% per annum. The sublease commenced for accounting purposes on May 1, 2023 and the Company recorded a lease liability and corresponding right-of-use asset and liability of $7.3 million.

During the three months ended September 30, 2023, the Company recorded a $2.8 million long-lived asset impairment charge related to its right-of-use assets. Refer to Note 2, "Long-lived asset impairment" for more information.

The undiscounted future lease payments for our Redwood City, CA and Chicago, IL operating leases as of September 30, 2023 were as follows (in thousands):

 

 

Operating
Leases

 

2023(remainder)

 

 

729